'United States
               Environmental Protection
               Agency
Office of the
Administrator
(A-101 F6)
EPA 100-R-93-002
February 1993
<&EPA       The Greening of World Trade
                      A Report to EPA from
            The Trade and Environment Committee of the
    National Advisory Council for Environmental Policy and Technology

-------
NATIONAL ADVISORY COUNCIL FOR ENVIRONMENTAL POLICY AND TECHNOLOGY
                    TRADE AND ENVIRONMENT COMMITTEE
     Chair, Mr. Samuel A. Schulhof
                                   Members
Vice Chair, Mr. Jonathan Plaut
     Dr. C. Michael Aho
     Mr. Henry G. Cisneros
     Mr. Douglas D. Danforth
     Dr. Sylvia Alice Earle
     Dr. Albert Fishlow
     Mr. Frank Friedman
     Mr. R. Michael Gadbaw
     Mr. Ira H. Goldman
     Mr. Joseph Greenwald
     Mr. Scott Hajost
     Mr. Stewart J. Hudson
     Mr. Kent Hughes
     Dr. William B.Kelly, Jr.
     Mr. Neil King
Mr. Jeffrey M. Lang
Ms. Sandra Ma.sur
Mrs. Jessica Tuchman Mathews
Mr. Scott M'cCallum
Mr. J. Michael McCloskey
Dr. Konrad von Moltke
Dr. Ambler Moss
Mr. Gardiner Patterson
Dr. Susan Kaufman Purcell
Dr.. Robert Repetto
Mr. Martyn J. Riddle
Mr. Alexander B. Trowbridge
Mr. William Cochrane Turner
Mr. Perry Wallace
                                 NACEPT STAFF
              OFFICE OF COOPERATIVE ENVIRONMENTAL MANAGEMENT

                            Executive Director, Abby Pirnie
                           Special Assistant, Gordon Schisler

                       Designated Federal Official, Jan C. McAlpine
                           Program Analyst, Patricia LeDonne
                               Secretary, Jannell Young
                          NNEMS Fellow, Charles Gnaedinger
                                    Recycled/Recyclable
                                    Printed on paper that contains
                                    at least 50% recycled fiber

-------
   The Greening of World Trade
                A Report to EPA from
        The Trade and Environment Committee of the
National Advisory Council for Environmental Policy and Technology

-------
                                           Editors
                                      Jan C. McAlpine
                                      Patricia LeDonne
                          Charles Gnaedinger, Editorial Assistant
                     Design, Production and Oversight under a Cooperative Agreement
                           with the Center for International Environmental Law
                             and in cooperation with Great Ocean Publishers
                           The Trade and Environment Committee of the
                National Advisory Council for Environmental Policy and Technology
                              U.S. Environmental Protection Agency
                                        Washington, DC
                          Printed by the U.S. Government Printing Office
                                              1993
                       Library of Congress Catalog Card Number: 93-83602
The Trade and Environment Committee of the National Advisory Council for Environmental Policy and Technol-
ogy is an independent advisory committee to the Administrator of the U.S. Environmental Protection Agency. The
findings and recommendations of the Council do not necessarily represent the views of the Environmental
Protection Agency.
                                 For sale by the U.S. Government Printing Office
                      Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328
                                      ISBN 0-16-041702-3

-------
                               Contents
Foreword
Chairman's Prologue
Trade and Environment Committee Executive Summary	
Trade and Environment Committee Recommendations
      Recommendations of The GATT Working Group _
      Recommendations of The OECD Working Group_
      Recommendations of The Western Hemisphere Working Group
Comments on the Recommendations	
Trade and Environment Committee Membership
Expert Witnesses	
Supporting Papers.
      Trade, Environment, and the Pursuit of Sustainable Development
            Stewart Hudson      •	  -        	• ••
      Frictions Between International Trade Agreements and Environmental Protections
            Durwood Zaelke, Robert Housman, and Gary Stanley	
_5
_9
.11
.17
.18
,19
.21
,23
_27
_30
 32
 44

-------
Note on Complementarities Between Trade and Environment Policies
       Robert Repetto	
 78
Reconciling Trade and Environment: The Next Steps
       Charles S. Pearson and Robert Repetto	
Changing GATT Rules
       John H. Jackson	
 83
105
Dispute Resolution and Transparency
       Konrad von Moltke [	
The Montreal Protocol Case
       Christopher A. Cummings and Matthew B. Arnold
112
136
The Danish Bottles Case: Commission of the European Communities v. Kingdom of Denmark
       John Clark and Matthew B. Arnold	161
Trade and the Environment: Press Clips
       J. Michael McCloskey	182
A Matchmaker's Challenge: Marrying International Law and American Environmental Law
       David A. Wirth	    204

-------
                                     Foreword
     In the relatively obscure world of international policy, one of the most hotly disputed issues discussed
in the course of 1991 and 1992 was how environmental policy objectives and trade policy objectives could
possibly co-exist.  No one could have anticipated the importance of this subject to the environmental
community, nor the significant news coverage of an issue considered to be the domain of 'Gattolbgists/ as
trade negotiators affectionately call one another.
     The Environmental Protection Agency, however, was prescient on this subject. In the fall of 1990, the
Administrator asked the National Advisory Council for Environmental Policy and Technology (NACEPT),
a Federal Advisory Council mandated under the Federal Advisory Committee Act (FACA), to take on and
consider the broad issue of trade and environment, and to provide recommendations on the subject to the
Agency.
     The Trade and Environment Committee.was formed and proceeded to assemble a committee of experts
comprised  of  NACEPT members, representatives from trade, environment,  business, industry and
academia. The individuals invited to participate included some of the most significant policy thinkers in both
.the trade and environment sectors. As FACA requires and encourages a diversity of views and sectorial
representation on  advisory committees, the membership on the Committee was necessarily limited by a
number of factors in order to ensure balance and focus to the discussion.  Beyond the committee membership,
however, active participation included "expert witnesses," leaders and specialists in both policy arenas, as
well as specialists from both the EPA, the U.S. Trade Representative's Office (USTR), and the Department of
Commerce.
     In our view, the most significant accomplishment of the NACEPT Trade and Environment Committee
was to provide a comprehensive discussion of the longer-term policy ramifications of the trade/environment
intersect, involving both government and the private sector. The discussion, given the level of expertise and
the variety of disciplines represented, was as significant as the recommendations that resulted. No other
forum existed within the U.S. Government that allowed for such an open debate around these issues, forcing
the participants with often competing viewpoints to find areas of consensus. The Committee's work occurred
during a critical point in a number of international events. While they resisted looking closely at on-going
trade discussions, loaded as they were with political tension, the urgency and relevance of the issues provided
the opportunity for, a broader, more long-term view of the issues. The work of the Committee also attracted
attention from OECD countries, the GATT Secretariat and the Organization of American States.
     While in some respects the recommendations may not be viewed, at first glance, as earth shaking or new,
both environment and trade policy experts have told us that the unique context and timing of this discussion
                                                                              FOREWORD  a  5

-------
and the significance of the participants represented a major step towards arriving at a new perspective and
establishing the need for a different paradigm.  It was extremely significant, and necessary, we have been
repeatedly told, that EPA have an advisory committee on trade policy as it affects environment. EPA, with
its environmental expertise, brings an entirely different perspective to the issue as compared to other
government agencies.  Finally, it was considered extraordinary that  a consensus was reached  by the
Committee, which included senior trade policy experts, that environmental protection should be an objective
of trade policy.
     Throughout the course of 1991-1992 the Committee's work was cited in "Inside EPA," "Inside Trade,"
and the "Journal of Commerce" and quoted in OECD and G ATT working papers. It also played a major role
in focusing the Office of Technology Assessment's (OTA) work on the subject. The Committee's existence
came to the attention of a number of U.S. Government officials, as well as staff at the OECD, the G ATT and
the World Bank. Typically, initial interest lay in why EPA would concern itself with trade policy questions.
However, the Committee clearly endorsed the agency's work in this area, pointing to the long-term
ramifications for U.S. environmental policy and competitiveness as a compelling need for continued EPA
involvement.
     The work of putting together an effective advisory committee for the Federal government, ensuring it
is balanced and fair, and accomplishes something new is not achieved  without major contributions from
many individuals. As the support staff for this initiative, we would like to especially thank a number of key
individuals for their leadership, advice and support throughout a very hectic year and a half.
     First  and foremost, the Chairman of the Trade and Environment Committee, Sam  Schulhof. Mr.
Schulhof has the gift of being a balanced arbitrator and facilitator, and a belief that his commitment to serve
includes donating a significant amount of dedicated time to the Committee. While contributing substantively
to the issue, he also allowed the many significant leaders and experts in this initiative to do their work without
unnecessary intervention from the Chair. We are most grateful to him and to his able Vice Chair, Jon Plaut,
for their contributions.
     Second in importance to the success of the project was our EPA client and leader, Dan Esty, then Deputy
Assistant Administrator for the Office of Policy, Planning and Evaluation and EP A's lead on trade issues. Dan
was a mentor, supporter, and leader in this initiative. Without his encouragement and unflinching support
the Committee would not have survived to complete its task.
     Our Staff Director and the Executive Director of NACEPT, Ms. Abby Pirnie, and her assistant Gordon
Schisler were both extremely supportive and helpful in targeting the Committee's work to the needs of the
Agency.
     Significant among those with whom we consulted and who contributed their thoughts, experience and
time to both the staff and Committee, and without whom this work would not be pertinent or significant are
Ambassador Michael B. Smith and  Ambassador  Sally Shelton-Colby.  We are most grateful for the
unassuming manner with which they contributed their time and expertise to this initiative. They are both
experts and influential leaders in the international policy arenas of trade, investment and finance.
     Members of the Trade and Environment Committee's Executive Committee who performed key roles
in managing the process and providing guidance to the staff were Michael Gadbaw, Ambassador Ambler
6  n THE GREENING OF WORLD TRADE

-------
Moss and Sandy Tro wbridge. We are most grateful for the time and substantive commitment made by these
outstanding leaders and members.
     We also thank the following individuals for their major support as well as their guidance: Professor John
Jackson, Durwood Zaelke, NACEPT member Robert Repetto, Norman Bailey, Wendell Fletcher, Richard
Johnson, Jacques de Miramon, Charles Pearson, Michel Potier, Gary Stanley, and Candice Stevens.
     Key among the U.S. government participants was Carmen Suro-Bredie, Assistant U.S. Trade Represen-
tative for Intellectual Property and the Environment, who contributed her valuable time during an extremely
busy year to meet on more than one occasion with the Committee.
     Other U.S. Government staff who made significant contributions to the Committee include: Dan
Magraw, Linda Fisher, Anya Schoolman, Paul Cough, David van Hoogstraten, Pep Fuller, Peter Lallas,
Barbara Bassuener, Doug Turner, Jim Murphy, Prudence Fox, Skip Jones and David Strother.
     Finally, we wish to thank Hal Kane, Carl Gardiner, Jim Upton, Charles Gnaedinger, Tom Kearney and
Jannell Young who contributed on staff to this initiative over a two-year period.


                                                    Respectfully submitted,

                                                    Jan C. McAlpine
                                                    Designated Federal Official

                                                    PatLeDonne
                                                    Staff
                                                                              FOREWORD a  7

-------
8 n THE GREENING OF WORLD TRADE

-------
                       Chairman's Prologue
    The growing connection between trade and environment has taken center stage over the past year with
the negotiation of the North American Free Trade Agreement. The result of fourteen months of negotiations
the NAFTA has been cited as "the most environmentally-sensitive trade agreement ever negotiated
anywhere."
    While the NAFTA debate captured much of the spotlight, there has been a growing awareness in
international policy circles of the ever-increasing link between trade and environment.  A prominent
politician recently expressed the commendable thought that "trade and environment can no longer be
separated into neat boxes." I quarrel only with the words: "no longer." The following report is one piece of
evidence that thoughtful people had already begun to give long and serious consideration to the trade/
environment connection before the recent NAFTA headlines appeared.
    The Trade and Environment Committee of the National Advisory Council on Environmental Policy and
Technology, which  prepared this report, was created in November 1990, at the request of the EPA
Administrator. It brings together representatives from the environmental, industrial, public policy, and
international affairs  communities to share their insights and generate guidance for EPA policy-making in
areas of trade/environment overlap.
    Perhaps the most encouraging aspect of the initial deliberations of the Committee and its three Working
Groups is a general optimism about the opportunities for positive synergy between trade and environment.
Trade can be a means of helping the world face up to environmental problems, many of which are already
global in nature. Facing environmental issues, in turn, can create new opportunities for trade, as well as
insuring that trade becomes  a means of strengthening rather than evading environmental responsibilities.
However, the fact that these opportunities exist is no guarantee that they will be realized. Efforts to find
common ground, understand the background of potentially disputed points, and encourage public partici-
pation and involvement are prerequisites.
    The Trade and Environment Committee's report, and the Phase I recommendations it includes, are a first
step. We present them not as answers, but as contributions to an ongoing dialogue.


                                                   Samuel A. Schulhof
                                                   Chairman
                                                   Trade and Environment Committee
                                                      THE GREENING OF WORLD TRADE  a  9

-------
10  a THE GREENING OF WORLD TRADE

-------
         Trade and Environment Committee
                       Executive Summary
                                      PREFACE

    In August 1991 the General Agreement on Tariffs and Trade (GATT) dispute resolution panel ruled on
the United States MarineMammal Protection Act (the Tuna/Dolphin dispute). The GATT panel decreed that
the U.S. had violated international trade laws because it had tried to ban the importation of tuna from
countries (Mexico and Venezuela) which permitted larger dolphin kill rates during commercial fishing
operations than allowed by the U.S. Marine Mammal Protection Act.  The panel ruled that a country could
not use trade embargoes to impose its environment laws extraterritorially.
    One year later, in the Summer of 1992, the U.S., Mexico and Canada completed negotiations on The
North American Free Trade Agreement (NAFTA). The drafting of the NAFTA engendered intense public
debate over the ramifications of negotiating international trade agreements without integrating proper
environmental safeguards.
    While slow to gain significant public attention, once showcased, both events created major headlines
and heated debate around the world. The two cases illustrate the overlapping of two policy areas once
perceived as wholly separate cultures: Trade and Environment. The NAFTA negotiations process demon-
strated that trade and the environment are inextricably linked by the need to ensure the achievement of
economic development, and the lowering of trade barriers, without harming the environment.  The Tuna/
Dolphin dispute, while illustrating the same point, also placed the spotlight on sovereign rights, and the
tension around the need to meet positive trade objectives and craft more environmentally sensitive bilateral
and multilateral agreements.


      ESTABLISHMENT OF THE TRADE AND ENVIRONMENT COMMITTEE

    However, before the occurrence of these two pivotal events, the Environmental Protection Agency
(EPA) anticipated the potential conflicts between trade and environment. EPA recognized the need to
reconcile trade and environmental objectives when carrying out its mandated tasks. In November 1990, the
EPA Administrator requested that the National Advisory Council on Environmental Policy and Technology
(NACEPT) address the intersection of trade and environment policy. In response, the Council reconstituted


                                  TRADE AND ENVIRONMENT COMMITTEE EXECUTIVE SUMMARY D n

-------
 its International Environment Committee as the Trade and Environment Committee. The Committee's
 mandate was to provide guidance to EPA in formulating the agency's policy on trade and environment, as
 well as in EPA's participation in the development of U.S. Government policy on trade and environment, as
 a member of the Executive Branch.
     Recognizing the wide range of interests and disciplines inherent in the trade and environment dialogue,
 the Committee made a deliberate effort to ensure that its membership include representatives of the trade,
 industrial, environmental, public policy and international affairs communities. The Committee was then
 divided into three working groups which reflected the key focal areas of EPA's participation in the trade and
 environment dialogue: the General Agreement on Tariffs and Trade (GATT); the Industrialized Countries
 for Economic Cooperation and Development (OECD); and the Western Hemisphere.
     The diversity and expertise of its members and the issues charged to its review gave the Committee a
 unique status within the current U.S. Government dialogue on trade and environment. Over the next ten
 months, the Committee and its three working groups held a total of thirteen meetings. The Committee's initial
 effort was devoted to building a common ground of understanding among its members.
     Developing a common ground of understanding among the members was no simple task. International
 trade is conducted in the language of finance and enjoys a long history. U.S. trade policy is well developed
 and inherently international, while U.S. environmental policy is historically domestic and less developed.
 U.S. trade policy offers the vision that it is trade that fuels the global economy and that increased trade will
 result in a better world for all. There is currently no coherent, articulated U. S. international environmental
 policy. Committee members repeatedly referred to the "clash of cultures" between the trade and environ-
 ment fields.
     The knowledge of the Committee, coupled with the information provided to the members by a series
 of analytical papers and the testimony provided by 31 expert witnesses formed the framework that was
 essential  for the Committee to engage in substantive discussion and debate over the myriad issues involved
 in the trade and environment debate. From this a general consensus emerged: the world can achieve both
 expanded free trade and enhanced environmental protection.


            COMMITTEE DISCUSSION ON TRADE AND ENVIRONMENT

     With the expansion of global markets, nations are more interdependent today than ever before. Since
 1950, trade in manufactured goods has increased twenty-fold while  world output has only increased eight-
 fold. The ability of industry to compete successfully in global markets plays a critical role in determining the
 overall competitiveness of nations and companies, whether they manufacture computers or sell soft drinks.
 By the end of the  decade, overseas sales will represent 90% of Coca-Cola's earnings.  From the U.S.
 perspective, the conduct of trade and trade policies will have a significant impact on its economic future as
 we prepare to enter the second millennium.
     Similarly, over the past twenty years, it has become clear that nations are interdependent environmen-
 tally. Environmental threats, that were once viewed as localized, like air pollution, have now materialized
into global perils like ozone depletion and global warming. The manner in which these threats are addressed
12  a THE GREENING OF WORLD TRADE

-------
will have a decisive effect on long-term global environmental and economic security.  Recognizing the
significance of these threats to the environment, the United States and other nations are taking steps,
unilaterally and multilaterally, to encourage and require more prudent stewardship of the environment.
    The increasing overlap of trade and environment issues has sometimes resulted in conflict.  Trade
proponents, for example, have charged that laws such as the Danish bottling law, which requires that all beer
and soft drink bottles sold in Denmark be recycled, are protectionist. Environmentalists, on the other hand,
have questioned the potential environmental damage which they believe will result from the North American
Free Trade Agreement. Many of their concerns are based on problems originating from the Canadian Free
Trade Agreement (CFTA). As the circles of both free trade and environmental policy continue to expand, new
areas of potential friction are increasingly being revealed. What are the protectionist implications of labelling
laws?  Do trade rules, for example, prohibit the use of trade measures in international environmental
agreements to protect African elephants or whales?
    While much of the attention on the intersection of trade and environment has focused on potential areas
of conflict, the Gommittee began to recognize that these two policy spheres are not necessarily conflicting. If
properly crafted, trade and environment policies can be mutually reinforcing. For example, the protectionist
aspects of certain agricultural policies not only prohibit free trade but also cause environmental degradation.
Moreover, in many areas where trade and environment policies appear to be in  conflict such apparent
conflicts can be attributed to the failure of existing market interventions to internalize complete environmen-
tal costs. It is increasingly apparent that the reconciliation of trade and the  environment will be largely
dependent upon the ability to  move the existing trade and environment dialogue of opposition, to one of
mutual reinforcement.
    Promoting policies that reconcile trade and environment issues is made more complex in the U.S. by the
current institutional framework for developing trade and environment policy. Traditionally, trade policy has
fallen firmly within the mandate of the United States Trade Representative's Office (USTR). International
environmental affairs has been consigned to the Department of State, and domestic environmental protection
has been largely delegated to EPA. The international nature of trade and environment policy-making refuses,
however, to respect these traditional regulatory boundaries.
    For example, the harmonization of environmental standards in trade disputes—the province of USTR—
brings into question the protection standards mandated by domestic environmental laws—the province of
EPA.  The establishment of domestic environmental standards that include trade provisions—the responsi-
bility of EPA—implicates the conduct of international trade policies—the responsibility of USTR. Further,
the establishment of international obligations by the Department of State can impact upon the mandates
imposed upon both the USTR and the EPA. As the agency with the most environmental expertise, the EPA
is increasingly being called upon to play a role in international trade negotiations to ensure that these
agreements do not adversely impact either domestic environmental protection obligations under U.S. laws,
or the obligations of the U.S. under international agreements. The multi-disciplinary character of trade and
environment has led, for example, to the significant participation of the EPA within the.U.S. interagency
participation in the OECD, the GATT and the NAFTA processes.
                                      TRADE AND ENVIRONMENT COMMITTEE EXECUTIVE SUMMARY a  13

-------
         OVERVIEW AND SUMMARY OF COMMITTEE RECOMMENDATIONS

      As a result of the Committee's work, a number of common issues emerged from the three working
  groups. Perhaps the most important common issue concerned the mechanism for reconciling trade and
  environment policy objectives. Although all three did so in their own way, the working groups arrived at an
  understanding that the system of international trade had to make some allowance for environmental goals.
  Despite this common understanding among the three working groups, there was some difference amongst
  them as to how this objective should be implemented.
      Both the OECD and Western Hemisphere Working Groups determined that, within their own areas of
  responsibility, the reconciliation of trade and environment could best be accomplished if the system of
  international trade recognized "sustainable development" as a goal. In relying upon sustainable develop-
  ment as a mechanism for reconciling trade and environmental goals the OECD and Western Hemisphere
  Working Groups drew from the efforts of the World Commission on Environment and Development.
      In 1987, the World Commission on Environment and Development issued its report entitled Our
  Common Future. The major premise of the report was the attempt to reconcile two global imperatives which
  until then had been considered conflicting:  economic development and environmental protection.  The
  Commission argued  that this could occur through "sustainable development."  It defined sustainable
  development as development in the manner that "meets the needs of the present without compromising the
  ability of future generations to meet their own needs." By contrast, however, the GATT Working Group felt
  that the term "sustainable development" was too vague, and chose instead to recommend that the U.S.
  Government should advocate that GATT "add to its major objectives  the consideration of environmental
  concerns."
  *                          f                 • , i"      ..        :          |               •   ,
      Public participation and transparency also proved to be common threads of discussion among the three
  working groups. Both the OECD and the Western Hemisphere Working Groups determined there was a need
  for greater transparency and public participation in trade decisionmaking. The OECD Working Group
  recommendations reflect that group's conclusion that "the U.S. Government should seek agreement among
  the OECD members to allow for greater transparency, public participation and access to information in the
  OECD's processes and procedures." Similarly, the Western Hemisphere Working Group provided that in
  order "to achieve sustainable development as a major objective, U.S. domestic and international policies
  should incorporate—transparency and public participation in environmental and trade processes."
      The GATT Working Group also discussed the value of transparency and public participation; however,
  its conclusions differ somewhat from the path taken by the other two working groups. The GATT Working
  Group recognized that the "US. Government should advocate a review of GATT procedures governing the
  dispute resolution process, with the objective of providing greater transparency..." and that "the U.S.
  Government should provide greater transparency and public participation for environmental interests in the
  development of U.S. trade policy...." The GATT Working Group decided not to recommend enhanced public
  participation and transparency at this time. It chose instead to recommend that the policies and procedures
  of the GATT should be reviewed with an eye towards enhancing public participation and transparency.
14 n  THE GREENING OF WORLD TRADE

-------
             COMMITTEE AGREES ON A SIGNIFICANT ROLE FOR EPA

    Another area of common understanding developed around the role EPA should play in the trade and
environment dialogue. Given the responsibilities and expertise of the agency, and drawing from the role EPA
has played in the ongoing NAFTA, OECD and GATT trade and the environment processes, each of the three
working groups recognized a need for EPA to continue to play a role in the trade and environment dialogue,
at both the national and international levels. To this end all three working groups recommended that the EPA
should institutionalize trade and the environment within the agency.
    Each of the three working groups also dealt with a number of issues that were particular to its area of
expertise. For example, the GATT Working Group struggled with the complex interactions between the use
of trade measures, both unilaterally and in multilateral agreements, for environmental objectives and the
GATI's obligations. The group  recommended that efforts be undertaken "to reconcile the GATT and
multilateral environmental agreements, when they are in conflict." Additionally, the GATT Working Group
also recommended  that "criteria" be developed for "reconciling the objectives of both future multilateral
trade agreements and future multilateral environmental agreements."
    The OECD Working Group discussed at length the harmonization of environmental standards.  It
focused on both the benefits to international trade from the international harmonization of environmental
standards, and the dangers inherent in a downward harmonization of such standards. Another key issue
addressed by the working group included the role of science in both domestic and international standard-
setting processes/and the impact, both positive and negative, of domestic environmental standards and
regulations on U.S.  competitiveness.
     The OECD Working Group was unable to perform the Herculean task of recommending a singular
formula  by which  all environmental standards could be harmonized without  compromising existing
protections. The discussions did, however, result in a framework of issues to be looked at when identifying
appropriate environmental standards for harmonization and in carrying out such harmonization. It also
recommended the harmonization of "protocols for developing and evaluating scientific data and performing
risk assessments in standard setting processes."
     While recognizing that the term "competitiveness" is not precisely defined, the OECD Working Group
used the definition adopted by the Young Commission: "Competitiveness is the degree to which a nation can,
under free and fair market conditions, produce goods and services that meet the test of international markets
while simultaneously maintaining or expanding the real incomes of its citizens." In that context, the Working
Group recommended that criteria be developed for evaluating the impacts, both positive and negative, of
domestic environmental standards and requirements on U.S. competitiveness.
     The Working  Group discussed not only the measures for flexibility and incentives to encourage
efficiency and innovation generally in the market, but the need for the U.S. government to more aggressively
promote the environmental goods and services market internationally. Both the Western Hemisphere and
the GATT Working Groups had corollary discussions with respect to the competitiveness position of the U.S.,
knowing the OECD Working Group was focused on it.
     The Western  Hemisphere Working Group dealt principally with the interplay of regional trade
                                      TRADE AND ENVIRONMENT COMMITTEE EXECUTIVE SUMMARY  n  is

-------
 agreements, investment, and environmental protection, particularly those raised by the NAFTA. Although
 the group's focus was not limited to issues that had been raised in the NAFTA, these issues were obviously
 significant topics in both the group's discussions and its recommendations. The issues raised in the context
 of the NAFTA negotiations also provided a touchstone for the working group's discussions of other potential
 free trade agreements, such as the agreement with Chile currently under discussion.
     The Working Group concentrated on the need to evaluate the environmental impacts of future free trade
 agreements in  the hemisphere.  Members determined that  criteria  for evaluating such impacts were
 necessary. While time constraints prohibited the Working Group from developing a more inclusive list of
 such criteria, it was successful  in providing a general framework.  The Working  Group  agreed that
 environmental protection should be integrated into all future trade agreements.
     The Working Group also discussed at great length the interplay between the need  for increased North/
 South cooperation and a preference for incentives for environmentally sound actions, weighed against the
 need of nations to, under certain circumstances, resort, to "trade and other sanctions. .  .as necessary
 mechanisms for advancing environmental objectives." The recommendations of the Western Hemisphere
 Working Group reflect this difficult balance.


             THE FUTURE OF THE TRADE/ENVIRONMENT INTERSECT

     The one underlying theme that emerged from the Committee's deliberations was significant recognition
 that the two policy spheres of trade and environment are not necessarily conflictual. Thus, while the interplay
 of trade and environment may offer many complex challenges, these challenges are by no means insurmount-
 able.  Moreover, the degree of difficulty inherent in reconciling trade and environment policies offers the
 opportunity for a transition from degradative commerce to restorative commerce; and the inclusion of
 environmental  costs and benefits into the calculations that  determine comparative advantage in  the
 international division of labor. The Committee's recommendations reflect the understanding that trade and
 environment policies can and should be mutually reinforcing.
     Buildingupon these recommendations, the Committee looks forward to further providing assistance in
 the challenge of harmonizing the interplay of trade and environment policies in Phase II of its efforts,  Among
 the areas which the Committee and the three respective working groups have targeted for future efforts are:
 1) the development of specific criteria for harmonizing environmental standards; 2)  the development of
 specific criteria  for reconciling conflicting goals of specific trade and environment  agreements; 3) the
 consideration of the complex interaction of subsidies and standards within the GATT;  4) the evaluation of
 the role of investment in the trade and environment dynamic; 5) the linkages between debt reduction
 modalities, environmental protection, and trade flows; and 6) the development of a greater understanding
 of the interactions between environmental protection, trade and competitiveness.
16  n THE GREENING OF WORLD TRADE

-------
  TRADE AND ENVIRONMENT COMMITTEE
                                              •*•"< f JJ        if
                RECOMMENDATIONS
   The Trade and Environment Committee of the National Advisory Council on
Environmental Policy and Technology, and its working groups on the General
Agreements on Tariffs and Trade (GATT), the Organization for Economic Coopera-
tion and Development (OECD), and the Western Hemisphere (WH), are honored to
present the following Phase I recommendations on trade and the environment to the
EPA Administrator, These recommendations are intended solely as guidance to the
EPA Administrator in formulating the trade and environment policies of EPA,, and in
participating in the development of U.S. government policy oh trade and the environ-
ment as a member of the staff of the Executive Branch,
   TheCommitteebelievesthat these Phase Irecommendations, in conjunction with
the future efforts described above, are an important component of the management
and informational infrastructure necessary for the EPA to successfully address the
issue of trade and the environment in formulating the policies of EPA and its,
participation in the development of U,$. government policies on  trade and the
environment.                                   - ,  •   ^  -

-------
         RECOMMENDATIONS OF THE GATT WORKING GROUP
                                   I. Guiding Principles

     1.  The U.S. Government should urge GATT to add to its major objectives the consideration of
        environmental concerns.
                         II. GATT and Environmental Agreements

    2. The U.S. Government should undertake efforts to reconcile the GATT and multilateral environmental
       agreements, when they are in conflict.


                       III. Criteria for Reconciling Future Agreements

    3. The U. S. Government should develop criteria for insuring the compatibility of both future multilateral
       trade agreements and future multilateral environmental agreements.


                            IV.  Transparency and Participation

    4. The U. S. Government should advocate a review of GATT procedures governing the dispute resolution
       process, with the objective of providing greater transparency, particularly through the immediate
       publication of panel and working party reports;
    5. The U. S. Government should provide greater transparency and public participation for environmen-
       tal interests in the development of U.S. trade policy and trade negotiating positions that affect
       environmental considerations; and
    6. The U. S. Government should advocate that GATT dispute resolution panels strengthen existing
       mechanisms for using outside experts to help resolve technical and scientific questions relating to
       environmental issues.
                               V. Subsidies and Standards

    7. The Working Group agreed that priorities for the next phase of its work should include consideration
       of subsidies and standards with respect to their effect on environmental protection.
18 a  THE GREENING OF WORLD TRADE

-------
    RECOMMENDATIONS OF THE OECD WORKING GROUP


                               I. Guiding Principles

1. The U.S. Government should adopt "sustainable development" as a guiding principle of U.S. policy
   relating to the interrelationships among trade, international investment and environmental protec-
   tion. The Working Group understands the term "sustainable development" to have the meaning
   ascribed to it in Our Common Future, the report of The World Commission on Environment and
   Development:
       "Sustainable development is development  that meets the needs of the present  without
       compromising the ability of future generations to meet their own needs."
2.  Agreement should be sought with OECD members to incorporate the principle of "Sustainable
   Development" in OECD Guidelines.


                                II.  Competitiveness

3.  Criteria should be developed for evaluating the impacts, both positive and negative, of domestic
   environmental standards and requirements on U.S. competitiveness.
   4. Whenever possible, the U.S. government should adopt environmental protection measures
     (including market-based mechanisms) that advance the competitiveness of U.S. businesses by
                  allowing flexibility and encouraging efficiency and innovation.
5.  The U.S. Government should take greater note of the large and growing market for environmental
   goods, and services and should take steps to facilitate the participation of the U.S. environmental
   goods and services industry in international markets. Continued and enhanced support for the U.S.
   Environmental Training Institute, and expansion of AID's Asian  Environmental Partnership
   Program to other geographic regions, would be suitable ways to implement this recommendation.
   Additionally, EPA should search for ways of showing support for U.S.- based companies when they
   are bidding on projects abroad.


                          III. Harmonization of Standards

6. Recognizing that the international harmonization of standards can reduce barriers to trade and lower
   the cost of producing and distributing products, the U.S. Government should identify appropriate
   areas for the international harmonization of standards. Where harmonization is not practicable the
   U.'S. Government should seek to achieve comity or mutual recognition of standards with a view to
   reducing unnecessary obstacles to trade while preserving or enhancing existing levels of environ-
   mental protection. This effort should address the harmonization of:
                                  TRADE AND ENVIRONMENT'COMMITTEE RECOMMENDATIONS o  19

-------
            •  substantive standards;
            •  testing protocols;
            •  risk assessment techniques;
            •  certification and conformity assessment procedures; and,
            •  procedural standards that provide for public access to information and participation in the
             standard setting process at national and international level.


                                          IV. Science

     7. Recognizing that science plays an important role in the establishment of levels of environmental
        protection both nationally and internationally, the U.S. Government should seek to achieve interna-
        tional agreement on accepted protocols for developing and evaluating scientific data and performing
        risk assessments in standard setting processes.


                                    V. Institutional Issues

     8. EPA should urge that the U.S. delegation to the OECD Ministerial meeting propose strong language
        in its communique, instructing the Joint Experts Group on Trade and Environment to speed up the
        negotiating process in order to develop substantive proposals for the revision of the Guidelines by
        the 1993 Ministerial, at the latest. If progress can be made earlier, a meeting of trade and environment
        ministers should be convened to review the report.
     9. In order to satisfy the legitimate request of the private sector and other NGOs for more involvement
        in the policy-making process, consideration should be given at the May 1993 OECD Ministerial to the
        establishment of an  Environmental Advisory Committee similar to the existing Business  and
        Industry Advisory Committee and the Trade Union Advisory Committee.
     10. In all multilateral and bilateral trade and environmental negotiating fora, there should be close
        collaboration between officials having environmental and trade responsibilities.
     11. The U.S. Government should seek agreement among the OECD members to allow for greater
        transparency, public participation and access to information in the OECD's processes and proce-
        dures.
                                      VI. Future Efforts

    12. The Working Group intends to continue its study of the areas discussed above. In particular, it
       intends to address more difficult issues such as the role of environmental subsidies and the question
       of whenitmaybeappropriate to take unilateral trade-related actions inorder to achieve environmen-
       tal objectives.
20  a THE GREENING OF WORLD TRADE

-------
RECOMMENDATIONS OF THE WESTERN HEMISPHERE WORKING GROUP


                               I. Sustainable Development

   1. The U.S. Government should adopt sustainable development as a guiding principle of U.S. policy
      relating to trade, international investment flows, and environment, and should support its incorpo-
      ration into all future trade and investment agreements.
   2. Agreement should be sought with other Western Hemisphere nations to recognize the principle of
      "Sustainable Development" as one of the major objectives of the international trading system.


                                      II. Free Trade

   3. Recognizing that additional free trade agreements between the U.S. and other Western Hemisphere
      countries are both likely and desirable, potential signatories should establish criteria for evaluating
      the environmental implications of all future free trade agreements. The U.S. should take a leading
      role in this process.
   4. Once  such criteria,have been fully developed, the potential signatories should commence, at the
      earliest possible time, a review of their environmental laws and capabilities, building on the process
      already under way pursuant to Resolution 1114, dated June 8,1991, of the General Assembly of the
      Organization of American States.
   5. The Working Group also recommends that environmental concerns should be integrated into future
      trade agreements.
   6. The Working Group recommends that environmental disputes arising out of trade agreements be
      subject to a separate, comprehensive dispute resolution process just as are other aspects of free trade
      agreements.


                          III. Increased North/South Cooperation

   7. The Working Group recommends that the U.S.Government adopt a policy favoring cooperative
      efforts rather than sanctions as the preferred approach to advance environmentally-sound actions by
      other countries.
   8. The Working Group encourages the U.S. Government to expand its existing programs that utilize debt
      reduction as an  incentive for environmental initiatives and to urge other creditor countries and
      international financial institutions to develop or expand such programs of their own.
   9. Recognizing the need for both strengthened intellectual property protections in developing countries,
      and for increased access for developing countries to environmentally-friendly technologies, the
      Working Group  recommends that the U.S. Government expand existing programs that increase
                                     TRADE AND ENVIRONMENT COMMITTEE RECOMMENDATIONS  n 21

-------
        developing countries' access to environmentally-friendly technologies, as well as the capability to
        assess technologies and cooperative development of technologies.
     10. To facilitate greater environmentally- friendly technology cooperation between the developed and
        developing countries of the Western Hemisphere, the Working Group recommends that the U.S.
        Government develop a partnership program for the developing countries of the Western Hemi-
        sphere, similar to the ones already underway for Central and Eastern Europe and Asia.
     11. Recognizing the importance of institutional  capabilities for environmental management and
        technology transfer, the Working Group recommends that  the U. S. Government substantially
        expand its support for cooperative education  and  training  activities involving U. S. and other
        Western Hemisphere countries.

                                       IV. Investment
     12.  Recognizing that investment plays an important role in both expanded free trade and in the
        environmental quality of the development that  takes place, the Working Group recommends that
        each country evaluate the the effect of investment on the environment.
     The evaluations should consider:
           •  Type of projects
           •  Impact of project types
           •  Demands for infrastructure
           •  Technologies employed
22  a THE GREENING OF WORLD TRADE

-------
       Comments on the Recommendations
                from Members  ofNACEPT
    The following comments provide an impressive range and depth of analysis and input concerning the complex
subject of international tradepolicyand its relationship to environmentalpolicy. NACEPT'members chose to comment
both on the nature of the topic and on specific issues they believed to be missing or incorrectly emphasized.
    The Trade and  Environment Committee welcomes the comments and provides them in. tandem with its
recommendations as an indication of their relevance and importance to the subject matter. In addition, Chairman Sam
Schulhof believes that the most effective way to address the comments, considering their breadth and depth, is for the
Committee to include them in their scope of study in future work.             .       ...           ,
    The following represent summaries and excerpts from the comments received from NACEPT members:
               The Need for Addressing the Trade/Environment Intersection

    "... there is a need for special cooperation in environmental management and trade worldwide in order
to protect basic resources. We further believe that a need exists to mediate conflicts which arise between trade
and environmental objectives."
    ". .. the world can achieve both expanded free trade and environmental protection, 'provided that
deliberate crafting of environmental safeguards is an integral part of trade policy'."


              The History of U.S. Trade Policy vs. U.S. Environmental Policy

    "... it is inappropriate to state that U.S. Environmental Policy is less developed. Environmental policy
in the United States is probably more developed than any other country in the world at this time, and is
considered a model for other countries. It is clearly being used as a model, for example, for Mexico."
                                                  COMMENTS ON THE RECOMMENDATIONS a 23

-------
                            Local vs. Global Environmental Issues

     "... in talking about environmental threats that were once viewed as localized, citing air pollution as a
 representative example is inappropriate. Air pollution by its nature has been perceived as a broad geographic
 area problem for many years. The movement of contaminated air masses on a global basis is a natural
 phenomenon that has been understood in concept for a great many years and modeled in some form 20 plus
 years ago."


                            Transparency and Public Participation

     "The recommendation of the three working groups to improve public participation and transparency
 in trade decision making is an important step towards the enhanced cooperation of all parties.  The
 importance of non-governmental organizations in these discussions cannot be overstated."


                              The U.S. EPA Training Institution

     "The Recommendation for 'continued and enhanced support' of the U.S. Environmental Training
 Institute (U.S. ETI) ignores the contribution of professional associations in favor of a private enterprise. There
 are professional and trade organizations uniquely equipped to facilitate the participation of the U.S.
 environmental goods  and services  industry in international  markets ....  Active support of  these
 organizations will enhance the efforts of the U.S. in promoting the greening of world trade, and ensure a
 strong U.S. presence."


                                  Harmonizing Standards

     "We firmly believe in the importance of harmonizing standards to reduce trade barriers and lower
 production and distribution costs— The International Union of Air Pollution Prevention and Environmen-
 tal Protection Associations (IUAPPA) Declaration  on Pollution Prevention . . . addresses the issue of
 harmonization of environmental standards ... (and was) used in Rio by some countries to support their
 national positions on this issue	"


                         OECD Environmental Advisory Committee

     "We support the establishment of an Environmental Advisory Committee for the OECD, similar to the
 existing Business and Industry Advisory Committee and the Trade Union Advisory Committee. Further,
 (we) would welcome the opportunity to serve as a member organization on such an OECD committee, and
 recommend  that other NGOs be likewise used as a  vehicle  for  reaching those in  the environmental
 profession."
24  a THE GREENING OF WORLD TRADE

-------
                          Western Hemisphere Institutional Issues

    "Rather than .create a new program for the developed and developing countries of the Western
Hemisphere, we recommend supporting the expansion and improvement of existing programs of profes-
sional and trade associations ... (it) makes the best use of limited assets by leveraging the resource of the
private sector."


                                Environmental Technologies

    ". . .  focus on environmentally sound or clean technologies, not just environmental products and
technologies, as a trade opportunity."
    "... I believe that we should be presenting the United States in the most positive way possible from the
perspective of international trade as it relates to environmental technology. It is not unreasonable to expect
that the country with the most developed environmental policy, laws, rules, and regulations would also be
the country that has the most developed technology. Now that technology can have application in other
countries."


                                      Competitiveness

    "In reviewing the specific recommendations, I am unclear about whether the working group is making
a recommendation concerning the potential impact of environmental considerations on U.S. export capabil-
ity. The environmental concerns come through clearly. I do not believe that is also true of the export
concerns."
    "This [OECD Working Group, II. Competitiveness, No. 4] is the first comment in which we mention the
impact of present U.S. environmental regulations on flexibility and efficiency, and particularly the ability of
the U.S. to develop new, marketable, and innovative solutions to environmental problems within the U.S. for
export as opposed to developing them overseas for import.  I believe this is a very important issue that is
significantly interleaved with and influenced by the overall trade issues that have been discussed. This issue
should get some further attention in the earlier parts of the report, and somewhat greater highlighting in the
recommendations."
     "This recommendation [OECD Working Group, II. Competitiveness, No. 5] should be more comprehensive
in nature. We need to have the support of the appropriate U.S. agencies including the Department of State
and the Department of Commerce to help improve our competitive position overseas. At a minimum, we
should learn and adopt what we can from our most successful competitors in newly opening markets
(reference the success of German industry in Eastern Europe [and not just because of proximity] and the
Japanese worldwide)."
                                                       COMMENTS ON THE RECOMMENDATIONS  a 25

-------
                            Implementing the Recommendations

     "Sustainable development,  transparency, participation, a significant role for EPA, are motherhood
principles, and the overview report says nothing on their implementation. To recommend that efforts be
undertaken 'to reconcile the GATT and multilateral environmental agreements, when they are in conflict' is
not very useful. Finding that criteria should be developed to evaluate the environmental impacts of future
trade agreements, or the effects of environmental protection on competitiveness, does not add much either.
The administrator will be happy to learn the Committee is in favor of flexibility and incentives to encourage
efficiency and innovation, but will he be better prepared to do his job?"
26  a THE GREENING OF WORLD TRADE

-------
        TRADE AND ENVIRONMENT COMMITTEE MEMBERSHIP
      Chair:
Mr. Samuel A. Schulhof1
Director, Environmental Research Center
General Electric Corporate Research
 and Development
P.O. Box 8
Schenectady, NY 12301
Phone: (518) 387-5353
Fax: (518) 387-7611

      Vice Chair:
Mr. Jonathan Plaut
Director, Worldwide Environmental Programs
Allied Signal, Inc.
P.O. Box 1013
Morristown, NJ 07962
Phone:(201)455-6570
Fax:(201)455-4835

      Members:
Dr. C. Michael Aho (GATT)
Director of Economic Studies
Director of the International Trade Project
Council on Foreign Relations
58 East 68th Street
New York, NY 10021
Phone:(212)734-0400
Fax: (212) 861-1789

Mr. Henry G. Cisneros (WH)4
Cisneros Communications
205 North Presa
Suite B-200
San Antonio, TX 78205
Phone: (512) 227-8500
Fax:(512)227-5245
   'NACEPT Member
   Working Group Chair
   'Acting Working Group Chair
   4Did not participate in Phase 1 Recommendations

   GATT=GATT Working Group
   END=Industrialized Countfies/OECD Working Group
   WH=Western Hemisphere Working Group
Mr. Douglas D. Danforth (WH)4
Retired Chairman and Chief Executive Officer
Westinghouse Electric Corporation and
Chairman and Chief Executive Officer
Pittsburgh Pirates Baseball Club
Westinghouse Building
Gateway Center
Pittsburgh, PA 15222
Phone: (412) 642-3600
Fax: (412) 642-2466

Dr. Sylvia Alice EarleHGATT)4
Chief Scientist, NOAA
14th and Constitution Avenue, NW
Room 5809
Washington, DC 20230
Phone: (202) 377-1437
Fax:(202)377-5231

Dr. Albert Fishlow (WH)
Dean of International and Area Studies
University of California, Berkeley
206 Stephens Hall
Berkeley, CA 94720
Phone: (510) 642-4827
Fax: (510) 642-9466

Mr. Frank Friedman (GATT)
Vice President
Health, Environment and Safety
Occidental Petroleum Corporation
10889 Wilshire Boulevard, Suite 1500
Los Angeles, CA 90024
Phone: (213) 208-8800/(213) 443-6161
Fax: (213) 443-6688

Mr. R. Michael Gadbaw (GATT)2,
Vice President and Senior Counsel
General Electric Company
International Law and Policy
Suite 700S
1331 Pennsylvania Ave, NW
Washington, DC 20004
Phone: (202) 637-4268
Fax:(202)637-4300
                                                                                MEMBERSHIP a  27

-------
        TRADE AND ENVIRONMENT COMMITTEE MEMBERSHIP
Mr. Ira H. Goldman (WH)
Special Assistant to the Governor and
Governor's Trade Representative
Office of Governor Pete Wilson
Sacramento, CA 95814
Phone: (916) 445-6075
Fax:(916)323-7351

Ambassador Joseph Greenwald (IND)
1616 H Street, NW
Suite 400
Washington, DC 20006
(202) 659-4242
Fax:(202)393-4655

Mr. Scott Hajost (IND)
Environmental Defense Fund
1875 Connecticut Ave., NW
Suite 1016
Washington, D.C. 20009
(202) 387-3500
Fax: (202) 234-6049

Mr. Stewart J. Hudson (GATT)
Legislative Representative
International Affairs Department
National Wildlife Federation
140016th Street
Washington, DC 20036
Phone: (202) 797-6602
Fax: (202) 797-5486

Mr. Kent Hughes (IND)
President, Council on Competitiveness
Suite 1050
900 17th Street, NW
Washington, DC 20006
(202) 785-3990
Fax: (202) 785-3998

Dr. William B. Kelly, Jr. (GATT)
5442 31st Street, NW
Washington, DC 20015-1346
(202) 362-5662
Mr. Neil King (IND)
Wilmer Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
(202)663-6000
Fax:(202)429-4930

Mr. Jeffrey M. Lang (GATT)
Winthrop, Stimson, Putnam, and Roberts
1133 Connecticut Avenue, NW
Washington, DC 20036
Phone: (202) 775-9800
Fax: (202) 833-8491

Ms. Sandra Masur (WH)
Director of Public Policy Analysis
Eastman Kodak Company
Suite 1050
1776 Eye Street, NW
Washington, DC 20006
(202) 857-3400
Fax: (202) 857-3401

Mrs. Jessica Tuchman Mathews (IND)
World Resources Institute
1709 New York Avenue, NW
Washington, DC 20006
(202) 638-6300
Fax:(202)638-0036

Mr. Scott McCallum (IND)
Lt. Governor of Wisconsin
Room 22E, State Capitol
Madison, WI53702
(608) 266-3516
Fax: (608) 267-3571

Mr. J. Michael McCloskey (GATT)
Chairman, Sierra Club
408 C Street, NE
Washington, DC 20002
Phone: (202) 547-1141
Fax: (202) 547-6009
28  a  THE GREENING OF WORLD TRADE

-------
        TRADE AND ENVIRONMENT COMMITTEE MEMBERSHIP
Dr. Konrad von Moltke (WH)
President, Bioprime Ltd.
P.O. Box 716 Harriet Partridge House
Main Street
Norwich, VT 05055
Phone: (802) 649-2227
Dartmouth: (603) 646-3701
Fax: (802) 649-3539

Dr. Ambler Moss2 (WH)
Dean, Graduate School of International Studies
University of Miami
1531 Brescia Avenue
Coral Gables, FL 33146
Phone: (305) 284-4304
Fax: (305) 284-4406

Mr. Gardiner Patterson (GATT)
1517 Vermont Ave, NW
Washington, DC 20005
Phone:(202)232-1636

Dr. Susan Kaufman Purcell (WH)
Vice-President for Latin American Affairs
Americas Society
680 Park Avenue
New York, NY 10021
Phone: (212) 249-8950
Fax: (212) 249-5868/517-6247

Mr. Martyn J. Riddle (WH)4
Senior Environmental Advisor
International Finance Corporation (IFC) 1-10145
1818 H Street, NW  -
Washington, DC 20433 ,
Phone: (202) 473-0661
Fax: (202) 334-8705

Dr. Robert C. Repetto
Vice President and Senior Economist
World Resources Institute
1709 New York Avenue, NW
Washington, D.C. 20006
Phone: (202) 662-3482
Fax: (202) 638-0036
Mr. Alexander B. Trowbridge (EMD)2
President, Trowbridge Partners
1155 Connecticut Avenue, NW
Suite 800
Washington, DC 20036
Phone: (202) 467-4693
Fax: (202) 872-8983

Mr. William Cochrane Turner (IND)
Chairman, Argyle Atlantic Corporation
4350 East Camelback Road
Suite 240B
Phoenix, AZ 85018
Phone: (602) 840-1530
Fax: (602) 840-1657

Professor Perry Wallace4
American University
Room215-A
440 Massachusetts Avenue, NW
Washington, DC 20016
Phone: (202) 885-3635,
Fax: (202) 885-3610
      Committee Staff Director:
Jan McAlpine
EPA
499 South Capitol Street
Room 115
Mail Code A101F6
Washington, DC 20460
(202) 260-2477
Fax-(202) 260-6882-'
   'NACEPT Member
   2Working Group Chair
   'Acting Working Group Chair
   4Did not participate in Phase 1 Recommendations

   GATT=GATT Working Group
   IND=Industrialized Countries/OECD Working Group
   WH=Western Hemisphere Working Group
                                        TRADE AND ENVIRONMENT  COMMITTEE  MEMBERSHIP  o  29

-------
                                  EXPERT WITNESSES
   The following individuals served as Expert Witnesses to the Trade and Environment Committee,
       National Advisory Council for Environmental Policy and Technology, during 1991-1992:
Matthew Arnold • President, Management Institute' for Environment and Business
Timothy Atkeson • Assistant Administrator, Office of International Activities, EPA
Norman Bailey • President, Norman A. Bailey, Inc.
Donald Barnes • Director, Science Advisory Board, EPA
Daniel Brinza • Senior Counsel for Natural Resources, USTR
Edith Brown-Weiss • Former Associate General Counsel, International Activities Division, EPA
Steve Chamovitz • Consultant, Competitiveness Policy Council
David Cheney • Senior Associate, Council on Competitiveness
Paul Cough . Office of International Activities, EPA
Richard Eglin • Technical Barriers to Trade Division, GATT Secretariat
Dan Esty • Deputy Assistant Administrator, Office of Policy, Planning, and Evaluation, EPA
Linda Fisher • Assistant Administrator for Prevention, Pesticides and Toxic Substances, EPA
Ambassador Myles Frechette • Assistant U.S. Trade Representative for Latin America, USTR
David van Hoogstraten • Office of General Counsel, EPA
John Jackson • Professor, University of Michigan Law School
Richard Johnson  • Attorney, Arnold and Porter
Peter Lallas • Office of General Counsel, EPA
Daniel Magraw • Associate General Counsel, International Activities Division, EPA
Jacques Miramon • OECD Trade Directorate
Charles Pearson • Professor, School  of Advanced International Studies, The Johns Hopkins University
Annie Petsonk • Office of Intellectual Property and the Environment, USTR
Gareth Porter • Director, International Programs, Environmental and Energy Study Institute
Robert Repetto • Senior Economist, World Resources Institute
Anya Schoolman • Office of Policy, Planning, and Evaluation, EPA
Jeffrey Schott • Senior Fellow, Institute for International Economics
Ambassador Sally Shelton-Colby • Professor, Georgetown University
Ambassador Michael B. Smith • President, SJS Strategies
Carmen Suro-Bredie - Assistant U.S. Trade Representative for Intellectual Property and the Environment, USTR
Gary Stanley • Gary Stanley PC
Durwood Zaelke • President, Center for International Environmental Law
30  a THE GREENING OF WORLD TRADE

-------
SUPPORTING PAPERS

-------
        Trade, Environment, and the Pursuit
                of Sustainable Development
                                  Stewart Hudson
        TRADE AND ENVIRONMENT: PHILOSOPHICAL UNDERPINNINGS

          During the 20 years since the first Earth Day, in 1970, the world lost nearly 200 million hectares
          of tree cover, an area roughly the size of the United States east of the Mississippi River. Deserts
          expanded by some 120 million hectares, claiming more land than is currently planted to crops
          in China. Thousands of plant and animal species with which we shared the planet in 1970 no
          longer exist. Over two decades, some 1.6 billion people were added to the world's population
          — more than inhabited the planet in 1900. And the world's farmers lost an estimated 480
          billion tons of topsoil, roughly equivalent to the amount on India's cropland.0'

    The painful litany of problems cited above has lead to a great deal of soul-searching in the environmental
community. This soul-searching has centered largely around the question of why there has been relatively
little success in resolving these problems, despite the significant increase in environmental awareness over
the past two decades.
    While numerous explanations have been offered, one is particularly compelling. It originates in what
has been, at least historically, an isolationist approach  to environmental issues by the environmental
community. This can be exemplified in the philosophy that natural resources can be protected simply by
locking them up and insulating them from the predatory practices of humankind. Today, global environmen-
tal trends such as global climate change and the necessity for meeting basic human needs, particularly in the
developing countries, have made this philosophy obsolete and have led to a more holistic and integrated
approach to achieving environmental objectives.
    This approach is reflected in the concept of sustainable development.  To be sure, exact definitions of
sustainable development are still hard to come by, but the essence of the concept is that economic and
environmental concerns cannot be treated separately. To achieve the objectives of environmental protection,
32 a  THE GREENING OF WORLD TRADE

-------
attention must be paid to development needs.  Development, at the same time, will not be sustainable if
attention is not paid to the environment. To satisfy the objectives of sustainability and development, and to
preserve options for future generations (itself a central goal of sustainable development), economic and
environmental considerations must be integrated.®
    Throughout the 1980s, the concept of sustainable development was refined still further and there
evolved a greater understanding that environmental problems derive from particular models of develop-
ment and patterns of economic activity, and not from discrete actions taken by individuals, corporations,
governments, or multilateral development agencies. The focus on trade issues in the 1990s can be seen as a
natural step in the evolution of critical thinking within the environmental community.^
    Trade is an increasingly important factor in national economies and plays a central role in determining
the patterns of economic behavior between nations. The expanded definition of trade, which now includes
issues such as investment and intellectual property, has helped shape the nature of development within and
between nations. World trade, which totals over $3.5 trillion annually, has played a significant role in
determining how, and in what manner, the natural resources of our planet are utilized. This is not to say that
trade patterns are the sole determinant of resource use, since most of the economic activity taking place on
this planet is domestic and not international. Nevertheless, as more nations engage in steadily liberalized
world trade, the role of trade in determining resource use will expand.
    If understood in the context of sustainable development, environmental concerns and trade activities are
not necessarily at odds, and should be dealt with in an integrated fashion.  It is clear that trade policy which
does not consider environmental impacts can undermine the natural  resource base on which continued, or
future, development depends.  At the same time, it is obvious that environmental policy, framed without
regard to development needs, can be equally short-sighted.
    Within thecontextofsustainabledevelopment,tradeand environmental policy become means by which
to achieve a higher goal.  The implications of this approach are captured in an excerpt from the OECD's recent
"Joint Report on Trade and Environment" which concludes that:
         , It is, therefore, important that trade policies are sensitive to environmental concerns and that       .. -  :
           environmental policies take account of effects on trade...Unlike sustainable development,     .
           free trade is not an end in itself../4'                                           ••""'.
                                                                               ,'f'"
    One of the most important keys to understanding the environmental perspective on trade issues is to
recognize its basis  in the concept of sustainable development. It is, therefore, necessary  to correct two
misconceptions this perspective seems to have generated. First, the environmental perspective on trade
should not be construed as anti-trade, since trade can be an important instrument by which to  achieve
development that is economically and environmentally sustainable. Second, this approach is not an attempt
to extort from trade practices the means to cure all of the world's environmental ills. What is critical is the
intersection of trade and environmental concerns.
                                                                       SUPPORTING PAPERS  a 33

-------
   WHY FREE TRADE IS NOT A PANACEA (AND NEITHER IS PROTECTIONISM)

     The dynamic relationship between economic activity and the health of the environment, and the
 implications of this relationship for sustainable development, are now widely accepted, as is the recognition
 that change is needed in the patterns of global economic activity in order to better address environmental
 concerns.
     One of the most active prescriptions for addressing these concerns, however, is a strong dose of free
 trade. In response to environmental criticism of the NAFTA negotiations, for example, the Bush Adminis-
 tration argued that the agreement, which would further liberalize trade between the U.S., Mexico, and
 Canada, was deserving of support because it would increase the financial resources available for environ-
 mental protection, particularly in Mexico.®
     Unfortunately, while free trade agreements can lead to greater economic growth and a greater pool of
 funds targeted for environmental protection, there is no guarantee that this will necessarily occur. Further,
 while acknowledging that environmental protection cannot occur in the absence of some level of economic
 growth, promoting free trade as a panacea for resolving environmental ills ignores some of the very real costs
 that it entails.  As Patrick Low and Raed Safadi of the World Bank have noted, "This proposition is
 contentious, as many environmentalists would argue that wear and tear is positively correlated with income,
 especially in relation to the global commons."'6'
     An awareness of the wear and tear associated with liberalized trade begins with an understanding of the
 higher energy costs associated with an increased transportation of tradeable goods. Environmental impacts
 are felt in both the production and the use of energy associated with the transportation of goods (e.g. oil
 development in ecologically sensitive areas, and increased air emissions from trucks). Second, the transpor-
 tation of these goods can, and often does, increase the possibility of environmental accidents, the most
 obvious example of which is the recent Exxon Valdez oil spill in Alaska/7^
     Export-led growth resulting from free trade agreements can also promote a rapid and unsustainable
 extraction of natural resources. The unsustainable harvesting of tropical timber to gain foreign exchange is
 but one example of this process.®
     Another potential impact of free trade is the chilling effect that it can have on the ability of federal, state,
 and local governments to establish the highest environmental standards they deem appropriate. Provisions
 of the U.S.-Canada free trade agreement have already been used to attack U.S. domestic environmental
 regulations on asbestos.(9)
     Finally, it is possible that free trade agreements can undermine international efforts to protect the global
 commons. Korea, which is a party to G ATT, but is not a signatory to the Montreal Protocols on the production
 and use of chloroflourocarbons, is expected to challenge this international environmental agreement as illegal
 under GATT articles.*105
     The limitations of free trade as an instrument for sustainable development are also evident on theoretical
 grounds. Economists like to argue, for example, that one of the principle benefits of free trade is that it leads
 to a more efficient allocation of the earth's resources. Unfortunately, in terms of natural resources, this theory
34  a THE GREENING OF WORLD TRADE

-------
only holds true if externalized environmental costs are internalized. Though some mechanisms are available
for doing so (for instance, taxes and tradeable pollution permits) they are not utilized in any current trade
agreements, neither are they being actively considered in any current trade negotiations.
    A related critique of free trade suggests that comparative advantage is not defined solely in terms, of
efficiency, but also in terms of lower cost factors of production. Countries with lower environmental
standards, or more lax enforcement of environmental standards, can avoid the environmental costs associ-
ated with unsustainable natural resource use. In so doing, they can gain an advantage over goods that are
produced in countries with higher standards, or more strict enforcement of environmental measures.
Countries may not actively pursue policies of this nature to gain trade advantage, but investment may
nevertheless flow to countries where such advantages exist, assisted in no small measure by the investment
liberalization provisions of free trade agreements/11^
    Having outlined some of the limitations in applying free trade as the antidote for environmental distress,
it is imperative to immediately point out that this does not make the case for using protectionism as a means
for achieving sustainable development. Indeed, there is an emerging body of literature that suggests that
protectionism, or at the very least closed economies, can have an even greater negative impact on the
environment.
    Protectionism rewards an inefficient use of resources, and its most direct impact is felt in developing
countries, i.e. those least able to afford continued obstacles to their own development. While protectionism
might be justified for some industries,  at certain stages in a nation's development, the application of
protectionism is rarely the most effective policy. Free trade can increase competitiveness and, in so doing,
can make a significant contribution to industry employing new, and less polluting, production methods/12^
      EMERGING ISSUES RELATED TO TRADE, ENVIRONMENTAL POLICY,
                          AND SUSTAINABLE DEVELOPMENT

     Much of the debate on trade and environment has centered on demonstrating the relative merits of free
trade or protectionism, or open or closed economies, in dealing with environmental problems. If these
problems  are discussed in  the context of sustainable development, a more optimal use of collective
brainpower would be spent in identifying the emerging issues of trade and environment, and raising the
questions that need to be resolved in order for world trade to promote sustainable development. This section
of the paper is dedicated to that effort.


                                          Standards

     One of the most obvious issues involving trade and the environment is how to deal with the differences
in environmental standards that exist between nations. On the one hand, there is a concern that exporters in
countries with lower environmental standards will have a competitive advantage over exporters in countries
with higher standards. Some have proposed creating an environmental code which would treat the lower
                                                                       SUPPORTING PAPERS a  35

-------
standards as "subsidies" subject to the imposition of countervailing duties to correct their perceived impact
on trade/13)
     On the other hand, many recognize that a scarcity of technical and financial resources may make it
difficult, particularly for the developing countries, to both establish and enforce the same level of environ-
mental standards that exist in the more industrialized countries.  If exports from these countries face trade
sanctions based on their lower standards, then they will be at a competitive disadvantage vis-a-vis countries
with higher environmental standards. In dealing with the issue of differential environmental standards, it
will be necessary to discuss technical and financial resources necessary for environmental standards to be
raised worldwide.
     A discussion of standards should also address three other issues of critical interest to the international
trade and environmental  communities.  The first would be an analysis of proposals to  "harmonize"
international standards. The environmental community is concerned with the process to be followed in
setting these standards, and the use of the standards themselves. We would prefer to see international
standards serve as a floor, rather than a ceiling. We would like to have a role in defining the situations where
it is even appropriate to set international standards. Finally, we are extremely concerned that state and local
governments maintain the right to set the highest environmental standards they deem appropriate for their
needs.
     A second important issue relates to the use of "sound science" as the basis for evaluating the validity of
national or subnational standards. The current argument in trade circles seems to be that standards higher
than a harmonized international norm would be allowable if such standards are based on sound science.
While this might offer some relief to those concerned about protecting the rights of national and subnational
governments, it ignores the relevance of  risk assessment to the question of what is or is not a legitimate
standard.  Science can help determine the probability of impact of a given occurrence, but standards also
incorporate a society's determination of tolerable risk.
     Finally, the August, 1991 ruling on the tuna-dolphin dispute seems to suggest that the GATT will only
recognize standards that apply to goods and services in trade, and not the process by which these goods or
services are produced.  This is a head-in-the-sand attitude that  runs counter to the political reality that,
worldwide, countries are moving to adopt process standards, with related trade measures, that affect both
natural resources as well as manufactured goods. Environmentalists are increasingly concerned about the
life cycle of a product, beginning with the extraction of natural resources in the production process, but also
including a consideration of the environmental ramifications of transport, marketing, packaging, consump-
tion, and disposal. Rather than arguing that process standards and trade do not mix, a better use of time
would be spent  in the development of  principles by which to avoid the use of process  standards as
protectionist devices.(14)


                            Transparency and Public Participation

     Transparency is a word with two entirely different applications depending on whether one is primarily
concerned with  environmental protection  or  the promotion of free trade. To the international trade
36  n THE GREENING OF WORLD TRADE

-------
community, the term transparency generally applies to the promulgation of environmental policies, laws,
and regulations. The complaint is often heard that these measures are difficult to understand, and that their
development and implementation are not transparent. Greater transparency for the international trade
community is usually a battle cry for greater openness in the development and implementation of environ-
mental policies, laws, and regulations which can affect trade.
    To the environmental community, greater transparency is a battle cry for increased openness and
accountability in the formation, negotiation, and implementation of trade policies and accords. A closely
related need is to increase public participation in these activities. In comparison to the deliberations and
operations of other multilateral economic institutions,  such as the World Bank and the International
Monetary Fund, multilateral trade policy, particularly as it relates to the G ATT, is shrouded in an even greater
veil of secrecy. Increased transparency and public participation means increased access to trade documents,
and increased openness of the decision-making process within institutions like the G ATT. As the negotiations
surrounding the U.N. Conference on Environment and Development have demonstrated, this new openness
can be accomplished without undermining the negotiating positions of individual governments/15*


                                     Dispute Resolution

    The issue of how to resolve trade and environmental disputes is closely related to the issue of standards,
and has been affected in the extreme by the aforementioned GATT ruling in the tuna-dolphin dispute. Any
discussion of how to formulate more effective dispute resolution mechanisms must incorporate the concerns
expressed above with  regard to transparency and standards, as well as issues that may overlap with a
discussion of international environmental treaties and the GATT, and issues of protection of the global
commons.
    Other concerns related to dispute resolution have to do with the perceived lack of expertise of trade
panels in dealing with environmental  issues. Some suggestions are to include at least one environmental
expert on any panel that is dealing with these disputes, and to allow amicus briefs to be filed by interested
parties. Principles should be developed which can help identify disputes that are not appropriate for
resolution by trade panels.
    Another question relevant to the establishment of more effective dispute resolution mechanisms is
where the burden of proof should lie in resolving trade and environmental disputes, and the role of "sound
science." Current policy seems to place the burden on the governmental entity establishing the policy or
standard in question. Further, the extent to which environmental measures are based on sound science seems
to be the litmus test by which departures from a common standard will be judged.
    Most in the environmental community feel that the burden should be placed on those challenging
environmental measures to prove that these measures are not legitimate. Moreover, as discussed earlier, the
environmental community is extremely suspicious of what the test of sound science will mean in practice,
especially when the role of risk assessment in setting standards is ignored/1®
                                                                       SUPPORTING PAPERS n  37

-------
                                     Institutional Reform

     One of the first questions raised in discussing trade and environment is the extent to which institutional
reform is necessary for addressing this issue. One obvious target for reform is the G ATT, and even its own
panel ruling on the tuna-dolphin dispute seems to suggest the need for changes to better address trade and
environmental concerns. At the same time, the question of the need to integrate other U.N.-family agencies,
such as the United Nations Environment Programme (UNEP), and the United Nations Commission on Trade
and Environment (UNCTAD), has been raised. Institutional reform of these agencies, and a reevaluation of
the relationship between them, is necessary to more adequately address trade and environmental concerns.
Within individual governments, trade and environmental agencies will have to find ways to work more
closely together.(17)


                                          Subsidies

     The treatment of subsidies under free trade agreements raises several issues related to the environment.
The elimination of some subsidies, such as those that promote unsustainable agricultural production, can
have a positive impact. Moreover, it might make sense to interpret lower environmental standards, and lax
enforcement, as an  indirect subsidy rewarding unsustainable economic activity. Groups have argued that
such subsidies should also be eliminated.
     Eliminating subsidies that are designed to be environmentally beneficial, however, can have a negative
impact on the environment. The reflexive response on the part of the environmental community is that all
such subsidies should be protected. Yet, we know that in certain circumstances these subsidies can have
perverse effects, such as reforestation subsidies that encourage timber companies to engage in unsustainable
forestry practices. A common definition of "subsidy" is needed, as are principles by which to identify those
that should be reformed or eliminated.08'
        International Environmental Agreements/ Protection of the Global Commons

     As trade liberalization and increased environmental agreements are pursued, disputes will arise as to
whether international trade rules, or international environmental agreements, take precedence. Clearly, the
environmental community will argue that international environmental agreements should have precedence,
especially given those elements of the recent GATT ruling on the tuna-dolphin dispute that suggest that
multilateral environmental agreements are the preferred course of action.  Nevertheless, what about
situations where countries are GATT signatories, but not signatories to a given international environmental
agreement? The environmental community is extremely  concerned that the GATT lacks the capacity to
effectively resolve these disputes, though there is little consensus on what other U.N. agencies should be
involved.
     Closely linked to the consideration of how international environmental treaties relate to international
trade rules, is  the question of how protection of the global commons relates to trade. In the case of the tuna-
38  a THE GREENING OF WORLD TRADE

-------
dolphin dispute, the U.S. took action to preserve the global commons by restraining its own domestic fleet.
To prevent a free-rider problem, it also restricted imports from other countries not meeting U.S. standards
of conduct. This has been criticized by the GATT as a trade-illegal, extraterritorial application of U.S. law.
Others characterize it as a "unilateral action" with the implicit message being that the measure should, based
on its "unilateral" nature, be considered trade-illegal.
     If such measures are trade-illegal, then how are countries to protect the global commons, keeping in
mind the free rider problem? The need to protect the global commons is undeniable, and in an increasingly
economically interdependent world, trade measures will be necessary to achieve this societal goal. Protection
of the global commons should not be at issue, rather the focus should be on how trade measures can most
appropriately be used to further this goal, and how conflicts between protection of the global commons, and
international trade agreements, can be minimized.  Clarification of the relationship between international
trade and international environmental agreements should be part of this effort.(19)


                                      North-South Issues

     Perhaps the  most difficult subject within those related to trade and environment is that which is
collectively referred to as, "North-South Issues". Admittedly, lumping issues together under this theme is
seriously flawed,  as there are  several instances (agricultural policy is a good example) where common
positions of countries of the North and South are possible. It is also true that North-South issues cut across
all elements of the trade and environment debate, and treating the subject apart from other aspects of the
debate has its shortcomings.
     Nevertheless, there are some very different perspectives on  trade and environment depending on
whether one approaches the issue from the point of view of a developed country, or a developing country.
(For the record, the differences in perspective between non-governmental and governmental representatives
can also be quite marked.)
     Essentially, what is considered under this topic are the special needs of the developing countries in their
relationship to the more "developed" North. With respect to trade, these needs will become particularly
apparent as pressure is brought to bear on countries to raise their environmental standards. In the developing
countries, while the failure of political will in seeking higher standards is  an important factor, the lack of
financial and technical resources sometimes plays a more prominent role.
     In addressing trade and environmental concerns, special attention should be given to the developing
countries. This should involve a consideration of how best to facilitate the flow of environmentally-beneficial
technology to these countries, as well as an exploration of more direct compensation necessary for them to
better protect the environment. The most effective approach would be reform of world trade so as to create
better economic incentives for developing countries to manage their resources sustainably.(20)
                                                                        SUPPORTING PAPERS  a  39

-------
               THE POLITICAL ECONOMY OF TRADE, ENVIRONMENT
                          AND SUSTAINABLE DEVELOPMENT

     To date, analyses of the political economy of trade and environment have focused almost entirely on the
perceived antagonistic nature of these sometimes competing concerns. Free trade advocates in particular,
seeking to preserve the core principles of a liberalized world trading system, have sought  to reduce
environmental concerns to a mere cover for protectionism, irrelevant (or parallel) to the process of negotiating
and implementing trade accords. At times, environmentalists have characterized the free trade agenda as a
cover for gutting environmental laws and agreements.
     To be sure, there is a great deal of validity to the concerns of both environmentalists and free trade
advocates. Environmental regulation canbe used as a cover for protectionism and, at the same time, free trade
can undermine environmental policy measures, and cause natural resource degradation.  Nevertheless, a
more complete analysis of the political economy of trade and environment would devote greater attention
to the areas where these dual concerns are not at odds, and address the question of  why  trade and
environmental policy are not being integrated in the pursuit of sustainable development. Studies of the
political economy of trade and environment should identify the obstacles preventing the integration of these
concerns, and examine the reasons why governments and international trade organizations, such as the
GATT, seem reluctant to embrace the concept of sustainable development in practice as well as theory.
     In the long run, environmental protection will not be successful if it ignores the development needs of
the world's population. Conversely, the benefits of a more liberalized trading system cannot be sustained
over the long-term if environmental and natural resource considerations are not taken into account. To be
sure, conflicts between some of the core values of liberalized trade and environmental protection do exist.
Nevertheless, an awareness of the mutual benefits of an approach to trade and environmental concerns, based
on sustainable development, can help overcome the anxiety that this new type of thinking seems to have
generated in both the trade and environmental communities.
     One thing is for certain.  If, over the next 20 years, we are going to reverse the negative environmental
trends that affect our planet and our fellow human beings, we must move toward a path of development that
is both economically and environmentally sustainable. As an important part of this effort, we must dedicate
ourselves to the identification and creation of elements of a world trading system that reflects a desire to move
in this direction.
                                           NOTES


1. Lester Brown, et. al., State of the World-1991, (New York City: W.W. Norton, 1991), p. 3.
2. John A. Dixon, Louise A. Fallen, "The Concept of Sustainability: Origins, Extensions, and Usefulness for Policy," Society
and Natural Resources, Vol. 2, pp. 73-84.
3. The finest, and most expansive works on the relationship of trade and environment to sustainable development are
thefbllowing: LyubaZarsky, "International Trade and Ecologically Sustainable Development: Policy Directions," Report
40  a THE GREENING OF WORLD TRADE

-------
 to Australian Conservation Foundation/World Wide Fund for Nature, Melbourne, Australia, November 1991, and;
 Lyuba Zarsky, 'Trade-Environment Linkages and Sustainable Development," Report to the Australian Department of
 Arts, Sport, Environment, Tourism, and Territories, Melbourne, Australia, October 1991. Another important work on this
 subject is: James MacNeill, 'Trade and Development: The Global Dimension," an address to the National Round Table
, Conference on Trade, Environment, and Competitiveness, Toronto, Ontario, November 4,1991. An intriguing proposal
 on trade, environment, and sustainable development can be found in: World Resources Institute, "Compact for a New
 World," Washington, D.C., November, 1991, pps. 19-21.
 4. Organisation for Economic Cooperation and Development (OECD), "Joint Report on Trade and Environment," Paris,
 April 1991, p. 3.
 5. This argument was advanced in many public fora, but for the record can be found in: "Can Mexico Really Clean Up
 Its Act?" Los Angeles Times, November 17,1991, p. A18.
 6. Patrick Low and Raed Safadi, 'Trade Policy and Pollution," Draft paper prepared for International Trade Division,
 World Bank, Washington, D.C., May, 1991, p. 7.
 7. Zarsky, op. cit, describes the environmental costs (and benefits) associated with liberalized trade in greater detail.
 8. Though several examples of this process are at hand, a particularly well-researched treatment of the subject is contained
 in: Francois Nectoux and Yoichi Kuroda, 'Timber from the South Seas: An Analysis of Japan's Tropical Timber Trade
 and its Environmental Impact," Report to the World Wide Fund for Nature, Gland, Switzerland, 1989.
 9. 'The Dolphin Case is Just One of Many: Examples of Other Recent Trade Disputes that Undermined Environmental,
 Health and Safety Laws," Public Citizen, Washington, D,C, December 1991, p. 1.
 10. Speculation regarding Korea, GATT, and the Montreal Protocol on chloroflourocarbons has been raised at several
 meetings of the U.S. Environmental Protection  Agency's National Advisory Council on Environmental Policy and
 Technology (NACEPT), International Trade and Environment Working Groups, by a variety of different trade experts,
 as well as environmentalists.                                     >
 \ 1. The most challenging theoretical critique of free trade as an engine for promoting sustainable development is found
 in:  Herman E. Daly, and John B. Cobb, Jr., For the Common Good: Redirecting the Economy Toward Community, the
 Environment, and a Sustainable Future, (Boston: Beacon Press, 1989), pp. 209 and ff.
 12. A counterattack to environmental criticisms,of free trade was launched by the International Trade Division of the
 World Bank as part of its symposium on 'Trade and Environment," held in Washington, D.C., on November 21-22,1991.
 The majority of the papers presented at the symposium make forceful arguments that protectionism, or closed economies,
 are more damaging to the environment than free or liberalized trade. Non-symposium papers, of historical significance,
 include the following: Charles Pierson, "Environmental Control Costs and Border Adjustments," National Tax Journal,
 Vol. 28, No. 4, December, 1974, pp. 599-607, and; Charles Pierson, "Environmental Policies and Their Trade Implications
 for Developing Countries, With Special Reference to Fish and Shellfish, Fruit and Vegetables," Study prepared at the
 request of the United Nations Conference on Trade and Development, 1982.
 13. Information on the concept of an Environmental Code to the GATT is derived from personal communication with
 members of the staff of U.S. Senator Max Baucus. A fuller treatment of "ecological dumping," and inadmissible subsidies,
 is contained in: Charles Arden Clarke,  'The General Agreement on Tariffs and Trade: Environmental Protection and
 Sustainable Development," Report prepared for the World Wildlife Fund-International, Gland, Switzerland, June, 1991.
 14. General Agreement on Tariffs and Trade (GATT), "United States-Restrictions on Imports of Tuna," Report of the
 Panel, September 3, 1991.  One of the most detailed analyses of the ruling is: Eric Christensen, "GATT  Nets an
 Environmental Disaster: A Legal Analysis and Critique of the GATT Panel Ruling on Imports of Mexican YellowfinTuna
                                                                              SUPPORTING PAPERS a  41

-------
 Into the United States," Community Nutrition Institute, Washington, D.C., October 11,1991. A very provocative work
 on the historical treatment of process standards in international trade law is: Steve Charnovitz, "Exploring the
 Environmental Exceptions in GATT Article XX," Journal of World Trade, Vol. 25, No. 5, October, 1991.
 15. A cogent analysis of the benefits of increased public participation in the negotiations regarding the North American
 Free Trade Agreement (NAFTA) can be found in: CathrynThorup,'The Politicsof Free Tradeand the Dynamics of Cross-
 Border Coalitions in U.S.-Mexican Relations," Columbia Journal of World Business, Vol. 26, No. 2, Summer, 1991.
 16. Christensen, "GATT Nets," op. cit, and; Eric Christensen, "Overview of Pesticide Regulations and International
 Trade," Environment, November, 1990, p. 2.
 17. GATT, "United States Restrictions," op. cit., and Clarke, The GATT: Environmental Protection," op. cit. The Clarke
 paper is, to date, the most detailed blueprint for environmental reform of the GATT. The definitive background source
 concerning the inner-workings of the GATT is: John Jackson, The World Trading System: Law and Policy of International
 Economic Relations, (Cambridge, Massachusetts: MIT Press, 1989 (1991 reprint)).
 18. An initial cut at categorizing environmental subsidies is contained in: GATT, 'Trade and Environment," Factual Note
 by the Secretariat, Geneva, Switzerland, August 1991, p. 17.
 19. Konrad Von Moltke, a Senior Fellow with the World Wildlife Fund in Washington, D.C., is a member of the EPA-
 NACEPT International Trade and Environment Committee and, as of December, 1991, is completing a paper on the
 subject of international environmental treaties and international trade. Much of the information in these paragraphs is
 derived from private communication with him.
 20. Though there are several critiques of free trade from a developing country perspective, two of the most interesting
 are: Andres G<5mez-Lobo, "La Iniciativa Para Las Americas: Acuerdos de Libre Comercio y El Medio Ambiente,"
 Corporaci6n de Investigaciones Economicas Para Latinoamerica (CIEPLAN), Santiago, Chile, November, 1991, and;
 Eduardo Gudynas, "Comercio y Ambiente en America Latina: Muchas Preguntas, Pocas Respuestas," El Sistema de
 Informaridn en Comercio y Ambiente para America Latina (SICA-AL), Centra Latino Americano de Ecologfa Social (CLAES),
 Montevideo, Uruguay, April, 1991. A Northern perspective on this issue is: Gareth Porter, "GATT and the Environment:
 The North-South Context," Paper prepared for the EPA-NACEPT International Trade and Environment Committee,
 October 4,1991.
42  a  THE GREENING OF WORLD TRADE

-------
                                     About the Author

   Stewart Hudson is the Legislative Representative for the International Affairs Division of the National
Wildlife Federation, a position he has held since 1986. Over the course of the past five years he has worked
with non-governmental organizations in the  U.S., Canada, and the rest of the Americas to push for
environmental reform within the multilateral development banks, with a particular focus on improving the
environmental performance of the Inter-American Development Bank.
   In addition to his work on reform of the multilateral development banks, he was one of the architects of
the movement to address trade and environmental concerns, and the National Wildlife Federation has been
in the forefront on this debate in the United States and internationally.
   Mr. Hudson holds a Masters Degree in International Development from American University, and a B.A.
in History from Yale University. Prior to his employment with the National Wildlife Federation, he served
four years as a legislative aide to then U.S. Senator Lowell Weicker, Jr. During that time, he served on the
Senate Small Business Committee working to promote exports from small- and medium-sized businesses in
the United States.                                                                -
   This paper was prepared for a World Bank Symposium on "International Trade and the Environment",
Washington, D.C., November 21-22, 1991.  The author gratefully acknowledges the assistance of his
colleagues at the National Wildlife Federation, and the comments and criticisms of Hal Kane, an outside
reader, during the preparation of this paper.                                   •
                                                                      SUPPORTING PAPERS a  43

-------
      Frictions Between International  Trade
 Agreements and Environmental Protections

           Durwood Zaelke, Robert Housman, and Gary Stanley
                               I. INTRODUCTION

    The underlying goal of free trade policy is to allow markets to allocate resources to their most efficient
uses, while the general goal of environmental policy is to manage efficiently and maintain the earth's resources.
Where the same resourcesare the subject of both trade efforts to allocate and. environmental efforts to manage
efficiently and maintain, conflicts can and do arise. These conflicts between trade and the environment must
be reconciled, because both trade and environmental policies are too important to let conflicts persist. Yet
many environmentalists still believe that the economic system, including trade, is the enemy; and many trade
and development experts still believe that the environment is not a fundamental part of the economy, but
rather a luxury to be added on later, when and if it can be afforded.
    The trade and environmental communities have different training and professional "cultures." Trade
experts are guided largely by economic principles: efficiency and comparative advantage, to name two.
Environmental experts are informed more by the biological sciences and ecological principles than by
economics.
    On the other hand, most environmental professionals appreciate the need to internalize environmental
costs, and many now see that market-based strategies may be more efficient than command and control in
achieving this in many instances. In addition to the common language of cost internalization, both the trade
and environmental cultures also use law to help implement their goals and to resolve disputes.
    Given time, it seems reasonable to expect that sustainable development will be accepted as the legitimate
goal of both trade and environmental policy. As the Trade and Environment Committee noted last summer,
"[o]n the most fundamental level, trade and environmental policy must meet in the concept of sustainable
development. Both trade policy and environmental policy must serve that concept as their ultimate goal."
    The problem, of course, is that time appears to be running out. World population is expected to double
44 a  THE GREENING OF WORLD TRADE

-------
to ten billion by the middle of the 21st century and may not stabilize until it reaches 14 billion in the early part
of the 22nd century. Moreover, the world economy of $15 trillion may reach $75 trillion by the middle of the
21st century.
    Even with the most optimistic projections of technological advancement, these trends in population and
the economy are almost certainly not sustainable.  Even more troubling, the scale of today's development
already appears to be pverextending the ecosystem that sustains us all. "Further growth beyond the present
scale," according to World Bank senior economist Herman Daly, "is overwhelmingly likely to increase costs
more rapidly than it increases benefits, thus ushering in a new era of 'uneconomic growth' that impoverishes
rather than enriches." paly believes that "[t]his is the fundamental,wild fact that so far  has not found
expression in words sufficiently feral to assault successfully the civil stupor of economic discourse."
    As the critical scientific and policy debate about the limits of the ecosystem goes on, it is necessary for
the legal relationships between trade agreements and environmental agreements to be reconciled. Accord-
ingly, this memorandum reviews provisions within the General Agreement on Tariffs and Trade ("GATT")
and other trade agreements that may be relevant to environmental concerns.  It  then reviews several
international environmental agreements and domestic laws for possible frictions with those trade provisions.
It concludes with a brief discussion of issues and options for reducing or eliminating such frictions.
          II.  PROVISIONS WITHIN TRADE AGREEMENTS RELEVANT TO
                 ENVIRONMENTAL AGREEMENTS AND CONCERNS

     The GATT is the legal framework under which almost all trade among nations occurs. Co-existing with
the GATT are a number of regional trade agreements (e.g. the European Free Trade Association) and bilateral
trade agreements (e.g. the United States-Canada Free Trade Agreement).                          ,
     The goal of the GATT and these other agreements is to provide a secure and predictable international
trading environment while at the same time fostering greater economic efficiency and growth through trade
liberalization. The GATT's preamble, for example, begins with the recognition "that-trade and economic
endeavor should be conducted with a view to raising standards of living, ...developing the full use of the
resources of the world and expanding the production and exchange of goods...." Free trade proponents argue
that utilizing the "comparative advantage" of individual countries leads to maximum welfare for all.
However, as Stewart Hudson has noted in his paper for the Trade and Environment Committee, it is
important to keep in mind that the economic activity spawned by trade has significant positive and negative
consequences for the environment when viewed in the context of sustainable development.


                                          A. GATT

     The GATT consists of three major parts: Part I (Articles I to III) which contains the most-favored-nation
("MFN") and tariff concession obligations; Part II (Articles III to XXIII) — sometimes referred to as the "code
of conduct" — which contains the majority of the GATT's substantive provisions and the exceptions to its
                                                                       SUPPORTING PAPERS  a  45

-------
obligations; and Part III (Articles XXIX to XXXVIII) which contains the procedural mechanisms for imple-
menting the other obligations and provisions contained within the GAIT.

    1. CATT's GENERAL TRADE PRINCIPLES AND THEIR ENVIRONMENTAL IMPLICATIONS

      a. The Most-Favored-Nation-Principle:
     Established by Article I, the most-favored-nation principle ("MFN") is intended to ensure that the
contracting parties do not discriminate among imported products on the basis of their national origin. The
MFN obligation requires that each contracting party extend any privilege or advantage it provides to a
product immediately and unconditionally to like products from, or destined for, all GATT contracting
parties.
     Because the MFN obligation requires all like products from contracting parties to be treated equally, it
poses an obstacle to a contracting party wishing to use trade restrictions to punish or otherwise attempt to
influence a particular exporting country's domestic environmental policies. The MFN obligation has been
found to apply to labeling schemes that are not marks of origin, including "eco-labeling" regimes. Therefore,
government labeling requirements relating to production process methods  ("PPMs") that grant market
access or have the effect of providing market advantages may also conflict with this GATT provision.^

      b. The National Treatment Principle:
     Article Ill's national treatment principle requires that a contracting party treat like foreign and domestic
products equally once tariffs and other import requirements have been met. This requirement has been read
narrowly by GATT dispute settlement panels to permit parties to subject imports to only those domestic
regulations that apply directly to, or affect the physical and/or chemical composition of, the product in
question.  Thus, as the Tuna/Dolphin Panel Report demonstrated, a contracting party that distinguishes
among imported  products based on the environmental  soundness  of  the exporting party's PPMs is
vulnerable to attack under Article III.

      c. The Prohibition of Quantitative Restrictions:
     GATT Article XI prohibits quantitative restrictions such as quotas, bans, and licensing schemes on
imported or exported products.  Article XI contains several exceptions that allow departure from its general
proscription against quantitative restrictions in certain strictly defined circumstances, such as the application
of standards to  internationally-sold commodities and agricultural products.^ Even when the exceptions
permit a quantitative restriction, the contracting parties must still observe the MFN and national treatment
obligations in implementing it/* By broadlyprohibitingquantitative restrictions, ArticleXI arguably conflicts
with such environmental measures as conservation bans or limits imposed on exports of resources, unless
they can be justified under one of the general exceptions to the GATT contained in Article XX. Examples of
environmental measures that may run afoul of Article XI include the United States law banning the
exportation of old growth timber harvested  from federal lands^ and the proposed EC and Dutch bans on
unsustainably harvested  timber.
46  n THE GREENING OF WORLD TRADE

-------
    2. OTHER G ATT ARTICLES AND THEIR IMPACTS ON ENVIRONMENTAL AGREEMENTS AND
     CONCERNS
    In addition to the GATT's general principles, many of the GATT's other Articles could cause frictions
to arise between trade and environmental policies.

      a. Article II: Maximum Tariff Barriers:
    Article II establishes the negotiated maximum tariff levels, as provided for in the accompanying annexes
to the GATT, for national products.  This Article also prohibits the imposition of import surcharges by
exempting the scheduled items from all other duties and / or charges imposed in connection with importation.
Article II(2)(a), however, provides exceptions from the maximum tariff levels for: 1) any charge imposed on
an import, consistent with the national treatment principle, that is equivalent to an internal tax imposed on
the  like domestic product or articles from which the like domestic and imported products are derived; 2)
antidumping or countervailing duties applied consistent with the GATT; and 3) fees or charges, in accordance
with Article VII (valuations for customs purposes), commensurate with the costs of services rendered.
    The only deviation from the environmental neutrality of Article II occurs in the case of products which
appear on the Article's annexed lists of scheduled items. If a product is listed, such as tropical timber, then
a contracting party cannot levy new, additional import taxes or other charges, such as a sustainable use tax,
on the products that do not conform with the listed negotiated charges.

      b. Article VI: Antidumping and Countervailing Duties:
     Article VI condemns the practice of dumping (the introduction of products by one contracting party into
the markets of another contracting party at less than the normal value of the products) if it causes or threatens
material harm to a domestic industry, or retards the establishment of a domestic industry. Article VI also sets
the  ground rules for contracting parties to impose antidumping duties on imported products to combat
dumping and to apply countervailing duties to offset bounties or subsidies relating to imported products.
The scope and details of Article VI were significantly elaborated upon by the Subsidies Code negotiated in
the Tokyo Round of Multilateral Trade Negotiations. An analysis of the environmental implications of Article
VI, as well as Article XVI regarding subsidies, can be found in section II.3.b. of this memorandum regarding
the Subsidies Code.

      c. Article X: Transparency and Equal Access to Review Processes:
     Article X requires transparency in the publication and administration of all regulations affecting trade.
It does not provide, in reciprocal fashion, affected citizens or consumers access to information or recourse to
review procedures when imports or exports allegedly cause them environmental harms. Moreover, the
transparency requirements in Article X do not apply to the GATT's own information and review processes.

      A, Article XIX: Emergency Measures Provisions:
     Article  XLX allows a contracting party to impose emergency trade restrictions to protect a domestic
industry that is seriously threatened by imports.  If an environmental regulation so burdens a domestic
industry as to place it in jeopardy, Article XIX allows the contracting party to adopt measures to protect its
                                                                      SUPPORTING PAPERS o  47

-------
 industry. The procedural and political burdens of invoking Article XIX, however, significantly diminish its
 value as a bridge between trade and environmental concerns.

       e. Article XX: Policy Exceptions:
     Article XX establishes certain limited exceptions to the contracting parties' general obligations under the
 GATT for measures based on national policy considerations. These exceptions do not exempt measures that
 constitute means of arbitrary or unjustifiable discrimination between countries where the same conditions
 prevail or are disguised restrictions on international trade. In a challenge to a contracting party's action, the
 party seeking to invoke Article XX to justify a departure from the G ATT's general obligations bears the burden
 of proving that the action: 1) was justified and not arbitrarily applied; and 2) was proportional in scope (i.e.,
 "necessary") to the concern giving rise to the action so as to meet the objectives of the exceptions.

       i)Article XX(b): Human, Animal, and Plant Life or Health:
     Article XX(b) provides an exception for measures "necessary to protect human, animal or plant life or
 health." The Tuna/Dolphin Panel held that Article XX(b)'s exception is available only for health, safety, and
• preservation initiatives within a contracting party's jurisdiction, and not within the global commons (or
 within the jurisdiction of a third party state).
     In the G ATT dispute panel report covering "Thailand - Restrictions on Importation of and Internal Taxes
 on Cigarettes," the term "necessary" as used in Article XX(b) was interpreted as requiring that: 1) no
 reasonably available alternative measure consistent with the GATT existed; and 2) the measure taken was the
 least trade restrictive measure of all the available alternatives. Elaborating on this, the Tuna/Dolphin Panel
 Report noted that the United States had not demonstrated to the Panel — as required of the party invoking
 an Article XX exception — that it had exhausted all options reasonably available to it to pursue its dolphin
 protection objectives through measures consistent with the GATT, including, in particular, the negotiation
 of international cooperative arrangements relating to dolphin protection. Moreover, even assuming that an
 import prohibition were the only measure reasonably available to the United States, the panel felt that the
 course chosen by the United States could not be considered necessary within the meaning of Article XX(b)
 because of its unpredictable application.^
     The limitations placed on the use of Article XX(b) by recent GATT dispute panel reports has conse-
 quences for many measures currently sought by environmental groups.  The dispute panel reports put in
 question the use of Article XX(b) as a justification for unilateral trade restrictions aimed at either influencing
 other contracting parties' domestic environmental practices or protecting at-risk resources in the global
 commons.

      it) Article XX(g): Conservation of Exhaustible Natural Resources
     Article XX(g) provides an exception for measures "relating to the conservation of exhaustible natural
 resources if such measures are made effective in conjunction with restrictions on domestic production or
 consumption."  The GATT dispute panel in its report on  "Canada - Measures Affecting Exports of
 Unprocessed Herring and Salmon" stated that any trade measure taken under the guise of Article XX(g) must
 be "primarily aimed at" conserving the resource.7 Under this standard trade measures aimed at preserving
 48  n  THE GREENING OF WORLD TRADE

-------
a resource need not be necessary to preserve the resource, but instead need only to be: 1) primarily aimed at
preserving the resource; 2) taken in conjunction with domestic restrictions on the use of the resource; and 3)
primarily aimed at rendering the domestic restriction effective.
    As with Article XX(b), prior to the Tuna/Dolphin Panel Report, Article XX(g) was viewed by many as
a mechanism for allowing environmental protection actions of the contracting parties that would otherwise
be in conflict with their obligations under other provisions of the GATT. The Tuna/Dolphin Panel Report,
however, interprets the scope of Article XX(g) much more narrowly. The Tuna/Dolphin Panel Report found
that Article XX(g) did not apply to measures that extend beyond the jurisdiction of a party. Additionally, the
Panel narrowed the scope of Article XX(g) by reading Article XX(g)'s "primarily aimed at" test to require
many of the more stringent requirements that the Panel applied under Article XX(b)'s "necessary" test.

      iii) Article XX(h): Intergovernmental Commodity Agreements
    Article XX(h) provides an exception for the actions of the contracting parties taken  pursuant to
obligations these contracting parties have incurred under any international commodity agreement. Article
XX(h) is  looked upon by certain GATT scholars as the precedential model for the creation of a similar
exception for actions taken to  accomplish obligations incurred under international environmental agree-
ments."

      /.  Article XXII and Article XXIII: Dispute Resolution Procedures:
    Articles XXII and XXIII provide the basis for the GATT's dispute resolution procedures.  Article XXII
allows for informal consultations to take place between the parties in dispute without the need to invoke a
formal GATT proceeding. Article XXIII provides for two alternative methods for the formal resolution of
GATT disagreements: subsection (1) provides for a process of exchanging written representations while
subsection (2) provides for a process of submission to the contracting parties for the establishment of a dispute
panel.                                                          .
    While these dispute resolution mechanisms have been enhanced by the Tokyo Round's Understanding
Regarding Notification, Consultation, Dispute Settlement and Surveillance (discussed in section III.3.d of this
paper), both the formal and informal dispute resolution mechanisms provided for in Articles XXII and XXIII
are quite opaque, precluding affected populations from playing  an oversight role during the  dispute
resolution process. This is of considerable concern to environmentalists, who have traditionally sought
standing to challenge environmentally-related government actions in domestic courts and to participate in
the shaping of environmental policies.

      g.  Article XXIV: State and Local Laws:
    Article XXIV:12 obliges each contracting party to take all reasonable measures to ensure that the
obligations provided in the GATT are complied with at sub-national levels, including the actions of regional,
State, and local governments. A great number of environmental laws and regulations, especially within the
United States, exist at the sub-national level. Local, State, and regional environmental laws and regulations
that do not comply with the GATT could place a contracting party in violation of its GATT obligations.^
                                                                       SUPPORTING PAPERS  a 49

-------
    3. TOKYO INSTRUMENTS AND THEIR IMPACTS ON ENVIRONMENTAL AGREEMENTS AND
     CONCERNS

       a. The Agreement on Technical Barriers to Trade:
     The Agreement on Technical Barriers to Trade, commonly known as the "Standards Code," is intended
 to ensure that the testing and adoption of technical regulations or standards relating to health, safety,
 consumer and environmental protection, and other police power type purposes do not create unnecessary
 barriers to trade. In accordance with G ATT Article X's transparency mandates, the Standards Code requires
 contracting parties to notify other parties of such standards and regulations where they differ from
 international standards, or are adopted in the absence of any international standard and are expected to have
 an impact on traded" After notification, the other parties have the opportunity to comment on the measures.
     While the Standards Code generally follows Article XX, the environmental scope of the code is arguably
 broader than that article. The term "environment" is explicitly mentioned in the code. The ramifications of
 this for transparency purposes and for international harmonization of environmental standards remain to be
 seen.

       b. The Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the GATT:
     The Agreement on Interpretation  and  Application of Articles VI, XVI, and XXIII of the General
 Agreement on Tariffs and Trade, or  the "Subsidies Code" substantively expands GATT Article XVI's
 provisions to more forcefully encourage the parties to eliminate subsidies as a form of domestic trade
 regulation.  Pursuant to the GATT, as expanded  upon by the Subsidies Code, a contracting party that
 subsidizes a domestic industry to reduce any additional costs its domestic industry must bear because of
 stricter environmental standards is likely to be in violation of its GATT obligations. If a contracting party
 commences a subsidy to its industries to mitigate the costs its industries bear because of environmental cost
 internalization, the industries' exports could be subject to the imposition of countervailing duties by other
 contractingpar ties seeking to eliminate the subsidy. An example of a conservation subsidy that might conflict
 with the code is the Canadian Government's  subsidization of reforestation efforts and the development of
 sustainable forestry practices.^
     In addition to effectively precluding contracting parties from subsidizing their industries for the costs
 of complying with higher environmental standards (at least where the industries are export-oriented), the
 Subsidies Code also makes it difficult for a contracting party to institute countervailing measures, under
 Article VI, to combat the environmental standards subsidies provided by lower environmental standards.

      c. The Agreement on Import Licensing Procedures:
     The goal of the Agreement on Import Licensing Procedures is to ensure that import licensing and
registration schemes are not used by the contracting parties to erect protectionist barriers to free trade. The
Agreement establishes requirements parties must follow in their national procedures for the submission,
review, and granting of importation licenses for products entering their  markets. The  Agreement also
establishes certain limitations as to the penalties that can be administered for violations, including omissions
and misstatements, of such national licensing requirements.
50  a THE GREENING OF WORLD TRADE

-------
    A number of national and international environmental protections that attach to import licenses, such
as the United States' Resources Conservation and Recovery Act,!2 are based on stringent information and
documentation regimes that must be followed to their letter or else substantial penalties attach. At least at
present, there have been no challenges to such programs under the Agreement on Import Licensing
Procedures that would shed light on its application in an environmental context.

      d. The Understanding Regarding Notification, Consultation, Dispute Settlement, and
       Surveillance:
    One of the GATT's most important goals is to provide a forum for the peaceful resolution of trade
conflicts. The Understanding Regarding Notification, Consultation, Dispute Settlement, and Surveillance
establishes the procedural framework for the handling of disputes between the contracting parties arising
under the terms of the GATT. Because these procedures place a priority on easing the political difficulties that
can arise in a multinational dispute, they include a number of provisions geared towards allowing the parties
to negotiate freely, unbridled by the spotlight of public attention and  oversight.
    Because the Understanding cloaks its dispute resolution procedures, its process contrasts sharply with
the American system of citizen access to information and public participation and oversight. Areas of friction
between this experience and the Understanding's dispute resolution provisions focus on: 1) the closed nature
of the G ATT dispute resolution process, including the exclusion of interested citizens and non-governmental
organizations from presenting information to GATT dispute panels; 2) the embargo Of papers submitted by
the parties to GATT panels; and 3) the embargo of panel decisions for a period of time to allow for negotiations
to take place.
    Moreover, the decisions that result from the dispute resolution processes are based solely on the terms
of the GATT.  Therefore, the dispute resolution process, and the decisions that  ensue, suffer from the
environmental limitations embodied within the GATT as a whole.

    4. INSTRUMENTS UNDER NEGOTIATION IN THE URUGUAY ROUND AND THEIR  IMPACTS ON
     ENVIRONMENTAL AGREEMENTS AND CONCERNS
    The underlying intent of the Uruguay Round is trade liberalization through the removal of the
remaining barriers to free and fair trade. Trade liberalization, per se, is not necessarily linked to either
environmental degradation or environmental preservation and remediation. Rather, it is the processes and
mechanisms by which trade is liberalized that can have environmental implications. The 105 parties —
GATT's 102 will be joined by three developing nations — participating in the Uruguay Round are discussing
fifteen primary negotiating goals, of which at least ten have environmental implications.13

      a. Tariff Reductions:
                                   -     : •••-r'  • •••••?•">' *- -.-rrti -H-. +w»r.-iit,r,TOA., M,U ,0 ii)UA  d-»*   •
    The tariff reductions under negotiation in the Uruguay Round apply exclusively to imports. During the
course of these negotiations, emphasis has been placed on "tariffication," or the elimination of quotas in the
agricultural sector. While tariff reductions could cause demand side pressures for the over utilization of
developing nation resources, these increased demands may be balanced by the effects of eliminating tariff
escalation schemes that place higher tariffs on more processed products, and by increased access to
                                                                       SUPPORTING PAPERS a  51

-------
 developing country markets for goods from developed countries. By eliminating escalating tariff schemes,
 the disincentives to the production, within developing nations, of higher value added products are removed.
 By encouraging developing nations to produce products that increase wealth through additional human
 labor, as opposed to through higher rates of resource consumption, tariff reductions can diminish demands
 on developing nation resources.

       b. Reduction of Agricultural Subsidies:
     One of the main priorities of the United States and certain other developed countries in the Uruguay
 Round is the reduction of agricultural price supports, export subsidies, and border controls. Agricultural
 subsidies, like all other forms of subsidies, create trade distortions that lead to inefficiencies in resource
 usages.  In developed countries, specific area agricultural subsidies have  been a major factor in the
 specialization of agricultural activities. This has caused distortions in the natural development of agricultural
 markets with preferences going to development within these subsidized sectors.
      In developed countries, the trade distortions from agricultural subsidies include increasing loss of
 biodiversity and heightened demands being placed on already diminishing available water resources. Thus,
 assuming that unanticipated negative environmental results do not outweigh anticipated benefits, the
 elimination of agricultural subsidies in developed nations should have a positive environmental effect.
     In developing nations, the effects of agricultural subsidies cuts are more uncertain and will vary to a large
 extent from country to country, depending on the manner in which each nation removes such subsidies.
 Generally speaking, however, environmentalists have expressed fears that the elimination of agricultural
 subsidies will cause increased demand for these agricultural products, increasing the pressure to clear and
 put to tillage greater amounts of marginal lands.
     The overall environmental balance of the elimination of agricultural subsidies will, to a large extent, be
 decided by the treatment the Round affords to domestic agricultural support measures taken to reduce the
 degrading effects of current agricultural production methods. Examples of such support measures include
 the United States' conservation reserve program which provides subsidies to retire vast amounts of farmland
 as a soil conservation measure, and the European Communities Common Agricultural Policy provisions
 granting subsidies to set aside farmlands that are environmentally sensitive. Many of the Uruguay Round
 participants have expressed the view that such measures, provided they meet certain criteria,  should be
 excluded from the agricultural subsidies the Round is considering eliminating.

      c. Liberalized Trade in Natural Resource Products:
     One of the primary goals of the developed nations in the Uruguay Round is the removal of trade barriers
 to the free flow of natural resources and natural resource-derived products. The ongoing negotiations in the
 natural resource-derived products group riave focused on liberalized trade in fisheries, forestry, minerals,
 and non-ferrous metals. Efforts of the developed nations in this group have been aimed at the elimination
 of domestic export controls  by developing countries.  Meanwhile, the developing nations' agenda in this
 group has focused on increasing the access their products enjoy to the markets of the  developed countries.
     If this group is successful in forging an agreement that removes export controls and/or increases market
52  a THE GREENING OF WORLD TRADE

-------
access for developing nations' natural resource-derived products, then it is possible that demand for these
products will increase — creating disincentives to the sustainable management of these natural resources.

      d. Technical Barriers:
     Also among the Uruguay Round's negotiating goals is the curtailing of non-tariff, or technical, barriers
to trade, such as automobile emission standards. Increased emphasis on removing technical barriers to trade,
including labeling requirements, could adversely effect the ability of the contracting parties to adopt
environmental or conservation-oriented policies and laws.  Under the rules now being discussed in the
Uruguay"Round, where international technical standards exist parties have an obligation, subject to certain
narrow exceptions, to adopt these standards. Moreover, the agreement now being negotiated would require
federal governments to take affirmative actions to bring standards adopted at the sub-federal level into
compliance with GATT.  This proposed rule would severely limit the  ability of states  and municipal
governments to regulate local environmental concerns.  Additionally, the proposed rules would make
technical barriers subject to full GATT enforcement mechanisms, including countervailing duties and
dispute resolution procedures. Thereby diminishing the ability of the parties to maintain environmentally
motivated non-tariff barriers.

      e. Trade in Tropical Products:.
     In addition to the Uruguay Round's general attention to eliminating barriers to trade in natural resource-
derived products and to agricultural subsidies, similar proposals are being negotiated in the specific context
of tropical products and resources. The negotiations on tropical products, focusing mainly on plant-derived
foods, but also including tropical timber, tobacco, and natural rubber, seek to reduce tariffs on these products
and eliminate non-tariff barriers to their trade.
     As discussed in section II.4.a above, the expected  environmental effects of tariff reductions are
somewhat mixed, and these reductions may ultimately produce benefits to the environment. The environ-
mental effects of tariff reductions, however, may not be as benign in tropical regions where many of the food
products — for example, coffee and coconut palms — that could experience demand-driven production
intensification are grown on cleared forest lands.                                 •

      f. Trade Related Aspects of Intellectual Property Rights:
     The negotiation of Trade Related Intellectual Property Rights ("TRIPS")  has been one of the more
contentious areas under consideration in the Uruguay Round.  Developed countries, recognizing the trade
distorting effects of the lack of effective intellectual property protections, are looking to the TRIPS negotia-
tions to provide international protections against widespread "pirating" of intellectual property from their
research organizations and  industries. Developing nations,.many, of which continue,Jo, kck^effective
domestic intellectual property  protection mechanisms, have sought  to trade concessions on a TRIPS
agreement for greater access to developed nations' markets for their TRIPS products and as inducement for
concessions in other areas of the Round. Additionally, some developing countries have argued that the need
to  stimulate domestic development justifies lower levels  of intellectual property rights protection in
developing countries, and have sought to distinguish intellectual property rights and trade issues.
                                                                        SUPPORTING PAPERS  a 53

-------
     The TRIPS agreement could have two significant environmental ramifications. First, certain environ-
mental  organizations fear that stronger intellectual property protections will hamper the transfer of
environmentally-sound technologies to developing countries, especially in light of the transfer goals of the
Montreal Protocol and the global warming agreement currently being negotiated. However, it is likely that
such protections would actually assist the transfer of such technologies, although developing countries may
find themselves in need of financial assistance to pay for the costs of such technologies. In general, evolving
environmentally-friendly technologies are owned by private entities, and unless the private investments in
developing these technologies are secure from "piracy," these private parties will be reluctant to supply these
technologies to much of the developing world.
     Second, industries in developed countries are increasingly turning to biodiverse ecosystems, such as
tropical rain forests, as resource warehouses, and to the indigenous peoples who live in these ecosystems for
their traditional knowledge about the resources these ecosystems hold.^^ At issue in the Uruguay Round's
negotiations is whether or not the contributions of indigenous discoverers, preservers, and users, and
national governments that preserve these ecosystems, will receive some form of  intellectual property
recognition to give economic value to their efforts. A trade agreement providing tangible benefits to these
indigenous peoples and national governments would encourage the preservation of these ecosystems and
indigenous cultures, whereas the failure of the  Round to come to such an agreement could substantially
frustrate even ongoing conservation and preservation efforts.

      g. The "Development Policy":
     Throughout the G ATT's history, developing nations have been accorded special privileges to accommo-
date their development needs. This commitment, called the "Development Policy," as seen in G ATT Articles
XII and Kill's balance of payment provisions, permits developing nations to use trade restrictions, including
import curbs and export limits, that are unavailable to other contracting parties. Developed countries are
using the Uruguay Round to encourage developing countries to relinquish many, if not all, of these special
privileges.
     While reducing the barriers to trade can have certain environmental benefits, see supra section II. A.4.a,
if the Development Policy is rescinded, the inability of these nations to provide protections to fledgling
industries could cause these industries to adopt practices aimed at short-term survival, as opposed to long-
term sustainability.  The ultimate environmental accounting of this proposal is difficult to quantify at this
time.

      h. Subsidies and Countervailing Measures:
     In an effort to provide greater clarity and reduce international trade conflicts, the Uruguay Round is
attempting to classify a range of subsidies into three general categories: 1) permissive subsidies; 2) "proceed
at the risk of domestic countervailing duty proceedings" subsidies; and, 3) prohibited subsidies. The current
draft Agreement on Subsidies and Countervailing Measures under negotiation attempts to place environ-
mental subsidies in the permissive, or "no-action" category.
     The types of programs that would likely benefit if the permissive classification extends to environmental
subsidies include Canada's program of subsidizing the development of sustainable forestry practices.
54  n THE GREENING OF WORLD TRADE

-------
Classification of environmental subsidies, however, in the "proceed at risk" category would continue the
status quo, and classification in the prohibited category, while unlikely, would arguably be a blow to
environmental initiatives.

     • i. Harmonization of Environmental, Health, and Safety Standards:
     One of the most environmentally important negotiations underway in the Uruguay Round is the
negotiation of harmonized health and environmental standards.15 The Uruguay Round's negotiations on
harmonization of standards have been premised on three principles: 1) parties must adopt strict principles
of national treatment in standard setting and enforcement; 2) parties' decisions to permit or restrict the
availability of a new product or technology may only be based upon "sound scientific evidence"; and 3)
international agencies, such as Codex Alimentarius, are the only legitimate sources of scientific information.
     Harmonization of standards could produce either more stringent or lenient standards depending upon
how the process develops.  If existing levels of protection are not compromised in the process, the
harmonization of environmental, health, and safety standards could have significant environmental and
trade benefits. By providing unified standards, harmonization would diminish the burdens imposed on
internationally-traded products by the plethora of sometimes widely divergent national standards which
now apply to these products. Moreover, harmonized standards that ratchet up the environmental, health,
and safety standards of nations with lower levels  of existing protections would bring much needed
protections to many nations.
     Additionally, whether or not industries actually migrate to nations with lower environmental stan-
dards, harmonized  standards would remove the incentive for industries to do so.  Developing nations,
however, fear that ratcheting up standards to the level of the developed world would be an impediment to
increased market access for their products and would deprive them of the ability to choose increased levels
of development, as opposed  to higher levels of environmental quality.
     If, however, instead of ratcheting up national'standards in contracting parties with low levels of
protections, the agreed-upon harmonized standards adopt a least common denominator approach, reducing
the environmental protections in countries with higher standards, environmental protection  will suffer.
Additionally, the strict harmonization of standards could hamper the evolution of environmental protections
by removing the ability of individual contracting parties to push the envelope of environmental standards
forward.
     The delegation of environmental, health, and safety standard-setting to international appointees, rather
than democratically elected  representatives, could undermine developing democratic processes in many
nations. It also raises conflicts with the traditional processes of public participation and accountability in
nations, including;, the United States, with established democratic schemes of governance. Additionally,
                0  •'- •'•"- '••"'	-"•'•' ' ••sof7,--.*;L«c-, t-srB.-S'*;* ^VSVOmifui^sc.-^ii nj-.'iy :!.•• , ....   •.   -. - .„, , .,  '
concerns have been expressed over presence of procedural obstacles, such as the lack of a  paper trail of the
decision making process, to effective peer review of these internationally set standards.

       ;'. Trade in Services:
     Article XTV in the draft  Agreement on Trade in Services contains exceptions to the general obligations
 set out in the agreement. These exceptions to a large extent parallel the public policy exceptions to GATT's


                                                                        SUPPORTING PAPERS a 55

-------
 general obligations contained in GATT Article XX. Certain countries have proposed that Article XIV should
 not only allow the parties to take measures necessary to protect human, animal and plant life and health, but
 should also allow for measures which are necessary for "sustainable development and environment,"
 "cultural values," and "conservation of exhaustible natural resources."

       k. Dispute Resolution:
     The dispute resolution rules being negotiated  in the Uruguay Round would  make a number of
 significant changes to the existing GATT dispute resolution framework. First, under the proposed rules,
 unless a consensus of the parties vote against adopting the report of a dispute resolution panel, all panel
 reports are automatically adopted 60 days  after publication.  This change would reverse the current rule
 which requires a consensus of the parties to adopt the decision of a dispute resolution panel.  This would
 minimize the ability of the parties to block the adoption of panel decisions, thereby exacerbating the potential
 for direct conflicts between GATT obligations and environmental protections.
     The Uruguay Round dispute resolution proposal would also expand the reach of the GATT's dispute
 resolution mechanisms, including the application of countervailing sanctions and the availability of dispute
 panels, to explicitly include sub-federal level trade restrictions. This proposal would expose a host of sub-
 federal level environmental regulations to potential GATT challenges.
     Additionally, the proposed dispute resolution rules strengthen the enforcement of GATT obligations
 over trade restrictive actions of the parties by: 1) increasing the burden on parties defending against a GATT
 challenge by requiring the defending party to rebut the inference that a breach of a GATT obligation entails
 an injury to challenging party; and 2) affirmatively charging parties that violate GATT obligations with either
 coming into compliance with its GATT obligations or facing trade sanctions. Strengthening the enforcement
 powers of GATT would exacerbate the already existing potential for direct conflicts between the GATT and
 environmental initiatives.

       /. Multilateral Trading Organization:
     The final proposed text of the Uruguay Round would also establish a Multilateral Trading Organization
 ("MTO"). The proposed MTO would adopt the GATT as it exists after the Tokyo and Uruguay Rounds as
 its rules, and would have in all territories of the member states, the legal capacity, privileges and immunities
 as may be necessary to carry out its functions under these rules. The creation of a MTO as now proposed
 would significantly expand the powers and scope of GATT, increasing  the GATT's ability to trump
 environmental regulations. Additionally, the creation of an MTO might re-start the GATT's clock, making
 the GATT later in time than most environmental laws and agreements.16


                                   5. Other GATT Activities

       a.   The Working Group on the Export of Domestically Prohibited Goods and
        Other Hazardous Substances:
    In 1982, the contracting parties agreed  that it was appropriate for the contracting parties to examine
56  a THE GREENING OF WORLD TRADE

-------
measures to control the export of products which are prohibited from sale in domestic markets, yet are
allowed to continue as exports. This agreement evolved into the creation by the GATT Council in 1989 of the
Working Group on the Export of Domestically Prohibited Goods and Other Hazardous Substances.  This
working group examines the trade-related aspects of ongoing international work to regulate the flow of such
goods and substances among the contracting parties.
     The working group is currently considering a Draft Decision on Products Banned or Severely Restricted
in the Domestic Markets. This draft, as now written, covers all products (including hazardous wastes) that
a contracting party determines present a serious and direct danger to human, animal, or plant, life, or health,
or the environment within the contracting party's territory, and which are banned or severely restricted
within the contracting party's domestic markets.17 The draft also includes notice provisions requiring the
contracting parties to notify the GATT Secretariat of all such banned or restricted products for which no
similar actions to control exports have been taken. The draft, in an effort to avoid conflict and duplication,
does not apply to substances covered under another international regime (such as the Basel Convention
discussed in Section III. A.3) to which the contracting party in question is a signatory. An agreement allowing
the contracting parties to take efforts to regulate trade in hazardous and otherwise restricted substances could
provide substantial environmental protections, as well as allowing international.environmental agreements
pertaining to similar matters greater ability to conform with GATT's mandates.

      b. The Group on Environmental Measures and International Trade:
     The Group on Environmental Measures and International Trade was originally established at the
November 1971G ATTCouncil meeting. In the ensuing twenty years, the group hasbeen dormant. However,
as a result of pressure from European Free Trade Association member states and other countries, the group
has recently been convened. The group's current agenda is as  follows: 1) trade provisions contained in
existing multilateral environmental agreements; 2) multilateral transparency of national environmental laws
and regulations that are likely to have effects on trade; and 3) trade effects of newly developing domestic and
international "eco" packaging and labeling requirements. Additionally, the group is discussing a GATT
contribution to the 1992 United Nations Conference on Environment and Development.  Believing that the
GATT is not the appropriate forum for such discussions, certain GATT parties, most notably the developing
nations, were reticent to convene the group.
     Given the group's early emphasis on the impacts of environmental protection on trade, a number of
environmental  groups have expressed  fears that the group will focus  on how the environment and
environmental protections can be made subject to trade's regimes, as opposed to finding some way of
reconciling the concerns of both trade and environmental interests. At this time, it is unclear to what extent
these fears are justified.


               B. The Environmental Implications of the CFTA and the NAFTA

     Although the vast majority of trade occurs und.er the umbrella of GATT,  there are a wide range of
additional regional and bilateral trade agreements that have a hand in determining patterns of national and
                                                                       SUPPORTING PAPERS  a 57

-------
 international resource use.  In the context of resource consumption patterns in the Americas, the most
 important of these bilateral agreements are the United States/Canadian Free Trade Agreement ("CFTA") and
 the ongoing negotiation of a trilateral North American free trade agreement among the United States,
 Canada, and Mexico ("NAFTA").

     1.  NAFTA
     NAFTA, in particular, has been the subject of intense scrutiny by environmentalists. Proponents of
 NAFTA argue that it, and the negotiations leading up to the agreement, will provide Mexico with both the
 impetus and resources to address its environmental difficulties. Critics argue that absent significant changes
 in Mexico's environmental practices, NAFTA will open the way for U.S. industries to escape U.S. environ-
 mental requirements by moving their operations to Mexico.  They also argue that the increased economic
 activity in Mexico, absent proper environmental controls, will only exacerbate Mexico's environmental
 problems. Finally, they criticize the U.S. decision to deal with environmental issues on a parallel track rather
 than as an integrated part of NAFTA.

     2.  CFTA
     The concerns over NAFTA have been heightened by problems arising out of CFTA. Challenges to
 domestic environmental laws as non-tariff trade barriers and harmonization through reduction of standards
 under CFTA have pointed out the weaknesses of negotiating trade agreements without regard to environ-
 mental  issues.
     The CFTA has been used both as a sword against domestic environmental regulation and as a shield
 permitting reduced environmental and health standards. For instance, the CFTA and G ATT prohibitions on
 non-tariff trade barriers have been utilized by both U.S. andCanadian entities to challenge the other nation's
 domestic environmental laws. The U.S. Non-Ferrous Metal Producers Committee has challenged Canadian
 environmental and safety programs in lead, zinc and copper smelters as unfair trade practices under the
 CFTA. Conversely, EPA regulations that would phase out production, importation, and use of asbestos were
 challenged in U.S. Federal court by both the Canadian asbestos industry and the Canadian government as
 violations of CFTA and GATT.
     Further, harmonization required under CFTA has arguably resulted in lower environmental standards
 and reduced import protections at the border. For example, Canadian pesticide regulations now are set using
 the U.S. risk-benefit model rather than the pre-existing, more stringent Canadian requirements. In addition,
 inspection of Canadian meat at the U.S. border was replaced by a "streamlined" random inspection system
 to further the CFTA goal of reducing trade restrictions. A1990 U.S. Department of Agriculture proposal to
 end U.S. meat inspections along the Canadian border as part of the CFTA18  was abandoned in 1991.19
 Incentives built into trade agreements, such as provisions of the CFTA exempting energy exploration and
 development from the CFTA, can run counter to previously-negotiated international environmental agree-
 ments, such as those concerning air pollution and ozone depletion,
58  n THE GREENING OF WORLD TRADE

-------
       III.  THE EFFECTS OF ENVIRONMENTAL PROTECTIONS ON TRADE

                A. Trade Aspects of International Environmental Protections

    1. THE MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER
    The Montreal Protocol oh Substances That Deplete the Ozone Layer (the "Protocol"), first negotiated in
1987 and then substantially revised in June of .1990, provides for the eliminatibn, by the year 2000, of CFCs
and other chemicals that are harmful to the ozone layer. The consequences of ozone depletion range from
health effects, such as increased incidence of skin cancer and cataracts, to reductions in yield of food crops.
    The Protocol controls both the production and consumption of CFCs and other  ozone-depleting
substances. Several of the Protocol's key enforcement provisions have direct implications for trade. First, the
Protocol restricts parties from trading in CFCs and CFC-related products with non-parties. Second, the
Protocol restricts trade in CFCs and CFC-related products between parties.  Third, the Protocol contains a
number of provisions to assist developing countries in meeting their  obligations under the Protocol,
including  lengthened  timetables for the phase-out of controlled substances, financial assistance, and
technology transfer incentives.

      a.   Trade with Non-parties:

Provisions:                  .           "                        •   .     ,       .
     To encourage countries to participate in the Protocol and to discourage industries that produce and use
CFCs from migrating to non-party states, the Protocol establishes three tiers of regulation of trade in restricted
products between parties and non-parties. The first tier of restrictions apply directly to trade in the controlled
substances, banning parties from importing controlled substances from non-parties. As of January 1,1993,
parties to the Protocol will also be forbidden to export controlled ssubstances to non-parties. The Protocol's
second tier of restrictions apply to products that contain controlled substances. In June of 1991, the parties
adopted an annex listing products containing controlled substances.  This annex became effective in
December of 19911 and those parties that did not object must ban import of such products by June 1992. The
third tier of restrictions envisioned by the Protocol would apply to products made with, but not containing,
controlled substances. The Protocol requires the parties to conduct, by January 1,1994, a feasibility study on
banning imports from non-parties of substances made with, but not containing, controlled substances.

Analysis:                ,    .   ..-.                   ,.
     Because the Protocol provides for a phase-out of trade in controlled substances among the member states
during the same time in which it bans the import of "like" products from non-party states, there is a period
during which non-party states will be precluded from exporting products containing controlled substances
to partystates that continue to be able to trade such products among themselves. Thus, if the Protocol's import
restrictions are applied by GATT contracting parties against imports from other contracting parties that are
 not parties to the Protocol, these import provisions would appear to violate G ATT's basic non-discrimination
 obligations. Similar GATT non-discrimination issues arise from the Protocol's ban on exports of controlled
 substances to non-parties. Moreover, should the parties enact restrictions thatapply to import products made
                                                                        SUPPORTING PAPERS a  '59

-------
 with, but not containing, controlled substances, such restrictions would be Production Process Method
 restrictions  that could violate GATT's Article III (national treatment) and Article XI (prohibition on
 quantitative restrictions).
      The use of these trade restrictions to accomplish the Protocol's goals was an area of substantial
 discussion during the Protocol's negotiation in 1987. The parties agreed to use trade restrictions because they
 feared that the industries of the parties could not internalize the costs of complying with the agreement and,
 at the same time, compete with industries in non-party countries that did not have to bear these costs. In
 practice, however, efforts to eliminate the use of CFCs and other controlled substances have, in many
 instances, led to the discovery of less expensive and more efficient substitutes for these products. Neverthe-
 less, these trade restrictions were, at the time of the agreement, deemed essential incentives to encourage
 countries to join the Protocol, and they continue to play a major role in preserving the integrity of the Protocol.
      The compatibility of these trade restrictions with the G ATT was also addressed during these discussions.
 An opinion was provided to the Protocol's negotiators by a legal expert from the G ATT Secretariat that these
 measures would be compatible with the GATT by virtue of Article XX's exceptions because the conditions
 present in the party nations would be substantially different from those in non-party nations — allowing the
 parties to draw non-arbitrary distinctions between products from party nations and non-party nations. In
 light of the findings of the Tuna/Dolphin Panel Report, this conclusion may have to be reexamined.

       b.  Special Provisions for Developing Countries:
 Provisions:
     The Protocol contains a number of provisions with trade implications to assist developing countries in
 meetingtheirobligations under the Protocol. First, theProtocolpermitsdevelopingcountriestodelayby ten-
 years their phase out of controlled substances. Second, the Protocol establishes a Multilateral Fund to provide
 developing countries and their industries with technical and financial assistance necessary for compliance
 with the Protocol.

 Analysis:
     These special  provisions for developing countries could  run afoul of certain  GATT obligations,
 especially in light of the Uruguay Round emphasis on eliminating preferences to developing countries. For
 example, a developing nation receiving financial assistance from the Multilateral Fund and then passing it
 on to its  industries to purchase clean technologies could be in violation of the GATT's provisions against
 subsidies.

    2. CONVENTION ON INTERNATIONAL TRADE IN ENDANGERED SPECIES OF WILD FAUNA AND FLORA
 Provisions:
     In recognition of the global threats to the world's biodiversity, the goal of the Convention on Interna-
 tional Trade in Endangered Species of Wild Fauna and Flora ("CITES") is to control or eliminate trade in plant
 and animal species which are now, or may become, threatened with extinction.  Because the intent of CITES
 is to alleviate trade-driven pressures on a species, its trade-related provisions are necessary to the achieve-
 ment of its goal.
60  n THE GREENING OF WORLD TRADE

-------
    The severity of the trade restrictions CITES places on trade in a species is proportional to the degree of
the threat to the species. CITES classifies each regulated species by its degree of "endangeredness," and
establishes corresponding levels of trade restrictions, through a listing system consisting of three Appendi-
ces. Parties are free to propose changes to the categorization of a species as well as additions and deletions
to the Appendices.
    Appendix I includes species that are currently threatened with extinction.  The threats of extinction to
an Appendix I species need not be linked with trade demands on the species. Commercial trade is defined
broadly to  include transactions in the  species and species-derived products that have even nominal
commercial aspects. Such commercial trade is prohibited. Noncommercial trade is allowed only if the
movement of the species will not be detrimental to the survival of the species.  Prior to an export country
granting a permit for non-commercial trade in a species, the import country must issue an import permit.
    Appendix II lists species which are not currently threatened with extinction but may become threatened
unless trade in the species is strictly regulated. Export permits for Appendix II species may be granted where
the exporting country's scientific authorities determine that the export will not be detrimental to the survival
of the species.
    Appendix III consists of those species that any party has identified as requiring protection to prevent the
species' demise from trade-driven overexploitation and for which the co-operation of the other parties is
needed to control the threat to the species. Appendix III listing applies to only those populations of a species
found within those countries that have classified the species as an Appendix III species. Appendix III listing
enables the contracting parties to address localized threats of extinction to sub-populations of species where
these threats do not effect other sub-populations of the species. Trade in Appendix III species between parties
that have not listed the species as Appendix III species is allowed so long as the species or product is
accompanied by a certificate of origin.
     While parties are required to conform to these mandates/ nothing in the agreement limits the ability of
a party to adopt unilaterally stricter protection standards, and parties are required to enforce the provisions
of CITES in their dealings with non-parties.

Analysis:
     A number of CITES provisions pose potential areas of friction with the GATT's obligations.  Because
CITES allows a party to protect non-domestic species through trade restrictions, such trade restrictions would
not, in light of the Tuna/Dolphin Panel Report, appear to qualify for Article XX's exceptions for conservation
of exhaustible natural resources and protection of species health and life. If the provisions would not qualify
for exception under Article XX, then trade restrictions imposed by a CITES party against products of a G ATT
party that is not a CITES party could be viewed as a violation of G ATT'sbasic prohibition against quantitative
restrictions.

    3. THE BASEL CONVENTION ON THE CONTROL OF TRANSBOUNDARY  MOVEMENTS
     OF HAZARDOUS WASTES AND THEIR DISPOSAL
Provisions:
     To avoid the high costs of domestic disposal of hazardous wastes caused by stringent environmental
                                                                        SUPPORTING PAPERS a  61

-------
 laws and regulations, industries in developed countries have increasingly sought to export these wastes to
 developing countries with lower environmental standards.  International negotiations to address the
 environmental and social implications of this practice led to the Basel Convention on the Control of
 Transboundary Movements of Hazardous Wastes and Their Disposal (the "Basel Convention"). The Basel
 Convention is intended to control international trade in hazardous wastes so that baseline health and safety
 standards are met in all countries. Because the convention is intended to restrict trade in wastes, the trade
 provisions are central to achievement of the convention's goals.
     The Basel Convention permits the transboundary movement of hazardous wastes by parties in only
 three circumstances: (1) where the exporting party lacks the technical capacity, necessary facilities, and /or
 sitingcapacity to ensure the environmentally sound disposal of the wastes in question; or (2) where the wastes
 in question are required as a raw material for recycling and recovery industries in the importing nation; or
 (3) where  the  transboundary shipment and disposal is performed in accordance with the particular
 requirements established in the convention.
     The Basel Convention prohibits the export of wastes: (1) to nations that have prohibited the import of
 such hazardous wastes; (2) to non-parties; and (3) to the Antarctic region. Parties will only permit the
 shipment of hazardous wastes if the shipment is authorized in writing by the importing country. Exports of
 such wastes to developing countries are not allowed if the exporting country has reason to believe that the
 wastes will not be managed in an environmentally-sound manner, and the exporting party has the burden
 of ensuring that any exports of wastes that it  permits are, in fact, managed in an environmentally-sound
 manner.                                                       ,
     Parties that choose to prohibit the import of hazardous wastes must inform the other parties of this
 decision. A party that chooses instead to allow the import of such wastes must not allow the import of any
 wastes that it has reason to believe will not be managed in an environmentally-sound manner.
     The Basel Convention requires exporting parties to provide prior notification of any shipment.  The
 exporting par ty shall not allow any shipment to embark until it has received written consent for the shipment
 in response to the notice provided to the importing party. Importing parties must respond to written requests
 for consent by authorizing or denying the shipment or requesting additional information.
     If a shipment of hazardous waste is found to have occurred in violation of the convention's terms,  then
 the exporting country must either return the waste itself, or ensure that the exporter or generator returns the
 waste, or if the return of the waste is impracticable, the exporting country must provide for its disposal in
 accordance with the requirements of the convention.
 Analysis:
     Because many of the conditions imposed on exporting countries are designed to protect the welfare of
 individuals and the environment in importing countries "extrajurisdictionally,"  they would appear to fall
 outside the scope of the Article XX exceptions.  Similarly, the prohibition on  exports to the Antarctic region
 may not be justifiable under Article XX. Mpst troublesome is the ban on trade with non-parties.  For this
provision to come within Article XX, it would have to be shown that the discrimination against non-parties
is justified on the basis of domestic health, safety or conservation concerns in the exporting country.
62  n THE GREENING OF WORLD TRADE

-------
    4.  PROPOSED INTERNATIONAL AGREEMENTS
    In June of 1992, the United Nations Conference on Environment and Development ("UNCED") will be
held in Rio de Janeiro. It is expected that UNCED will produce a number of important international
agreements, including: the "Earth Charter" (a statement of the fundamental principles governing the
interrelation of people and the earth); "Agenda 21" (a framework for implementing the Earth Charter); and
agreements or statements on climate change, biodiversity, and forestry.  Although the June conference date
is fast approaching, few  of the negotiators  drafting these instruments have focused on the issue of
enforcement and implementation mechanisms, and thus the degree to which trade measures will play a role
in these agreements is unclear. At least one group, the biodiversity group, has requested representatives of
the GATT Secretariat to attend its/negotiations; however, no one from  GATT has attended those negotia-
tions.20

                  B. Trade Aspects of Unilateral Environmental Protections

     Many domestic environmental protections, in the United States as well as other countries, rely heavily
upon trade measures to either ensure their effectiveness, and/or to ensure that domestic industries that must
meet more stringent environmental standards are  not placed at a competitive disadvantage by these
standards. Certain of these measures are summarized below.

    1. CURRENT ENVIRONMENTAL LAWS

       a.   The Endangered Species Act:
Provisions:
     To friend and foe alike, the Endangered  Species Act ("ESA") is one of the strongest U.S. laws  for the
protection of the environment. The ESA is best known for its provisions making illegal the domestic "taking"
of an endangered species or the destruction of such species' habitat. The ESA also makes it illegal for any
person or entity subject to U.S. jurisdiction to import or export any species listed by the Secretary of the Interior
as endangered, or any product derived from such a species. While the ESA's prohibitions that apply to
endangered species generally apply to threatened species as well, the Secretary of the Interior, through the
Fish and Wildlife Service, may promulgate special rules excepting threatened species from some or all of these
provisions.  Listing of a  species for the purposes  of the ESA does  not necessarily correspond to the
international listing of a species under CITES. Species listed as endangered or threatened include both
domestic and extraterritorial species, and a species need not be protected in its habitat country for the species
to receive protection under the ESA.              '                  ; :    ;

Analysis:                                    . .
     The import and export bans imposed by the ESA may conflict with the GATT's non-discrimination
obligations in terms of its treatment of distinct population segments. For these provisions to comply with the
GATT, they would have to be justified under Article XX. If, however, the species being protected is hot found
in the United States, these provisions would seem to be in violation of the United States' obligations under
the GATT, since Article XX has been read as not extending "extrajurisdictionally."
                                                                       SUPPORTING  PAPERS  a 63

-------
       b. The Marine Mammal Protection Act:
 Provisions:
     One of the primary goals of the Marine Mammal Protection Act (the "MMPA") is to reduce the incidental
 killing of marine mammals, particularly dolphin, during the course of commercial fishing operations. To
 achieve this goal, the MMPA establishes a regulatory program that sets industry-wide standards for fishing
 practices of the U.S. tuna fleet.  This regulatory program is strictest in the Eastern Tropical Pacific Ocean
 ("ETP"), where schools of tuna tend to swim in  the waters below pods.of dolphin.  Under this program,
 foreign tuna fishing fleets operating in the ETP must meet similar standards to be able to import their tuna
 to the United States. For a foreign tuna fleet to be able to import its tuna and tuna products into the United
 States, the Secretary of Commerce must certify that the foreign fleet operates under a regulatory program that
 is comparable to that of the United States, and that during a given period of time the foreign fleet's adjusted
 average rate of incidental taking of marine mammals did not exceed 1.25 times the unweighted average of
 the U.S. fleet for that same period of time. Additionally, intermediary nations that import tuna from nations
 that have not obtained comparability findings cannot export their tuna and tuna products to the United States.
 Analysis:
     In the recent Tuna/Dolphin Panel Report, these MMPA import and intermediary restrictions were
 found to be in violation of the GATT's prohibitions contained in Article III (national treatment) and Article
 XI (quantitative restrictions). Additionally, the MMPA's provisions were found to be outside the scope of
 Article XX because they were both extrajurisdictional in nature, and not "necessary" within the meaning of
 Article XX.21

       c. The Magnuson Fishery Conservation and Management Act:
 Provisions:                                                                           ,  '
     The Magnuson Fishery Conservation and Management Act (the "Magnuson Act") establishes a national
 program for the conservation and management of fisheries resources, including domestic, migratory, and
 anadromous stocks.  The basic purpose of the act is to provide a program for the development of under-
 utilized fisheries, while at the same time providing conservation programs to replenish over-utilized and
 depleted stocks. The Magnuson Act was, to a large extent, motivated by fears that foreign fishing fleets were
 depleting U.S. fisheries.
     Under the Magnuson Act, trade figures most directly in the provisions regarding access for foreign fleets
 to fishery stocks claimed by the U.S. No foreign vessel is permitted to fish in U.S. waters unless it has obtained
 a permit to do so. Foreign vessels operating in United States waters are required to have a U.S. observer on
 board the vessel during their time in these waters. The act requires the Secretary of Commerce to establish
 total allowable levels for foreign fishing fleet catches from  U.S. fisheries.  In establishing these levels, the
 Secretary is instructed to look at a number of factors, including the extent to which the foreign government
 is helping the United States develop export markets for its fishery products, and the degree to which the
 foreign government imposes tariffs and non-tariff barriers on U.S. fishery exports. Foreign fleets that violate
64  a THE GREENING OF WORLD TRADE

-------
the act's provisions may be subject to an embargo on all fishery imports to the United States pursuant to
section 8 of the Fishermen's Protective Act.

Analysis:
     The Magnuson Act appears to establish conditions for trade that violate GATT's non-discrimination
obligations and quantitative restriction prohibition. While these measures at first glance would seem to
qualify for Article XX's exception for measures to conserve a domestic exhaustible resource/to qualify for
Article XX a measure must not be applied in a discriminatory or arbitrary manner. Because the act links
certain of its conservation conditions with what seem to be trade protectionist standards, these provisions
may not come within Article XX.

      d.  The Dolphin Protection Consumer Information Act:

Provisions:
     In an effort to encourage consumer-driven, market-based protection of dolphins, the Dolphin Protec-
tion  Consumer Information Act (the "DPCIA") specifies labeling standards that allow qualifying tuna
products to carry the terms "dolphin safe" on their packaging.  The DPCIA makes it a violation of section 5
of the Federal Trade Commission Act for any producer, importer, distributor, or seller of tuna products to
include on its label the terms "dolphin safe" or any equivalent statement, unless the manner in which the tuna
was  harvested meets certain standards for the protection of dolphin.

Analysis:
     The recent Tuna/Dolphin Panel Report decision found  that the DPCIA complied with the GATT
because the DPCIA established voluntary standards that did not restrict a product's access to the market, and
did not establish a basis for obtaining a government-supplied market advantage. In contrast, mandatory
labeling requirements that require an imported product to carry a label that can only be obtained by meeting
certain standards that do not apply directly to the product, but apply instead to the PPM of the product, would
appear to violate GATT's obligations.22

      e.  The Pelly Amendment:
Provisions:
     The Pelly Amendment, also known as section 8 of the Fishermen's Protective Act, seeks, inter alia, to
provide a means to ensure that the unsustainable fishing practices of foreign fishing fleets do not jeopardize
American fishery stocks or harm American fishing fleets. To provide added protection to American fishing
fleets and fisheries, the Pelly Amendment works in conjunction with certain other American laws, such as the
MMPA and the Magnuson Act, which are designed to ensure the use of sustainable fishing practices, by
enabling the President to increase the trade sanctions for the continued"violation of these laws by foreign
fishing fleets. Under the Pelly Amendment, the President of the United States has the discretionary authority
to embargo all fishery imports from another nation upon notice from the Secretary of Commerce that that
nation has been in violation of one or more of these underlying American laws for a certain period of time.
                                                                        SUPPORTING PAPERS  a 65

-------
 Analysis:
     The Tuna/Dolphin Panel Report found the Pelly Amendment to comply with the GATT's provisions,
 but only because the President had not invoked his powers under the Amendment. The actual application
 of the Pelly Amendment's embargo provisions to another party's fisheries imports would, however, appear
 to violate GATT's non-discrimination obligations.

    2. PENDING ENVIRONMENTAL LEGISLATION

       a.   The General Agreement on Tariffs and Trade for the Environment Act of 1991 (5.59):
 Provisions:
     The General Agreement on Tariffs and Trade for the Environment Act of 1991 ("S.59") was introduced
 by Senator Moynihan. It would require a comprehensive study of the impact of international trade on
 international environmental agreements. S.59 would also require a study of foreign environmental laws,
 foreign governments' compliance with international environmental agreements, and foreign environmental
 laws that restrict trade.  Further, S.59 would require the United States Trade Representative to provide a
 statement of what efforts are being undertaken to make the GATT more environmentally sound. Addition-
 ally, S.59 requires that foreign trade practices that diminish the effectiveness of international agreements
 aimed at preserving species be treated as unjustifiable trade practices under the Trade Act of 1974, and would
 allow the United States to adopt measures to retaliate against the foreign party's practices.
 Analysis:
     The study provisions of S.59 would in no way conflict with obligations under the GATT.  S.59's
 provisions with regard to the justifiability of foreign actions that diminish international protections of species,
 however, if adopted, would appear to conflict with the GATT's obligations.

      b. House Concurrent Resolution 246:
 Provisions:
     House Concurrent  Resolution 246 ("H.Con.Res. 246"),  introduced by Representative Waxman for
 himself and 25 other representatives, would express the sense of the House and Senate with respect to the
 relationship between trade agreements and health, safety, labor, and environmental laws of the United States.
 H.Con.Res. 246 calls upon the President to initiate and complete discussions within the Uruguay Round to
 make GATT compatible with the MMPA and other American health, safety, labor, and environmental laws.
 H.Con.Res. 246 also expresses Congress'  resolve to reject legislation to implement any trade agreement,
 includingboth the Uruguay Round and the NAFTA, if such agreement jeopardizes U.S. health, safety, labor,
 or environmental laws.
 Analysis:
     Although H.Con.Res. 246's provisions do not directly conflict with the GATT's provisions, they do raise
 substantial implications for the GATT and trade policy generally. H.Con.Res. 246 calls upon the President
 to expand the scope of the debate in the Uruguay Round negotiations that are well along and already fraught
with difficulty. Moreover, this statement from Congress  that they will not adopt any trade legislation that
66  D THE GREENING OF WORLD .TRADE

-------
could undermine American social protections would place additional burdens on the negotiation of NAFTA
and the Uruguay Round instruments.

      c. International Pollution Deterrence Act of 1991 (S.984):

Provisions:
     The International Pollution Deterrence Act of 1991 ("S.984"), introduced by Senator Boren, seeks to level
the playing field for international trade by removing what many perceive to be subsidies to foreign industries
in the form of lower national environmental standards.  The goal of S.984 is to ensure that all products sold
in U.S. markets fully reflect their environmental costs, at least to the extent that U.S. laws require such
internalization.
     S.984 amends the countervailing duty provisions of U.S. trade law to establish that the failure to impose
and enforce effective environmental protections amounts to a subsidy which canbe subjected to a countervailing
duty. The amount of the subsidy provided by lessened environmental standards would be determined by
the costs the manufacturer or producer would have to bear to comply with the U.S. environmental laws
imposed on like domestic products. Additionally, S.984 would allocate 50% of the monies paid through the
countervailing duty  provisions to a fund  that would be distributed by the Agency for International
Development to assist developing countries in purchasing U.S. pollution control equipment. The other 50%
of the countervailing revenues would be appropriated to an EPA-administered fund that would assist U.S.
companies in the research and development of pollution control technologies. S.984 would also require the
EPA to create an index for the top fifty U.S. trading partners to measure, in comparison to U.S. standards, each
country's pollution control standards.

Analysis:                                                                                .     ,
     S.984 would have a number of significant trade implications. The use of countervailing duties to mitigate
environmental standards subsidies appears to violate G ATT Articles I, II and III, as well as the countervailing
duty provisions of the GAIT and the Subsidies Code. Additionally, subsidies paid to both U.S. companies
to create environmental technologies, and to developing countries to purchase U.S. environmental technolo-
gies, could allow other parties to institute countervailing measures to mitigate these subsidies.

     3.  SUB-NATIONAL LEVEL ENVIRONMENTAL LAWS
Provisions:
     In addition to the national-level environmental protections that have trade implications, under the
United States system of governance, a wide latitude of powers are reserved to State and local governments
to legislate environmental protections. Certain of these sub-national level protections have trade implications
as well.
     For example, at least nine states and twenty-five municipalities have adopted legislation that restricts
the  sale and use  of CFCs as products or in consumer products. Additionally, a number of states have
introduced legislation to control the flow of agricultural research information and products, including ten
states that have enacted controls over Bovine somatropin (BST) or beef hormones. Hawaii has enacted
legislation to provide funds to help establish and operate small business medical incubator research facilities.
                                                                        SUPPORTING PAPERS n  67

-------
 Analysis:
     Many of these sub-national provisions seem to be inconsistent with the G ATT's obligations. These areas
 of conflict raise the issue as to whether a contracting party can be in violation of its GATT's obligations by
 virtue of an act undertaken by a sub-national level governmental body.
      IV. OPTIONS FOR REDUCING OR ELIMINATING FRICTIONS BETWEEN
           ENVIRONMENTAL PROTECTIONS AND TRADE AGREEMENTS

     The goal of free trade policy is to allow markets to allocate the use of resources, while the general goal
of environmental policy is to manage efficiently and maintain the earth's resources.  Where the same
resources are the subject of both trade and environmental policies, conflicts can and do result. Yet the ability
of both free  trade and environmental policy to accomplish their respective goals is becoming largely
dependent on their mutual ability to reconcile these conflicts. In the long-term, if economic development from
expanded trade endangers the world's resource base, trade may find itself with no natural resources left to
allocate. Contemporaneously, in many instances, improving environmental quality and the standard of
living around the globe requires economic resources that economic growth, such as the growth attendant to
expanded free trade, can provide. Moreover, the ability of the global community to adopt international
agreements that encourage state participation and discourage "free riders" appears to be, at this time,
dependent upon the use of trade measures within these agreements.
     What follows is a brief discussion of certain options to reconcile trade and environmental concerns and
to move each of these disciplines closer to the mutually reinforcing goal of sustainable development. This
discussion focuses on the legal predicates for, and ramifications of, these options.


                                A.  Application of Treaty Law

     Perhaps the most obvious  question that arises regarding how to reduce or eliminate the frictions
described in the earlier sectionsof this memorandum is whether there is any way to reconcile conflicting terms
of an international trade agreement and an international environmental agreement. It turns out that treaty
law provides at least some guidance on this subject.
     Article 30 of the Vienna Convention on the Law of Treaties provides general rules governing the
relationship of successive treaties.2-* Under Article 30, when the provisions of two treaties conflict, the later
in time prevails, as between parties to both, unless one treaty expressly specifies otherwise. If a State is party
to only one of the treaties, then under Article 30(4)(b) only that treaty governs.
     Thus, for example, as between States that are parties to both the GATT and the Montreal Protocol,
paragraphs 4 and 4 bis of the Montreal Protocol (banning import of substances produced with, but not
containing, the controlled substances listed in  Annexes A and B of the Protocol) would  prevail over
inconsistent provisions of the GATT. (This ignores, of course, the legal opinion the negotiators of the Montreal
Protocol obtained from the member of the  GATT Secretariat regarding the consistency of the proposed
68  o THE GREENING OF WORLD TRADE

-------
provisions of the Protocol with the GATT.) Note that paragraphs 1 through 3 bis of the Protocol would
presumably not be inconsistent with the GATT even when applied against States that are not parties to the
Protocol because they pertain to products rather than processes.
     This leaves the problem of non-parties.  Specifically, can a State party to the GATT be bound by a
subsequent environmental agreement that contains inconsistent trade provisions, absent joining as a party?
Article 34 of the Vienna Convention states that a subsequent treaty cannot bind non-party States without their
consent. Article 38 notes a limited exception to this if the treaty rule becomes customary international law.
Thus, a GATT contracting party that has not signed the Montreal Protocol may very well have a legitimate
dispute uncler the GATT if its products made with CFCs are banned by another contracting party that is a
party to the Protocol (unless the Montreal Protocol has become customary law).


               B. Application of International Law: Extrajurisdictional Actions

     Because the GATT's Article XX exceptions now only allow f or jurisdictional actions, concerns have been
expressed over who has the jurisdictional ability to take actions to preserve the global commons. Under
principles of international law, such as the Law of the Sea and the Law of Space, it may be said that jurisdiction
over the commons areas is sui generis to the international community or the international community has
reserved jurisdiction over these commons areas.24 Thus, actions taken pursuant to multilateral agreements
to protect resources in the global commons should fall within Article XX. The Tuna/Dolphin Panel Report
recognized this principle in a very limited sense by allowing parties to act "jointly to address international
environmental problems which can only be resolved through measures in conflict with the present rules of
the General Agreement."
     Additionally, under international law/it may be argued that unilateral trade actions, that are not
specifically provided for in an international agreement, are permitted under Article XX, if they are necessary
for the party to meet its general obligations under an international agreement.2^ Thus, for example, although
the Law of the Sea III does not specifically authorize or provide for trade restrictions, if a party adopts a trade
restriction in order to fulfill its obligations to preserve the sea, this trade restriction should not conflict with
Article XX's jurisdictional requirements.


                         C. Reexamination of Fundamental Principles

     Obviously, the foregoing analysis is not an adequate long-term solution. The law of treaties applies only
after two treaties or other international agreements have come into conflict and so does not help in avoiding
those conflicts in the first place. Moreover, it offers no mechanism for reconciling the legitimate goals of prior
treaties with those conflicting treaties coming later in time. Finally, and perhaps most importantly, it leaves
open the question of what to do in disputes where the States are not parties to both treaties or agreements.
     Some individuals have called for a reexamination of various fundamental assumptions and principles
relating to trade and the environment as a way of at least changing the terms of debate, if not reconciling the
two policy areas. As will be obvious from the following examples,  a change in any of the following
                                                                        SUPPORTING PAPERS n  69

-------
 assumptions and principles would result in a radical reshaping of how trade and environment issues are
 viewed.

    1. INTERNAUZATION OF ENVIRONMENTAL COSTS
     Many of the options proposed to date to reduce or eliminate frictions between trade and environmental
 concerns have focused on modifying the GATT to permit greater use of trade restrictions to force internal-
 ization of environmental  costs.  Of course, any modification to the GATT must overcome considerable
 procedural and substantive obstacles.26  However, United States' environmental laws are increasingly
 turning to environmental  cost internalization for both foreign and domestic products. Unless changes are
 made to the GATT, these U.S. initiatives could precipitate additional conflicts.

      a.   "Like Products":
     As noted earlier, GATT Articles I, III, XI, and XX pose obstacles to using discriminatory tariffs and
 quantitative restrictions against other countries' PPMs that are perceived to be environmentally unsound.
 These obstacles could be overcome by reinterpreting the concept of "like products" in the GATT to allow
 product standards based on PPMs. Environmentalists, in favor of allowing environmental PPMs, argue that
 the contemporary meaning of "product" includes the product's life cycle. In order for such a reinterpretation
 to take place, the GATT would have to be amended, or a side agreement or understanding to GATT adopted,
 setting out the extensive procedural and substantive requirements necessary to implement such a program.

      b.  Countervailing Duties or Antidumping Duties:
     GATT, in its current form, does not view a party's application of  lower standards of domestic
 environmental protections, that allow  the party's industries to externalize their environmental costs, as a
 subsidy (or dumping when the product is exported), that could be countervailed by another party whose
 industries are harmed by the subsidy (or dumping).27 A number of options have been presented to modify
 or interpret GATT Articles VI and XVI and the Subsidies Code to permit the imposition of countervailing
 duties or antidumping duties to counter such practices.  However, quantifying the effect of differing
 environmental standards could pose additional administrative problems beyond  those already associated
 with countervailing and antidumping statutes.

    2. "NECESSARY" UNDER GATT ARTICLE XX(s)
     As noted earlier, GATT Article XX(b) provides a general exception only to those trade measures that are
 necessary to protect human, animal or plant life or health.  One way to allow  for greater use of trade
 restrictions to enforce internalization of environmental costs might be to  give greater consideration to
 whether a trade restriction is proportional to its environmental benefit  in determining whether it is
 "necessary" under Article XX(b). The case study provided by The Management Institute for Environment
and Business to the Trade and Environment Committee shows how this approach was used by the European
Court of Justice in reaching its decision in The Danish Bottles Case. However, many trade specialists argue
that this approach represents a "slippery slope" that would likely spawn a flood of disguised protectionist
measures. At the very least, it would likely sharpen the debate over whether import restrictions based on
"consumer preference" rather than "sound science" are ever legitimate. Moreover, many environmentalists
70  n THE GREENING OF WORLD TRADE

-------
argue that requiring environmental protections to be justified as "necessary" places too high a burden on
environmental actions and could diminish the ability of nations to act proactively, under the Precautionary
principle, in the face of scientific uncertainty.
                                                 B        •         '                    ;
    3.  HARMONIZATION OF STANDARDS                                              •    ,
    The G ATT Standards Code makes clear that harmonization of standards is a very important goal of the
GATT process.  Negotiations in  the Uruguay Round have also made harmonization a high priority,
particularly with respect to phytosanitary and sanitary regulations and measures. As discussed above, the
effects of the harmonization of environmental standards on international trade and the environment will be
largely determined by the manner in which harmonization occurs.28
    If environmental standards are harmonized to wards more stringent levels of protection it is possible that
certain United States domestic laws might not meet these standards. This would require U.S. environmental
protections to be strengthened. Should harmonization adopt international standards or a "least common
denominator" approach, the United States would have to weaken many of its environmental laws, a path the
U.S. Congress and state legislatures may find difficult.

    4. PROCEDURE

      a.   Dispute Resolution:
    There have been a number of proposals for impro vingG ATT's dispute resolution procedures, including:
expanding GATT dispute resolution panels to include experts from other disciplines such as environmental
scientists and/or law scholars; creating a "cut-out mechanism" to move trade and environment disputes to
an alternative forum for dispute resolution; and, improving the ability of trade panels to take into account
other areas of concern that relate to trade policy, such as the environment/" Expanding the membership of
dispute resolution panels to include other disciplines could be achieved under the existing GATT framework,
and would provide input as to the non-trade effects of GATT decisions. These multi-disciplinary panels
would, however, remain bound to existing GATT rules in formulating decisions. Creating new procedures
for dispute resolution that would allow GATT panels to take into account other areas of concern, such as the
environment, could turn GATT's dispute resolution panels into international over-courts — a role their
creators never envisioned for them and to which they consequently are not well-suited.  Establishing a "cut
out" mechanism for environmental trade disputes would require an agreement of the Parties and the creation
of a new international tribunal — a difficult process to say the least.

       b. Transparency and Public Participation:       .
     There is a great deal of concern about the relative secrecy and isolation in which GATT officials make
decisions. Many critics argue that the GATT decisionmaking process should be more open to the interna-
tional public so that individuals and NGOs can participate in GATT decisionmaking by having timely access
to GATT documents and decisions, and presenting evidence and arguments to the GATT Council and to
GATT dispute resolution panels. Environmentalists view transparency and public participation as integral
to the democratic process and to rational decisionmaking. On the other hand, traditional GATT proponents
argue with great force that nations have a significant interest in preserving world order through negotiated
                                                                        SUPPORTING  PAPERS  a  71

-------
 settlements of international disputes, insulated from influence of publicity. In order to provide for increased
 transparency and public participation the Parties would have to either amend GATT or agree to a new
 understanding or side agreement.30

    4. TRADE RESTRICTIONS AS A TOOL FOR ENFORCING ENVIRONMENTAL PROTECTIONS
     Many policy-makers see trade restrictions as a legitimate tool for enforcing international environmental
 agreements and even pursuing unilateral environmental objectives, while free trade advocates that restric-
 tions are ill-suited as environmental protection devices.  They point out that the imposition of trade
 restrictions skews the efficient allocation of resources just as the failure to internalize environmental costs
 does.  Both, they argue, reduce overall welfare. They cannot see using one economic distortion to fight
 another.  Moreover,  in their minds, there is no guarantee that imposing a trade restriction to force
 internalization  of environmental costs will not have  a greater distortive effect than the lack of cost
 internalization in the first place. Among the alternatives they suggest are using side payments and trade
 concessions to induce adherence to international environmental agreements.
     Environmental advocates respond that the effectiveness of environmental restrictions is a highly
 complex question that is, to a great extent, determined on a case-by-case basis and does not lend itself well
 to generalizations. They note the relatively few methods available to nations to effect the behavior of other
 nations, and conclude that absent substantial changes to the central principles of the international law and
 the international  order of nation-states, trade measures offer the most  cost-effective means of securing
 compliance with international agreements. Moreover, they note that compensation schemes that require the
 international community to effectively purchase protections in all developing countries are not appropriate
 in all instances and the over-reliance on these schemes could prohibit the  effective development of
 environmental protections.
     In an effort to reconcile the trade and environment perspectives, a number of proposals have been
 advanced that seek to provide frameworks for determining when trade restrictions are appropriate mecha-
 nisms for securing environmental objectives. These frameworks focus on delineating certain factors, such as
 how integral the  trade measure is to the environmental protection and the proportionality of the  trade
 measure to the environmental protection sought, to assist in making such determinations.^
     Throughout  the past twenty years a  number of alternative proposals that do not focus upon  trade
 sanctions as the primary enforcement device, have been advanced for the enforcement of environmental
 obligations. Perhaps the most industrious of these proposals is the creation of an international environmental
 court, with all nations submitting themselves to its jurisdiction.  A more recent, and somewhat less far-
 reaching, proposal seeks to increase the ability of domestic and foreign parties to bring suit in the domestic
 courts of all nations for violations of national and international environmental laws and obligations. These
 proposals lack substantial backing within the international community, and so trade restrictions continue to
be one of the more, if not the most, attractive mechanism for enforcing environmental obligations.

    5.  MUTUALLY REINFORCING MARKET-BASED PROTECTIONS
    Both the trade and environment communities embrace cost internalization through the "polluter pays"
principle and the elimination of subsidies, particularly those that have direct negative effects on the
environment. Allowing greater opportunity in the GATT for the Parties to adopt such market-based
72  n THE GREENING OF WORLD TRADE

-------
measures, and increasing the reliance on environmental policies that utilize market-based strategies may be
the most immediate way to begin the process of reconciling trade and environment concerns. Caution should
be exercised, however, in placing too great a reliance upon market-based strategies. Environmentalists stress
that while market-based strategies are effective for addressing conventional environmental threats, markets
are not effective in dealing with uncertainties, such as setting values for natural resources that do not have
readily apparent economic uses,  or dealing with the risk of irreversible losses that cannot be countered
through the use of economic resource, or setting the costs of unconventional threats whose real harms cannot
be scientifically established with great certainty.
     Weighing the need for increased reliance upon market-based strategies, with the limitations of such
strategies, it is possible that the development of market-based strategies should be facilitated where they
apply to conventional environmental threats, such as conventional non-toxic pollutants, and the protection
of species that are not threatened with extinction.  Where, however, environmental protections apply to
unconventional threats (such as the Montreal Protocol or the Basel Convention on Hazardous Wastes),
irreversibilities (such as CITES), or where they apply to resources that cannot be easily valued in economic
terms (such as wetlands or species), market-based strategies should be complemented by other protections
designed to ensure against harms caused by market failures.
     While market-based strategies are increasingly being incorporated into domestic and international
environmental law, full incorporation of these strategies in even conventional areas will require substantial
changes to be made to United States environmental laws and the frameworks of international agreements.
Moreover, in order for market-based environmental protections to be altogether compatible with the GATT,
the GATT will have to  be changed to provide the Parties with mechanisms to ensure environmental cost
internalization.
                                       CONCLUSION

     The rate of ozone layer loss is now believed to be occurring twice as fast as scientists estimated only a
few years ago. It is estimated that every year over 50,000 species — over 140 per day — vanish from the
face of the earth. Over 17 million hectares of forests ^— an area equivalent to half the size of Finland — are
lost each year. Meanwhile, the world's population is increasing at a rate of approximately 92 million people
per year — roughly the population of Mexico — with 88 million of these new inhabitants born within the
developing world. It is estimated that between 500 million and 1 billion people are under-nourished.
     As these figures demonstrate, the world is currently ill-equipped to suffer either environmental policies
that diminish the economic resources necessary to meet the needs and aspirations of its burgeoning human
population, or trade policies that jeopardize  the survival of the planet and its natural resources.  Thus the
ongoing, and largely polarized, debate over whether trade policies should serve environmental goals, or the
environment protections must conform to the goals of free trade, is woefully misguided. Both trade and the
environment must be disciplined to serve the overarching goal of sustainable development.
     Past efforts at free trade have paid little attention to the goal of sustainable development. Now free trade
                                                                        SUPPORTING PAPERS  n  73

-------
 must become synonymous with "sustainable trade."32 In principle, free trade seeks to address social
 concerns, such as environmental degradation, by the application of expanded economic resources gained
 through increased and more efficient economic activity. As World Bank economist Herman Daly has noted,
 however, "further growth beyond the present scale is overwhelmingly likely to increase costs more rapidly
 than it increases benefits, thus ushering in a new era of "uneconomic growth' that impoverishes rather than
 enriches."33  Free trade may have to  become managed trade that serves the goal of sustainable develop-
 ment.3*
      Just as trade efforts have operated in relative ignorance to the environmental imperatives of sustainable
 development, only recently has attention begun to be focused on the negative effects that improperly crafted
 environmental protections can have upon sustainable development's economic imperatives of increased
 efficiency and higher standards of living. Today's environmental protections will have to be crafted in ways
 that  avoid unnecessary obstacles to the benefits offered by expanded trade.  By reducing unnecessary
 economic burdens, environmental protections can allow, wherever possible, market forces to dictate the most
 efficient and sustainable usages of available resources and costs.
                                              NOTES

 1 Additional assistance in the preparation of this memorandum was provided by CIEL-U.S. Legal Intern Margaret Spring.
 2 H. Daly & J. Cobb, For the Common Good: Redirecting the Economy towards Community, the Environment, and a
 Sustainable Future, 2 (1989).
 3 For further background, see the following research memoranda by CIEL-U.S.:  "Provisions Within Trade Agreements
 Relevant to Environmental Concerns" (Housman & Zaelke draft December 31, 1991); "Provisions of the Montreal
 Protocol Affecting Trade" (Goldberg draft January 16,1992); "Current UNCED Dialogueon the Relationship of Trade and
 Environment" (Downes draft January 16,1992); and 'The Collision of the Environment and Trade: The GATT Tuna
 Dolphin Decision" (Housman & Zaelke draft January 7,1992)(forthcoming in the Environmental Law Reporter).
 4 See J. Jackson, The World Trading System: Law and Policy of International Economic Relations 40 (1989).
 5 Panel report on "United States - Restrictions on Imports of Tuna, issued 3 Sept. 1991, DS21/R, at 50-51 [hereinafter
 'Tuna/Dolphin Panel Report"]. The Tuna/Dolphin Panel upheld the particular labeling provisions before the panel
 because the provisions allowed suppliers of dolphin-safe tuna the option of disclosing its environmental character, but
 did not require unsafe or safe tuna to bear certain labeling to be sold. Id. The panel implied that if the labeling requirements
 had required certain PPM labeling, they would have violated the GATT. Id.
 6 Art. XI:2. Other than through Article XI's specific exemptions, the only way a quantitative restriction can conform with
 the GATT is by falling within one of the public policy exceptions set out in Article XX.
 7 See Articles XIII and XIV of the GATT for extensive prescriptions regarding the non-discriminatory administration of
 quantitative restrictions.
 8 Customs and Trade Act of 1990, Pub. L. No. 101-382, Title IV, §§ 489(a), 491(a), 493(5) (entitled the Forest Resources
 Conservation and Shortage Relief Act of 1990); see also Logging on Protectionism, Wall St. J,, Dec. 6,1990, at A14; Yung,
 Weyerhauser's Exports: An Endangered Species, Bus. Week, July 16,1990, at 51. The Forest Resources Conservation and
 Shortage Relief Act of 1990 is intended "to  ensure sufficient supplies of certain forest resources or products which are
74  n  THE GREENING OF WORLD TRADE

-------
essential to the United States" while simultaneously requiring that actions taken to meet this objective conform with the
obligations of the United States under the GATT. Pub. L. 101-382, supra, at § 488(b)(3), (5).
9 Panel report on 'Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes," adopted 7 November 1990,
BISD37S/200, at para. 74 (in a dispute concerning Thai prohibitions on the importation or exportation of tobacco and
tobacco products the panel held that, although smoking constituted a serious risk to human health, that Thailand's
measures were not "necessary for protecting human life because alternative measures, consistent with the GATT, could
have been adopted instead).
10 The United States had linked the maximum incidental dolphin taking rate which the Mexican tuna fleet had to meet
during a particular period to be able to export tuna to the United States to the taking rate actually recorded for U.S. tuna
fleet during the same period. Consequently, the Panel believed that Mexican authorities could not know whether, at a
given point of time, their policies conformed to the United States' dolphin protection standards. The Panel considered
that a limitation on trade based on such unpredictable conditions could not be regarded as "necessary" to protect the
health or life of dolphins.  .
11 Panel Report on "Canada - Measures Affecting Exports of Unprocessed Herring and Salmon", adopted 22 March 1988,
BISD35s/98, para. 4.6.
12 Many question the overall effectiveness of creating an environmental exception that parallels Article XX(h). Because
Article XX(h) only allows actions taken in accordance with international agreements, the creation of an environmental
XX(h) Would not serve to allow the contracting parties any additional abilities to act unilaterally.
13 See Territory v. Ho, 41 Haw. 565 (1957) (GATT applicable to state law); see also Jackson, supra n. 3, at 68 (discussing GATT
obligations at the sub-national level).
14 Between 1980 and 1990,211 notifications have taken place in which the acting party stated the objective of the standard,
was protection of the environment. GATT, Trade and Environment: Factual Note by the Secretariat at 85, L/6896 (1991).
167 other notifications have been justified under similar grounds such as the protection of health, safety, and consumer
protection. Id.                                                  .•-••'.
15Five year Development Agreement Reached, 14 Int'l Envtl. Rep. 185,207 (1991).
16 OECD Trade Directorate, The Applicability of the GATT to Trade and Environment Concerns at 17, COM/ENV/EC/
TD(91)66 (1991). Three rationales are offered against countervailing measures for environmental standard subsidies: 1)
the subsidy is put in place at the production level and thus should be removed at the production level and not by measures
at the trade level that  will only cause further distortions; 2) allowing countervailing measures for environmental
standards subsidies makes the continuation of a party's GATT "rights" contingent on certain environmental behaviors
and thus contradicts the unconditional nature of the party's GATT "rights"; and 3) allowing a party to countervail for
environmental  standards subsidies allows that party to unilaterally determine the appropriate level of environmental
protections for  another party. Id.
17 See 40 C.F.R.  § 262.20 (1991) (imports of hazardous waste). The Department of Transportation licensing schemes for
the transportation of wastes in the United States work in conjunction with the Environmental Protection Agency's
regulations under RCRA and are equally applicable. See 49 C.F.R. §§171-179 (1990).
18 See generally, Lori Wallach/Public Citizen, Memorandum Concerning Dec. 20,1991 Uruguay Round "Final Act" Text,
Dec.26,1991.                                                                                              '
19 See Prelude to a New Colonialism, The Nation, March 18,1991, at 336-38.
20 See generally, Lori Wallach/Public Citizen, Memorandum Concerning Dec. 20,1991 Uruguay Round "Final Act" Text,
Dec.26,1991.
21 For a discussion of the effects of the "later in time" rule, see section IV.A, supra.

                                                                                SUPPORTING PAPERS  a  75

-------
 22 See G ATT, supra note 13, at 9.
 23 See Corrosion Proof Fittings v. EPA, - F.2d -, 1991WL 209789, *24, n. 7 (5th Cir. 1991)(finding that Canadian parties lacked
 standing, despite their GATT rights, to assert substantive claim that U.S. asbestos regulations violated U.S/s binding
 obligations under GATT).
 2454 Fed. Reg. 273 0an. 5,1989).
 25 55 Fed. Reg. 26695 (June 29,1990).
 26 56 Fed. Reg. 52218 (Oct. 18,1991).
 27 See Downes/CIEL — U.S., supra note 2.
 28 See Housman & Zaelke/CIEL-U.S., supra note 2.
 29 See Housman and Zaelke/CIEL-U.S., supra note 2.
 30 For a discussion of the problem of reconciling conflicts between interrelated trade agreements, see Zheng, Defining
 Relationships and Resolving Conflicts Between Interrelated Multinational Trade Agreements: The Experience of the MFA and the
 GATT, 25 Stan. J. Int'l L. 45 (1988).
 31 See e.g.United Nations Convention on the Law of the Sea, done at Montego Bay, Dec. 20,1982, U.N.Doc.A/CONF 62/
 122, reprinted in 211.L.M. 1261 (1982)("the Law of the Sea") (noting all rights to the sea are vested in mankind on whose
 behalf the [international community acts)(while the Law of the Sea has not been entered into force, it is accepted by most
 countries including the United States as customary international law, with the exception of Part XI governing the deep
 seabed); Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, Including the
 Moon and Other Celestial Bodies, Jan. 27,1967,18 U.S.T. 2410, T.I. A.S. No. 6347,610 U.N.T.S. 205, articles I-IH (noting that
 states acting within outer space are subject to the principles of international law). This argument might also be more
 broadly phrased to provide that the international community not only has jurisdiction over the global commons, but also
 has jurisdiction over the global environment.
 32 See e.g.United Nations Convention on the Law of the Sea, done at Montego Bay, Dec. 20,1982, U.N.Doc.A/CONF 62/
 122, reprinted in 211.L.M. 1261 (1982)(placing responsibilities for preserving and developing the high seas on the parties);
 Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, Including the Moon
 and Other Celestial Bodies, Jan. 27, 1967, 18 U.S.T. 2410, T.I.A.S. No. 6347,  610 U.N.T.S. 205, at article IX (placing
 responsibility on parties to conduct their activities in outer space so as to avoid "adverse changes to the environment of
 Earth").
 33 See John Jackson, Memorandum entitled "Changing GATT Rules," Nov. 7,1991.
 34 See Komoroski, The Failure of Governments to Regulate Industry: A Subsidy Under the GATT?, 10 Hous. J. Int'l L. 189 (1988).
 35 For a more in depth discussion of harmonization policy options and effects, see Pearson & Repetto, Reconciling Trade
 and Environment: The Next Steps, Dec. 1991; Lori Wallach/Public Citizen,  Memorandum Concerning Dec.  20, 1991
 Uruguay Round "Final Act" Text, Dec. 26,1991.
 36 For a more complete discussion of the options for changing GATT's dispute resolution mechanisms, see Von Moltke,
 forthcoming paper on dispute resolution.
 37 For a more complete discussion of the options for  increasing transparency and public participation in GATT's
 decisionmaking, see Von Moltke, forthcoming paper on dispute resolution.
38 For a more in  depth discussion of mechanisms for determining when trade  sanctions should be used to secure
 environmental obligations, see Pearson & Repetto, Reconciling Trade and Environment: The Next Steps, Dec. 1991.
39 Sustainable trade, as  a sub-part of sustainable development, is trade and trade policies that meets the needs of the
current generation without jeopardizing the resource base for future generations.


76  a  THE GREENING OF WORLD TRADE

-------
40 H. Daly & J. Cobb, For the Common Good: Redirecting the Economy Towards Community, the Environment, and a
Sustainable Future, 2 (1989).                                     .        '
41 See Bush's Trip to Japan Sets in Motion Shift Toward 'Managed' Trade, Wash. Post, Jan. 20,1992, at A22, col. 1.
                                      About the Authors

   Durwood Zaelke is the President of the Center for International Environmental Law (CIEL), and Adjunct
Professor of Law and Scholar-in-Residence at the Washington College of Law, the American University. He
is Co-director of the Joint CIEL/AU International and Comparative Environmental Law Research Program.
Previously, Mr. Zaelke was a Senior Research Fellow at Kings College London, Director of the Sierra Club
Legal Defense Fund in Alaska and Washington, D.C., and practiced law with the U.S. Department of Justice,
the Environmental Law Institute, and Adams, Duque & Hazeltine in Los Angeles.

   Robert Housman  is an attorney with the Center for International Environmental Law (CIEL), and an
Adjunct Professor of Law at the American University's Washington College of Law. Prior to joining CIEL,
Mr. Housman was an associate at Skadden, Arps, Slate, Meagher & Flom's Washington, D.C. office. He also
served as*a Legislative Aide to Dr. lann Twinn, Member House of Commons, London, England.

   Gary Stanley has his own law and consulting firm in Washington, D.C., and is of counsel to Mullenholz
and Brimsek in D.C. Much of his work has involved international business issues.. He has advised companies
on U.S. foreign trade laws and requirements and has advocated the interests of private parties in government-
to-government trade negotiations to gain greater access to other countries' markets and resolve trade
disputes. Mr. Stanley has also served as one of the principal outside contractors assisting the U.S. Congress'
Office of Technology Assessment with its recent study of trade and environment issues and served as a
secretary to the Trade and Environment Committee of EPA's National Advisory Council for Environmental
Policy and Technology. Mr. Stanley currently serves as Secretary-Treasurer of the Procedural Aspects of
International Law Institute.
                                                                       SUPPORTING PAPERS  a 77

-------
       Note on  Complementarities Between
            Trade  and  Environment Policies

                                 Robert Repetto
    Although the upsurge in interest in trade and environment issues has been generated by potential
 conflicts between objectives and policies in these two domains, it is important to realize that they are
 complementary in many respects and could be made complementary in many other respects. These actual
 and potential complementarities make it possible to develop strategies for international negotiations that are
 mutually beneficial to environmentalists and to those mainly interested  in promoting further gains from
 international trade. Policies that promote economic growth and environmental quality, both in the North and
 the South, provide a stable base for international cooperation. Identifying such policies could be an important
 contribution of the NACEPT advisory group.
    The following paragraphs provide specific examples of trade policy changes that would benefit the
 environment, and of environmental policy changes that would help secure the benefits of liberalized trade.
 These examples are not exhaustive, but neither are they trivial.  Implementing just these changes would
 produce significant economic and environmental benefits.        .   ,
   I.  TRADE POLICY CHANGES THAT WOULD BENEFIT THE ENVIRONMENT
    A.  Reducing Agricultural Protectionism and Domestic Agricultural Policy Distortions

    Agricultural protectionism in Europe, the United States and Japan leads to much more intensive farming
in these regions than is environmentally or economically justified. By inflating returns to input use, while (in
some cases) limiting the acreage that can be planted, agricultural policies induce farmers to adopt chemical-
intensive monocultures that lead to more soil erosion, chemical runoff, loss of biological diversity, and
conversion of natural ecosystems to cultivation than would otherwise tak$ place. (Faeth & Repetto, Phipps
& Reichelderfer, Young)
78 a  THE GREENING OF WORLD TRADE

-------
    These domestic agricultural policies are supported by barriers to imports and subsidies to exports, trade
distorting measures that impose heavy Costs on domestic consumers and third-country producers. De-
pressed returns to developing country producers may inhibit badly needed investments in agriculture in
those countries, and result in heedlessly extensive methods of farming that are responsible for ecologically
disastrous tropical deforestation.
    Liberalization of agricultural trade and decoupling of farm income support payments from production
decisions would result in significant gains in farm productivity and consumer welfare, reductions in fiscal
burdens, expansion of international trade, and improvements in environmental quality. This is a prime
example of complementarity.


                           B. Reducing Trade Barriers to Exports of
                  Labor-intensive Manufactures from Developing Countries

     The Multi-Fibre Agreement and other trade instruments impose serious quantitative restrictions on
exports from developing countries of labor-intensive manufactures. These barriers affect not only textiles and
apparel, but other relatively labor-intensive sectors such as footwear. By impeding the access of low-cost
producers with comparative advantage in these manufactures to industrial country markets, these restric-
tions substantially lower incomes in developing countries and raise consumer prices in industrial countries.
     At the same time, these trade barriers intensify environmental pressures in developing countries by
forcing them to intensify exports of natural-resource based commodities. By and large, developing countries
have comparative ad vantagein the production and export of labor-intensive or resource-intensive commodi-
ties. Few are able to compete in high-technology or capital-intensive industries. By impeding exports of
labor-intensive manufactures, especially when developing countries are under pressure from high debt-
servicing requirements, these trade barriers virtually force developing countries to raise exports of natural-
resourcebased commodities. Indonesia, for example, deliberately raised production of tropical forest timber
products for export during the last decade, despite ecological concerns.  Eliminating these trade barriers
would have significant economic and environmental benefits.


              C. Using Trade and Investment Incentives to Induce Cooperation in
                       International Environmental Protection Activities

     There has been much discussion of the use of trade sanctions, either unilaterally or multilaterally, to
 discourage non-cooperation in international environmental protection activities. The recent tuna\ dolphin
 case and the use of trade sanctions in the Montreal Protocol are current examples. Even if legal under
 international rules, these policies are problematic because they rely on one welfare-reducing measure (trade
 restrictions) to discourage another (non-cooperation in environmental protection).
     The use of trade concessions to elicit international environmental cooperation is an approach much
 more  likely to generate economic and environmental gains arid  an overall improvement in welfare. A
 possible example, although still under negotiation, might be the USXMexico Free Trade Agreement. The
                                                                        SUPPORTING PAPERS a  79

-------
 prospect of substantial increased gains from trade and investment has apparently been sufficient to induce
 the Mexican government to improve enforcement of their own environmental regulations, and to induce bo th
 governments to devote (badly needed) additional resources to environmental protection in the border area.
      If successful, this approach could be applied to a wider round of negotiations over a Latin American Free
 Trade Agreement. In a world still riddled with economically burdensome restrictions on international trade
 and investment, it is possible to devise "win-win" strategies that would satisfy developing country growth
 aspirations and industrial country concerns for the global environment. That is one of the strongest rationales
 for bringing trade and  investment  issues  into UNCED, or contemplating a "green round" of GAIT
 negotiations.
                     II. CHANGES IN ENVIRONMENTAL POLICIES
                  THAT WOULD BENEFIT INTERNATIONAL TRADE
               A.  Effective Regulation of Unpriced Environmental Regulations
                   in Such Countries Where Such Regulations Do Not Exist

     It is a fundamental principle of international trade that market processes will generate patterns of
 production and trade that-conform to comparative advantage only if all production costs are reflected in
 product prices. That is the basis of long-standing disciplines against trade-relevant subsidies and dumping
 practicies.
     It is an equally long-standing principle of environmental economics that the costs of environmental
 damages will not be borne by the party that produces them unless there are effective legal, regulatory, or
 economic policies that substitute for the lack of markets in environmental quality. It follows that governments
 that institute such environmental policies, where they are absent, will improve the conditions for interna-
 tional trade while protecting the environment. Creating capabilities to enforce environmental regulations in
 Mexico, or instituting environmental regulations in Eastern Europe, are examples of these beneficial changes.
     It is important to recognize that this by no means implies that all countries should implement the same
 environmental standards or  place the same value on environmental damages.  However, the cost of
 environmental damage is rarely zero, and many developing and formerly socialist countries have imposed
 virtually no effective environmental requirements on producers. This has resulted in excessive health and
 ecological damages, and has failed to induce producers to make even low-cost changes that would use only
 well-known technologies and techniques.


                   B. Universal Adherence to the Polluter Pays Principle

    The OECD governments agreed to the polluter  pays  principle twenty years ago to  avoid trade
80  a  THE GREENING OF WORLD TRADE

-------
displacements and distortions that might result if some governments subsidized industries' costs of
compliance with environmental standards. This principle has been applied only spottily within the OECD.
Agriculture, for example, has largely been exempted from it. Non-OECD countries have not universally
adopted even the principle, let alone the practice.
     In combination with the adoption of reasonable environmental standards, adherence to the Polluter
Pays Principle would ensure that environmental costs are internalized into enterprise costs and product
prices. Trade disputes over hidden environmental subsidies and "eco-dumping" would thereby be largely
eliminated. Concerns over the environmental consequences of trade liberalization would also be muted,
because environmental controls and costs would be adequately reflected in market transactions.
     There would be an additional economic benefit to developing countries. If the prices of their exports,
especially to the North, included the cost of environmental compliance, then Northern consumers would be
paying a larger share of the environmental costs associated with their consumption patterns. For example,
if environmental control costs averaged roughly 2 percent of production costs, as they do in the US, then the
$500 billion in annual exports from developing country would include payments of about $10 billion by
importers, mostly in the North, to help defray the costs of environmental controls. This sum is far greater than
the annual flows of development assistance to the South for environmental programs.


           C Elimination of Direct or Indirect Underpricing of Natural Resources

   ,  Natural  resources, such as water and energy, are very often underpriced in both industrialized and
developing countries. Water supplied by public agencies for irrigation in the US, for example, is subsidized
by 85-90 percent, on average. Timber production in national forests is also subsidized, in that many of the
costs are financed through Congressional appropriations. Other countries do the same: for example, Canada
subsidizes production of hydroelectricity and timber and Germany subsidizes the production of coal.
     These policies distort international trade, whether the subsidized resource is directly exported or used
as an input in the production of exported commodities. At the same time, such natural resource subsidies
result in extensive environmental damage by encouraging the oversupply and overuse of the natural resource
in question. Additional coal use increases CO2 emissions and other environmental impacts. Water subsidies
in the western US have led to severe environmental damages, including salinization of soils, contamination
of wetlands, and reduction of fisheries and bird populations.  While in the US, because of the division of
responsibility between EPA and  the Dept. of the Interior, resource subsidies of this kind are often not
Considered to be "environmental policies", they significantly affect the use and management of natural
resources, and in mbst of the world fall within this category. Eliminating them yields trade and environmen-
tal benefits.


     D.  Harmonization of Procedural Standards Governing Testing and Risk Assessment

     While countries may understandably and legitimately adopt different levels of product quality or
environmental risks, without thereby necessarily burdening international  trade unduly, there are many
                                                                       SUPPORTING PAPERS  a 81

-------
 economic and environmental gains to be obtained if the procedures for risk assessment are harmonized
 internationally. Such issues as "How should risks be assessed? What data are relevant, and how should they
 be collected? What tests and testing procedures are acceptable?" can be agreed upon internationally without
 impinging on each country's authority to decide for itself the level of acceptable risk. Agreeing on these
 important procedural matters would reduce the regulatory costs of international investment and trade. It
 would also reduce the scope for trade disputes over the legitimacy and scientific basis for product standards.
     There would also be environmental gains. Uncertainty regarding the actual quality of products entering
 the country from abroad would be reduced. The workload on environmental agencies would be reduced.
 And, since the US is among the countries with the most advanced and transparent procedural standards,
 harmonization would probably lead to an overall improvement in practices internationally.
                                      About the Author

    Robert Repetto is Vice President and Director of the Program in Economics and Population at the World
 Resources Institute. He directs research projects on the impacts of structural adjustment on the environment,
 the economics of sustainable agriculture, incorporating natural resource depletion into national income
 accounts, environmental protection and the competitiveness of the U.S., and others. Dr. Repetto is the author
 of numerous publications on economic development, population issues, and natural resource management
 for sustainable development.
    Before joining WRI in 1983, Dr. Repetto was an associate professor of economics in the School of Public
 Health at Harvard University and a member of the economics faculty at Harvard's Center for Population
 Studies. Previously, he was a staff economist for the World Bank Resident Mission in Indonesia, economic
 advisor to the planning and development board for the government of East Pakistan, staff economist for the
 Ford Foundation in New Delhi, India, and an economist for the Federal Reserve Bank of New York.
    He is a member of the National Advisory Council for Environmental Policy and the Science Advisory
 Board under the U.S. Environmental Protection Agency, the National Advisory Committee to the Center for
 Tropical Ecology and Conservation, Duke University and on the Advisory Board for the Worldwide Fund
 for Nature, program on tropical forests.
    Robert Repetto received a Ph.D. in Economics from Harvard University in 1967, a Master of Science degree
 in Mathematical Economics and Econometrics from the London School of Economics, and graduated magna
 cum laude from Harvard College in 1959.
82  n THE GREENING OF WORLD TRADE

-------
       Reconciling  Trade and Environment:
                             The Next Steps

                    Charles S. Pearson and Robert Repetto
                                 I. INTRODUCTION

    The purposes of this paper are to analyze potential conflicts between trade and environmental policies,
and to point out options for reconciling them. The overarching objective is to preserve the many benefits of
a liberal trade system while moving toward strong environmental protection at the national and international
levels.
    The conflicts should notbe.exaggerated. Both trade and environmental policy seek to improve welfare
by allocating resources efficiently, including natural and environmental resources. Both agree that external
environmental costs should be internalized in product prices.  The income gains from liberal trade can
provide the resources for environmental protection if sound environmental policies are in place at the
national level; conservation of resources, including environmental resources, provides the basis for economic
production and trade.
    At a more pragmatic level, the  trade system has accommodated vastly expanded environmental
regulations over the past two decades without serious difficulty. The principal challenges to the open trading
system do not  stem from environmental objectives, but from uncoordinated macroeconomic policies, the
political strength of protected sectors, and wide disparities in the world's living standards, technological
capabilities, and labor costs.
    Moreover, without dismissing legitimate environmental concerns, a vast expansion in world trade and
significant trade liberalization over the same period have not prevented progress in the environmental
protection in countries committed to such policies. Trade and environmental policies are in many instances
complementary, and can be made more complementary through suitable adjustments to both.
    Nevertheless, points of conflict exist and require attention.  Section II of the paper examines problems
arising from the increasing use of environmentally-related product regulations.  Section III considers the
                                                                 SUPPORTING PAPERS a  83

-------
 problems that arise from environmentally-related production process regulations, which include issues of
 effects on competitiveness, subsidies, the polluter-pays principle, and border adjustments to offset differ-
 ences in environmental control costs.  Section IV takes up the question of the appropriate use of trade
 measures to secure international environmental objectives, and offers tentative criteria for the use of trade
 measures in such situations. Appendix A reviews some empirical studies of trade and environment.
            II.  ENVIRONMENTALLY-RELATED PRODUCT REGULATIONS
                                A. Definitions and Distinctions

     The literature on product standards traditionally distinguishes between technical standards, which are
 voluntarily agreed codifications regarding form, functioning, quality, etc., drawn up or approved by such
 bodies as the International Standards Organization (ISO) and the International Electrotechnical Commission
 (IEC), and technical regulations, which are specifications as to the form, functioning, design, or performance
 of products as established in  public law. Common usage, however, often confusingly uses "product
 standards" to include both (private) standards and (public) regulations. We use product technical standards,
 or simply product standards to refer to voluntary codifications, and technical regulations, or simple product
 regulations, to refer to specifications set out in law or government regulations.
     There is no sharp distinction between the set of product regulations that have come to be known as
 environmentally-related technical regulations, and the broader class of product regulations designed to
 protect health and safety. Both raise virtually the same international trade issues. Nevertheless, it is now
 customary to include as potentially important for trade  the following environmentally-related technical
 regulations of products:
     •   motor vehicle emission requirements
     •   certain food product regulations, including limits on pesticide residues and heavy metal contamination
     •   product radiation emission regulations
     •   regulations concerning toxic substances
     •   product noise regulations
     •   certain gasoline formulation regulations
                                                                          *,
     •   regulations concerning the packaging, recycling or disposal of products
     Auto fleet mileage regulations for environmental purposes might be another example. Environmental
labeling (also known as ecolabeling) may also prove to be important. The inability to draw a sharp distinction
between environmentally-related and other product regulations creates few practical difficulties.
     Within the realm of environmentally-related product regulations, it is useful to distinguish between
those that determine the allowable degree of environmental risk (e.g., pesticide residues on foods) and those
84  a THE GREENING OF WORLD TRADE

-------
that determine how risk should be assessed (e.g., testing protocols, required data submissions, etc.). Nations
may well differ in the level of risk they find acceptable, but nonetheless find it highly useful to agree on the
methods of risk assessment they find acceptable. Harmonization of risk assessment requirements and
procedures also reduces the costs of producers and traders.
    Environmentally-related technical product regulations should be distinguished from regulations
dealing with production process. The former are designed to protect the health and environment in the
country of consumption, and may affect market access. The latter are designed to protect the environment
of the country of production (and export), and may affect production costs and international competitive
position. Product regulations are established by importing (consuming) countries; production regulations
are normally established by producing (exporting) countries, each for their own protection.
    There is, however, a gray area between product and production regulations. In some instances the most
efficient method for assuring the quality or safety of a product may be to inspect or certify a production
process. An example is U.S. procedures for inspection of foreign slaughterhouses and meat packaging plants.
Product regulations that necessitate regulation or inspection of production require either foreign on-site
inspection procedures, or mutual acceptance of foreign testing and certification procedures, if they are to be
consistent with open trade.
    A final useful distinction is between product design or materials regulations, and product performance
regulations.  By and large, product performance regulations allow greater flexibility to producers than do
rigid design or materials requirements, and are more efficient. The GATT Agreement on Technical Barriers
to Trade (The Standards Code) requires standards and regulations based on performance rather than design
criteria wherever appropriate.


                            B. The Trade and Environment Issues

    The establishment of environmentally-related technical regulations of products poses issues for inter-
national  trade and issues for environmental policy.  The first trade issue is that such regulations may
ostensibly be intended to protect health and the environment, but in  fact may be covert protectionist
measures. Product regulations protect domestic producers if they deliberately are drawn up in a fashion that
favors the domestic producer and penalizes the imported product, or if the inspection and certification
process discriminates against the foreigner. Separating and identifying "legitimate" product regulations,
whose purpose is environmental protection or protection of health and safety of consumers, from covert
protection is difficult as it involves determining the intent as well as the effect of the regulations. The principle
of "national treatment?—treating imports no less favorably than domestically produced products— is an
effort to limit the use of product standards as covert protection. National treatment is required in the GATT
and in the GATT's Standards Code subject to certain exceptions. Other efforts to limit the use of product
standards for protectionist purposes are reflected in GATT language to the effect that such measures should
not unduly burden international trade and are necessary for protecting health, safety, and resources.
     Even if covert protection is not intended, international differences in technical regulations may create
a second trade problem. Separate product regulations at the national level fragment markets and increase
                                                                        SUPPORTING PAPERS a  85

-------
 production and selling costs. These additional costs include designing products to meet individual markets,
 shorter production runs, higher inventory requirements, higher information costs (to ascertain national
 regulations), uncertainty costs, and, in some instances, a loss of interchangeability of parts and components.
 For all these reasons, there is a presumption that internationally uniform product regulations would increase
 trade and efficiency. The higher costs from fragmented markets are borne by both consumers who pay higher
 prices and possibly face narrower product choices, and by producers. Normal market forces produce some
 harmonization of product regulations and standards. However, the interpenetration of major markets by
 multinational companies through foreign  direct investment, as well as the trend toward manufacturing
 systems designed to customize products toward niche markets, tend to reduce the gains from harmonization
 somewhat.
     Both trade problems can be minimized by international harmonization of product regulations. Inter-
 national uniform product regulations are less likely to be covert trade barriers. International harmonization
 of product regulations reduces costs and facilitates trade.
     International harmonization of technical regulations on products, however, does present a problem for
 environmental policy. Countries differ as to their physical assimilative capacity (the ability of the environ-
 ment to absorb wastes and render them harmless), the degree to which the assimilative capacity is currently
 exploited, their income level and economic structure, and their willingness to tolerate environmental risks.
 These differences suggest that the appropriate standards will differ from country to country and  indeed
 among regions within a country. If environmental policies, including technical regulations of products, are
 established on the basis of a local calculus of costs and benefits to improve social welfare, some variation in
 product standards among countries is expected and desirable. It follows that if technical regulations of
 products were harmonized internationally at a  "low" level, some countries would be forced to endure
 product standards below their social optimum; (the so-called "least common denominator" problem); if
 technical regulations were harmonized at a "high" level, other countries would be forced to endure product
 standards more costly than their circumstances warrant (a possible example of "environmental imperial-
 ism").
     Thus, in considering international harmonization of environmentally-related technical regulations of
 products, a balance should be struck between the advantages of harmonization —minimizing opportunities
 for covert protection, and the trade promoting features of internationally uniform standards—with the
 disadvantage of harmonization—overriding legitimate differences among countries in environmental and
 economic circumstances and social preferences, and a standard that is both too high and too low.
     The European Community, which is moving toward harmonizing product regulations and standards
 in creating a unified market, has generally experienced a  tendency for regulations and standards to be
 harmonizing upwards toward the more stringent quality or environmental standards, and has responded to
 the difficulties this presents for countries with lower technical capabilities or baseline conditions by allowing
 them additional time to conform to stricter standards.  The European Communi ty has reinforced the tendency
 for standards to be harmonized upwards by allowing member countries the possibility to adopt stricter, but
 not less  strict, standards than those adopted for the Community.
     Most consumers in the United States have a relatively low tolerance for environmental risk. At the same
86  a THE GREENING OF WORLD TRADE

-------
time, U.S. producers have a relatively high technological capability to meet stringent product standards, and,
in most cases, are already doing so to comply with US national regulations.  For both reasons, it is in the
national interest for the United States government to press for harmonization of product standards upwards
in those situations where harmonization is desirable. One way  to do this would be to emulate the EC's
provision that countries may only depart from the harmonized standard to establish stricter national
standards.


                            C. Institutional and Regulatory Structure

     The GATT, the  GATT's Standard Code and the OECD's 1972  Guiding Principles Concerning the
International Economic Aspects of Environmental Policies all speak to the issue of technical regulations of
products. The OECD recognized the need to respect differences among countries in assimilative capacity,
economic structure, and social objectives, but called upon governments to seek common standards (i.e.,
technical regulations) for polluting products where possible.  The Guiding Principles also require national
treatment and nondiscrimination in the application of regulations to polluting products, in an effort to control
covert protectionist measures.
     The relevant portions of the Guiding Principles are:
     Environmental Standards
            Differing national environmental policies, for example, with regard to the tolerable amount
            of pollution and to quality and emissions standards, are justified by a variety of factors
            including among other things different pollution assimilative capacities of the environment
            in its present state, different social objectives and priorities attached to  environmental
            protection, and different degrees of industrialization and population density.
            In view of this, a very high degree of harmonization of environmental policies which would
            be otherwise desirable may be difficult to achieve in practice; however, it is desirable to strive
            towards more stringent standards in order to strengthen environmental protection, particu-
            larly in cases where  less  stringent standards would  not be fully justified by the above
            mentioned factors.
            Where valid reasons for differences do not exist, Governments should seek harmonization of
            environmental policies, for instance with respect to timing and the general scope of regulation
            for particular industries to avoid the unjustified disruption of international trade patterns and
            of the international allocations of resources which may  arise  from diversity  of national
            environmental standards.                    • •  .                  .--.....,
            Measures taken to protect the environment should be framed as  far as possible in such a
            manner as to avoid the creation of non-tariff barriers to trade.
            Where products are traded internationally and where there could be significant obstacles to
      '    '  trade, governments should seek common standards for polluting products and agree on the
   '         timing the general scope of regulations for particular products.

     National Treatment and Non-discrimination
                                                                            SUPPORTING PAPERS  a  87

-------
            In conformity with the provisions of the GATT, measures taken within an environmental
            policy, regarding polluting products, should be applied in accordance with the principle of
            national treatment (i.e., identical treatment for imported products and similar domestic
            products) and with the principle of non-discrimination (identical treatment for imported
            products regardless of their national origin).

     Procedures of Control
            It is highly desirable to define in common, as rapidly as possible, procedures for checking
            conformity to product standards  established for the purpose of environmental control. ,
            Procedures for checking conformity to standards should be mutually agreed so as to be
            applied by an exporting country to the satisfaction of the importing country.
            (Source: OECD Guiding Principles Concerning the International Economic Aspects of Environmen-
            tal Policies.)

     With respect to GATT provisions, the general rule is that a law or regulation that applies equally to
imported and domestic goods and that meets national treatment and MFN obligations does not have to be
justified under Article XX of the GATT.  Thus environmentally-related and other product regulations, if they
meet the MFN and national treatment tests, are G ATT-consistent. If this is not the case, they may nevertheless
qualify under the Article XX exceptions:
            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 disguised restriction on  international trade, nothing in the
            Agreement shall be construed to prevent the adoption or enforcement by an 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...

     Articles XX (b) and (g) do not explicitly mention environmentally-related product regulations, but their
similarity to health standards, historical precedent, and the reasonable interpretation that environmental
resources are exhaustible natural resources, make these exceptions applicable to environmentally-motivated
product standards.
     While Articles XX (b) and (g) can be interpreted to cover environmentally-related technical regulations
of products, the language is somewhat  ambiguous.  What remains unclear is:
     (a) the extent to which product standards can be applied to protect environmental resources located
        outside the restricting country (the question of extraterritoriality).
     (b) the interpretation of "arbitrary or unjustifiable" and "disguised  restriction in international trade."
     (c) the term "necessary to" in (b)
     (d) the meaning of "related to" and "made effective in conjunction with" in (g)
     Prior to the tuna-dolphin case, GATT panels dealt with  four cases  in which countries justified trade
88  o  THE GREENING OF WORLD TRADE

-------
restrictions under Article XX on the basis of environmental concerns. In two cases, a U.S. prohibition of tuna
imports from Canada, and a Canadian requirement that certain salmon and herring be processed before
export, the trade restraints were found to be unrelated to resource conservation.
    In the U-S.-Thailand cigarette dispute, a GATT panel found that the Thai import restriction was not
"necessary," in that less trade-restrictive measures were available to protect health in Thailand, and the
import restriction was therefore inconsistent with Thailand's obligations under GATT. In the U.S. Superfund
case, a GATT panel found that a U.S. tax on certain imported substances (manufactured from chemicals
taxable in the U.S.) and designed to raise revenue for cleanup, was a tax on a product and eligible for border
adjustments as is normally the case. GATT found that the environmental purpose of the tax was not relevant.
    Although limited in scope, these four cases suggest that GATT has attempted to identify disguised
protectionist measures, to limit product-related trade measures to instances in which they are necessary, and
to apply conventional border adjustment rules for direct taxes on products without involving itself in judging
the purpose of the tax.
    The tuna-dolphin case between the U.S. and Mexico raised both the extraterritoriality question, and the
product vs. production regulation question. The GATT panel found that Articles XX (b) and (g) could not be
applied extrajurisdictionally.  It also found that the U.S. Marine Mammals Protection Act did not regulate
tuna as a product but instead regulated the production method. These issues are dealt with elsewhere.
    These episodes raise issues regarding the interpretation of GATT provisions that require balancing of
trade and environmental objectives. In order to safeguard  environmental policy objectives, it is important
where the balance should be struck, who should strike the balance, and on what grounds. The language of
Article XX affords countries wide latitude  in establishing environmentally-related product regulations,
provided that they are not arbitrary, discriminatory, or disguised protectionist measures. GATT dispute
resolution panels and negotiators have attempted to narrow this latitude by interpreting exceptions b) and g)
    •   to require that regulations impose the least burden on trade of all available  regulatory measures,
    •   to mean that a country's natural resources do not include a share of the global commons,
    •   to require that all product regulations be scientifically based.
    These interpretations seek to impose significant additional restrictions on the scope and autonomy of
national environmental policies,  in a decision-making context in which environmental objectives and
considerations are poorly represented.
    A narrower interpretation of the scope of GATT scrutiny would more adequately serve the attainment
of environmental objectives. The narrower approach would interpret the condition "necessary to..." to mean
that standards are not unnecessary, superfluous, or ineffectual to the environmental objective. It would
interpret a country's natural resources to include a stake in the global commons, which includes climate, the
ozone shield, and open ocean resources. It would apply the "sound science" criterion to the methods of risk
assessment, not to the determination of tolerable risk.
    The GATT Standards Code was adopted in 1980. It supports and extends the relevant GATT provisions
by reaffirming national treatment and MFN ("most favored nation" status); encourages, but does not require
adoption of international standards; promotes transparency through notification  and foreign comment
                                                                       SUPPORTING PAPERS  a  89

-------
procedures when technical regulations are adopted; encourages efficiency by requiring performance rather
than design standards; and provides for a (rarely used) dispute settlement mechanism.  Despite these
laudable features, the Standards Codehas certain shortcomings, and limited membership. Areas of weakness
are the precatory language, the failure to mandate compliance by local governments and private groups and,
arguably, the escape clause that allows governments to ignore international standards (when they exist) if the
government finds the international standard inappropriate for reasons including the protection of health and
the environment.
     The Standards Code is undergoing revisions in the Uruguay Round.  Two proposed changes are
relevant. One version of the proposed agreement would extend coverage of the Standards Code to include
regulations concerning process and production methods (PPMs). The purpose of this change is not known.
Nor is it clear that it will survive in a final agreement. Nevertheless, if it does, it appears to be a major opening
for the use of regulations by one country to affect the environmental manner in which products are produced
in foreign countries.
     The second change is to split off a separate agreement on sanitary and phytosanitary measures. The
thrust of the draft agreement is to enshrine sound science as the basis for sanitary and  phytosanitary
measures, with increased reliance on international bodies such a? the Codex Alimentarius Commission, a
joint WHO-FAO agency. In one version of the draft agreement it would appear that a country could maintain
standards higher than international standards (where such exist), but would have to justify its standards on
the basis of scientific evidence.
                                       D. Ecolabeling

     A relatively new question in the product regulation area is the rapid growth of environmental labeling
or ecolabeling. By 1992 an estimated 22 OECD countries may have ecolabeling schemes. The information
conveyed in ecolabeling extends beyond the characteristics of the products to include environmental aspects
of production and disposal. Most schemes appear to be a mixed public-private endeavor, in which consumer,
environmental, and industry interests are represented, along with the involvement of the appropriate
government ministry or agency.
     Ecolabeling holds considerable promise.  By providing accurate information, consumers can directly
express their environment preference through the marketplace, and the economists' test of "willingness to
pay" as a measure of utility or welfare is met. In some instances an ecolabeling system may obviate the need
for government product regulations and, incidentally, reduce the use of product regulations as trade barriers.
     Nevertheless, a new trade barrier may be created. Unless the certification schemes, which lie at the heart
of ecolabeling, include imported products, a new and insidious barrier to trade is created.  Specifically,
imports may be denied access to ecolabeling certification and suffer discrimination in the market place. G ATT
provisions with respect to product labeling require  MFN treatment.  Some consideration  of ways of
reconciling ecolabeling with maintaining open trade is desirable.
90  a THE GREENING OF WORLD TRADE

-------
           ,                          E. Policy Options              ,

    The preceding discussion identified four potential or actual conflicts with regard to environmentally-
related product regulations:
    •  product regulations used as covert non-tariff barriers (NTBs)
    •  the trade and efficiency costs of different national standards
    •  the costs of imposing either a "high" or "low" uniform standard on countries with different
       environment, economic, and social preferences
    •  the interpretation of GATT codes to limit the scope and autonomy of national environmental policy.
   . We can identify four broad areas in which policy actions might be considered.

    1.  ACCELERATE EFFORTS TO HARMONIZE PRODUCT REGULATIONS
    Rapid progress can be made in harmonizing methods of risk assessment, through such actions as mutual
recognition of testing and certification (along the lines of the OECD Chemicals Programme), and an extension
beyond the EC of its doctrine of "rrtutual recognition," in which nonessential regulations of a product that
meet legal requirements in one country allow the product to be legally sold in any member country.
    In addition, the US should press for harmonization of substantive product standards upward, using the
provision that such harmonized standards may serve as a floor to individual country regulations. Harmo-
nization should cover both the sanitary and phy tosanitary standards and those addressing toxicity and other
product risks. The concerns of developing countries over such a process could be dealt with through advance
notification, technical assistance, and (if appropriate) temporary waivers.

    2.  REFINE GATT AND GATTs STANDARDS CODE
    The desirable refinements are those that  would clarify the position  that national environmental
policymaking should be restricted or narrowed only  to, prevent arbitrary, discriminatory or unjustifiable
restrictions on  international trade and to prevent disguised protectionist measures; and that trade bodies
should not otherwise pass judgement over the soundness of the environmental regulations adopted, or the
instruments employed. Some increased reliance on a scientific basis for the establishment of regulations and
standards might be useful, but we doubt that there will be sufficient consensus in many cases. When there
is scientific uncertainty, countries should remain free to establish standards they deem are in the national
interest.  ,         ,                                            - • .  -

    3.  EXTEND PRODUCT REGULATIONS TO COVER PRODUCTION METHODS
    With the  exception of products and production methods that have transboundary environmental
impacts or affect the global commons, a reasonable environmental policy approach would be to refrain from
extending national product regulations to cover production methods. The U.S. would often find itself the
victim of such regulations imposed by other countries for protectionist purposes. Moreover, unilateral
actions taken by the U.S. against trading partners to affect their purely domestic environmental standards and
practices would create considerable friction.  Other approaches, including technical assistance, negotiation,
and multilateral agreement are preferable.
                                                                      SUPPORTING PAPERS a  91

-------
    4. REGULATE ECOLABELING SCHEMES
     At a minimum, international harmonization of certification procedures and mutual recognition of
 certification should be pursued, at least among OECD countries.
        II. ENVIRONMENTALLY-RELATED PRODUCTION REGULATIONS:
           COMPETITIVE EFFECTS, SUBSIDIES AND POLICY RESPONSES
                                       A. Background

     Ambient environmental standards set environmental quality objectives for air, water and other
environmental media. They may or may not be uniform within a country, but are not uniform within the
United States. By themselves, ambient standards have no production cost or trade consequence, but the cost
of complying with measures to achieve ambient standards does. Process (production) standards specify the
manner in which products are produced, the technologies employed, or the production processes. Process
standards are the main measures adopted to achieve ambient standards.  A principal category of process
standards is effluent and emission standards, which set allowable effluent and emission levels in physical
terms, often with specific dilution requirements. Effluent and emission standards may be characterized as
either performance or design  standards.   Performance standards generally allow more flexibility in
implementation. In general, effluent and emission standards can be accomplished by end-of-pipe treatment,
process change, resource recovery and reuse techniques, or input change. The important point is that, in
general, process standards will entail some increase in production costs to the firms and industries to which
they apply.  They may, however, reduce costs to  other industries that are the victims of environmental
damages caused by emissions. Indeed, if set appropriately, the aggregate cost savings to a country should
exceed the total costs of complying with the standards.
     There are two other types of environmental regulations that tend to increase production costs.  First,
pollution taxes on polluting inputs or on emissions and effluents, will be treated as a cost by a firm. Despite
their efficiency advantages, pollution taxes and the related tradeable permit schemes have not been widely
used  up till now.   Second, environmentally-related restrictions on production will  tend  to increase
production costs. These are more frequent in the natural resource extraction area, and include such examples
as zoning, land restoration requirements for mining, and harvesting methods for timber (and the like).


                         B.  Environmental Control Cost Differences

    The regulations described above will create differences in environmental control costs among firms,
industries, and countries. The magnitude of these cost differences is an empirical question, discussed below.
It is important to recognize, however, that (a) uniform ambient standards among countries will not produce
uniform environmental control costs due to differences in physical assimilative capacity, industrial structure,
92  a THE GREENING OF WORLD TRADE

-------
and pollution abatement alternatives and costs; (b) internationally uniform emission and effluent require-
ments applied at the industry level will not produce uniform environmental control costs, due to differences
in the age structure of plants, abatement technology available, alternative waste disposal opportunities, etc.;
(c) uniform emission and effluent requirements at the industry level would not result in uniform ambient
environmental conditions among countries.
     The allocation of environmental control costs as between government and the private sector also varies
among countries. If one country requires environmental control costs to be borne by the industry that
generates the environmental impacts, and another country provides government financial subsidies for
environmental control costs, environmental control cost differences at the product level will differ among
countries. Nevertheless, environmental control costs do not disappear if the government subsidizes; they
show up in government budget deficits or as a burden on taxpayers, and will indirectly affect the overall cost
structure and international competitive position of countries.
                                f              •                      ...          .
                      C.  The Trade and Environment Issues Arising from
        .     ,             Difference in Environmental Control Costs                  ,

     From a trade perspective, international differences in environmental control costs raise a competitive-
ness issue. Baldly stated, countries with stringent environmental regulations may find themselves at a
competitive disadvantage in industries with high environmental control costs vis-a-vis countries with lower
environmental control costs, or countries that provide direct financial subsidies to offset environmental
control costs in the private sector. The reduction in environmental damages may reduce production costs for
other industries,  however. Moreover, the loss of Competitiveness in high environmental control cost
industries will be offset by greater competitiveness in clean industries, if exchange rate movements correct
any overall external imbalance.         '                         . .
    ..At'a macroeconomic level (i.e., an overall trade balance  question), differences in  environmental
regulations have been insignificant. Because total environmental control costs have been a very small fraction
of aggregate production costs, because macroeconomic balance is mainly the result of aggregate public and
private savings and investment and consumption decisions, and because flexible exchange rates tend to "iron
out" changes in overall competitiveness, the macro or trade balance effect of differences in environmental
control costs has not been perceptible. This might change if expensive measures to control global warming
are undertaken.         ,                                                              ;
     From a trade perspective (and setting aside short-run industry adjustment costs), the main issue is
whether such differences in environmental control costs represent a distortion in international trade leading
to an inefficient  allocation of productive resources (including, in the present context,  environmental
resources). A trade distortion arises when product prices do not reflect their full social costs of production.
Thus the trade question boils down to whether environmental control cost differences are accurate reflections
of differences in social production costs among countries. To the extent that such cost differences accurately
reflect differences in the implicit value of environmental services, due to differences in physical assimilative
capacity, economic structure, availability of pollution  abatement  technology, income levels, or social
                                                                        SUPPORTING PAPERS a  93

-------
 preferences, no trade distortion is present. Cost differences are the basis for trade and the source of gains from
 trade.
     There are three possible exceptions to these conclusions. First, governments may provide financial
 subsidies for environmental control costs (including subsidized resource input costs). Thus the importance
 of cost-allocation practices. Second, a government may deliberately choose artificially low environmental
 standards, below what is appropriate to their local calculus of the benefit and costs from environmental
 protection, in order to secure a trade (or investment) advantage, or they may fail to enforce their own
 environmental standards.  Roughly speaking, this is the pollution haven issue. Distinguishing between
 legitimate and nonlegitimate differences in environmental control costs among countries is difficult, but a
 way to start is by asking whether countries are actually enforcing the standards they have set. Third, if
 transnational pollution or other international externalities are present, a country may choose environmental
 standards suitable to its own parochial interests, but fail to protect international environmental resources.
     From the environmental policy perspective, international differences in environmental control costs
 (and the regulations that give rise to these costs) pose two issues. First, a country may be reluctant to establish
 strong environmental protection (or may be subject to intense pressure from industry) out of a concern for
 a loss of competitiveness. Second, would a policy that attempted to equalize environmental control costs or
 production standards internationally be an effective instrument for improving environmental protection
 abroad?
                              D.  Refining the Subsidy Question

     The preceding analysis allows us to refine the subsidy question as it relates to the environment.  Four
types of subsidy may be present. First, governments may offer direct financial subsidies for environmental
control costs, in which case product prices would no longer reflect social production costs.  Second,
governments may set artificially low environmental protection regulations in the expectation of some trade
advantage, or fail to enforce their own standards. The "subsidy" in this case takes the form of excessive
environmental degradation, borne by the producing country or, in the event of transnational pollution, the
international community. But, because conditions differ among countries, a low standard in and of itself is
not evidence of a subsidy. Third, inputs to production may carry an environmental subsidy, either through
government pricing policy or the failure of governments to establish regulations to  protect the input.
Examples would include underpriced water, pesticides, energy and soil inputs. Current trade rules prevent
some forms of financial subsidies for pollution abatement (explained below), whereas the second and third
subsidy types, which are environmentally damaging, are not generally restricted. A fourth type of subsidy
is one designed to eliminate an external cost or capture an external benefit. A subsidy for clean fuels is an
example. As this type of subsidy corrects a distortion, it does not create an inefficiency in trade.
     From the environmental policy perspective, something looks amiss.  A country that takes strong
environmental protection measures may bear a trade loss, at least in high EC cost industries, whereas a
country that does not may enjoy a trade gain. It should be noted at this point that the empirical evidence to
be discussed below gives little support to this possibility.  Not only are environmental control costs
94  a THE GREENING OF WORLD TRADE

-------
insignificant in most industries relative to international differences in other input costs and productivities,
but there may be offsetting gains to the industry from tighter environmental control, in the form of less
wastage and higher quality.  Moreover, the main trade and  environmental  distortions are confined to
government financing of pollution abatement in the private sector and the establishment of artificially low
environmental standards, the prevalence of which is difficult to document.


                           E.  Institutional and Regulatory Structure

     Two of the three OECD Guiding Principles Concerning the International Economic Aspects of Environ-
mental Policy address the question of international differences in environmental control costs. The best
known, the Polluter-Pays Principle (PPP), deals with the allocation of environmental control costs between
the private and public sectors. It states that environmental control costs incurred in the private sector should
not in general receive government subsidies. The PPP meets two efficiency objectives—to insure the product
prices reflect the full social costs of production, and to insure that differences in financing-environmental
control costs do not become a trade distortion. The PPP may also contribute to a perception of fairness in
international trade. Widespread adherence to the PPP would narrow environmental control cost differences
and weaken the case for any policy response.  Note that the PPP (a) allows producers to pass forward
environmental control costs in product price to consumers, (b) does not require producers to pay for residual
damages (remaining environmental damages), once national standards are met, and (c) does not require
harmonization of environmental standards or costs internationally. In enunciating the principle, however,
the OECD did support harmonization of policies to avoid unjustified disruptions of trade. Finally, the PPP
allows some flexibility for government assistance, especially in a transition period, provided the exceptions
do not lead to significant distortions in trade and investment.
     The second OECD principle states that "differences in  environmental  policies should not lead to
compensating import levies or export rebates (border adjustments) or measures having an equivalent effect,
designed  to affect the consequences  of these differences on prices."  The rationale for this principle is
"different national environmental policies, for example, with regard to the tolerable amount of pollution and
to quality and emission standards, are justified by a variety of factors including among other things different
pollution assimilative capacities of the environmentalists' present state, different social objectives and
priorities attached to environmental protection and different degrees of industrialization and population
density."  The OECD does, however, stress the desirability of striving toward more stringent standards and
harmonizing standards where valid reasons for differences do not exist.
     A full treatment of a G ATT subsidies provisions and the provisions of the G ATT Subsidies Code as they
apply to the environment cannot be given here. In very general terms, GATT prohibits export subsidies for
nonprimary products. Export subsidies for primary products are not prohibited, but shall not be used in a
manner that results in the country obtaining more than an equitable share of world export trade in that
product. GATT permits domestic subsidies, but if a domestic subsidy operates to increase exports or reduce
imports and if it results in serious prejudice to the interests of other countries, discussions can be requested
with the possibility of limiting the subsidy. The GATT does not mention upstream subsidies explicitly, but
presumably they fall within the general domestic subsidy provision.  In general, a countervailing duty
                                                                        SUPPORTING PAPERS  a 95

-------
 requires a finding that the subsidy causes or threatens material injury to a domestic industry. The injury is
 of an economic or commercial nature quite unrelated to any environmental damage or injury the subsidy
 creates.
     The 1979 GATT Subsidies Code refines the GATT provisions in several ways—such as providing
 illustrative lists of export subsidies, or elaborating on "equitable share of world export trade." Of particular
 importance, the Subsidies Code lists certain types of domestic subsidies for which there is no intention of
 restricting use.  These include  subsidies to distressed regions, R & D subsidies, and subsidies for the
 redeployment of industry to avoid congestion and environmental problems.  The Code further excuses
 developing countries from the Code's prohibition on export subsidies of nonprimary products (subject to
 certain limitations). Although the Subsidies Code does not explicitly speak to upstream subsidies, 1984 U.S.
 law makes such subsidies countervailable. Finally, changes in the Subsidies Code are being considered in the
 Uruguay Round. One change that has been proposed is to make certain types of domestic subsidies for
 pollution abatement expenditures non-actionable—that is to exempt them from countervailing duty mea-
 sures. The proposed change would be restricted to transitional assistance. Whether this survives in the final
 agreement is unknown.
     Whether the three types of environmental subsidies identified above are subsidies within the meaning
 of GATT and the GATT code, and the circumstances in which they may be countervailable, is primarily a legal
 question and beyond the scope of this paper. (The fourth type of subsidy—to correct an externality—does
 not cause a trade distortion). It would appear that direct financial subsidies for offsetting pollution abatement
 expenditure might be countervailable under  certain circumstances; and that upstream  environmental
 subsidies might be countervailable in some circumstances, if the instrument were a direct financial subsidy
 to the input. It seems highly unlikely that countervailing duties would be found GATT consistent if their basis
 were to offset an  (implicit) subsidy from weak environmental regulations in the exporting country. One
 reason is that usually a domestic subsidy that is available to all industries is not countervailable.


                                 F. Border Tax Adjustments.

     GATT allows countries to charge a tax on imports equivalent to a like internal direct tax on similar
 domestic products. A country can rebate the direct internal tax if the product is exported. Examples of such
 taxes include excise, sales, cascade and value-added taxes. This creates a possible "loophole" with regard to
 environmental legislation.  An  externality occurring in production (i.e., smoke) can be controlled by
 regulations or a tax on production, but the cost of compliance cannot be remitted at the border without risking
 countervailing duties. Alternately the production externality can be (less efficiently) controlled by a product
 tax, which can be rebated at the border for exports, and which can be applied to competing imports. Thus,
 current border tax adjustment rules favor a product tax over a production tax if the purpose is to shelter
 domestic producers from bearing the full costs of environmental protection. This tends to be inefficient (the
 export price will not equal social  costs, and all factor inputs, not just the polluting input, will bear a portion
of the cost).
96  D THE GREENING OF WORLD TRADE

-------
                                    G. Empirical Evidence

    The Appendix to this paper reviews several empirical studies, and surveys of empirical studies, that
estimate the trade and investment effects of environmental policies. The question is important. If trade and
industrial relocation effects are small, the case for border adjustments to offset environmental control cost
differences is weakened. The studies vary considerably in their assumptions, methodology and data, but
with the exception of recent studies done at the World Bank, a fair summary of the evidence is that differences
in environmental control costs have not had a significant impact on trade and investment flows, either in the
aggregate or in most individual industries.
    The principal reason appears to be that environmental control costs are a small fraction of total
production costs. For example, environmental control costs are less than 2 percent of total production costs
in most US industries, even though US standards are relatively stringent and environmental regulations are
far from cost-effective. So, even if another country required no environmental controls at all on industries
located there, the competing industries would enjoy at most a 2 percent cost differential. This is substantially
less than many other international cost differentials, such as differences in labor costs. Moreover, quality,
delivery times, servicing, and marketing are increasingly'important competitive factors unrelated to
differences in environmental control costs.
    Moreover, many countries now have environmental protection regulations, narrowing cost differen-
tials, and our principal trade competitors have standards that, in some areas, are as stringent as those of the
U.S. The OECD estimates that total public and private pollution control expenditures as a percent of GDP
to be 1.47% for the U.S. (1986), 1.1% for France, 1.52% for Germany and 1.25% for the UK. Japan, with which
the U.S has its principal trade deficit, is not known for its lax environmental standards.  In addition, the
influence of the PPP has limited the trade impact of different cost-allocation regimes.
    Very recent studies do not sharply contradict the general conclusion stated above, but do suggest that
the story is more complicated. Specifically, some work shows that (a) countries may follow an inverted U
path, with (relative) pollution- intensive production first increasing and then declining as per capita GDP
increases, (b) the share of world trade in products produced by dirty industry has been shifting toward non-
OECD countries, although 75 percent still originates in OECD countries, and (c) economies that are relatively
closed to  trade exhibit greater pollution-intensive production than do countries following open trade
regimes. Whether these patterns can be attributable to environmental control cost differences or other factors
such as normal development through a heavy industry phase cannot be stated with certainty, although the
migration of pollution-intensive countries to the South is consistent with well-known product life-cycle
theories.
                                      H. Policy Options.

     The preceeding discussion suggests several policy options.

    1. EXTEND AND STRENGTHEN THE PPP.
     Applying the PPP more consistently within the OECD (to agriculture, for example) arid extending it to
                                                                        SUPPORTING PAPERS  a 97

-------
 developing and formerly socialist countries would serve both trade and environmental objectives, although
 for the latter countries there might have to be flexibility in a transition period. Application of the PPP to
 remedial pollution abatement (i.e., cleanup) in Eastern Europe is certainly not warranted, if indeed possible.
 The methods by which extension of the PPP would be done— for example, through informal agreements, or
 by tightening GATT subsidy rules as they apply to EC costs —would have to be considered.
     It should be noted that the PPP is not incompatible with international financial transfers in support of
 pollution abatement to deal with a transboundary environmental problem, so long as the international
 transfer is between governments and is not directed to the polluting enterprise itself.

    2.  WORK TOWARD UPGRADING FOREIGN STANDARDS THROUGH COOPERATIVE APPROACHES.
     Financial and technical assistance and technology transfers to Eastern Europe and developing countries
 for environmental protection, in exchange for a longer-term commitment to higher standards and observance
 of the PPP, would  be desirable. If carried out within the framework of development assistance programs,
 these initiatives would undoubtedly be found to be non-actionable within the GATT subsidy provisions.
     Environmental and market "subsidies" by natural resource exporting developing countries undermine
 sustainable development, and can be considered trade-distorting.  The principal beneficiary of eliminating
 such subsidies would be the producing countries themselves. Increased technical, managerial and financial
 assistance from OECD countries might also be effective in reducing such subsidies.  To the extent that
 reducing such subsidies in developing countries would help in dealing with tropical deforestation, loss of
 biological diversity, and climate change, development assistance would serve both efficiency, environmental
 and equity objectives. A more focused use of all development assistance programs, not just special
 environmental funds such as the GEF, on sustainable development issues, is desirable.

    3. MODIFY THE GATT.
     A third option is to change GATT subsidy and countervailing duty provisions on the GATT Subsidies
 Code in a fashion that makes it easier for one country to countervail against the two types of trade distorting
 environmental subsidies identified above—artificially low or unenforced environmental standards (if they
 can be identified), and subsidies to natural resource inputs. The purposes of such a change would be (a) to
 correct a distortion in trade, (b) to protect domestic producers against "unfair" competition, (c) to encourage
 foreign countries to upgrade their environmental standards.
     Before this option is pursued, there should be adequate consideration of (a) the difficulty of distinguish-
 ing between legitimate and nonlegitimate foreign environmental standards, (b) the difficulties of obtaining
 data on the extent of the subsidy, (c) its potential for abuse as a covert protectionist device, (d) its possible use
 against the U.S., especially in agriculture, (e) the need to countervail in light of the empirical evidence of small
 cost differences. For these reasons, this option is inferior to policies that seek to assist countries to upgrade
 their domestic standards and to develop multilateral agreements, including transfers if appropriate, to deal
 with transboundary environmental problems. Blanket legislation to equalize environmental control costs
 through export rebates and import surcharges is not desirable.
98  a THE GREENING OF WORLD TRADE

-------
    4.  BORDER TAX ADJUSTMENTS.
    Some change in G ATT might be considered that would close the "loophole" which favors product taxes
to control production pollution. Recall that product taxes can be remitted for exports and applied to imports;
EC costs in production cannot.
                   IV. THE USE OF TRADE MEASURES TO SECURE
                 INTERNATIONAL ENVIRONMENTAL OBJECTIVES

    This section offers preliminary reflections on the use of trade measures to encourage adherence to and
compliance with international environmental agreements. As a starting point we note that a fundamental
dilemma of managing international externalities is that the costs and benefits of environmental protection are
not congruent with national borders. Thus, if countries pursue their narrow self-interest, they will fail to
account for the external benefits of their protective measures, and in general the global effort at environmental
protection will be inadequate.
    One approach to this problem is to work out voluntary bilateral or multilateral agreements, in which
each country finds it in its interest to join and cooperate in the protection agreement. As a general rule, because
of the incongruity of benefits and costs at the national level, this approach would require some form of
compensation from the net beneficiaries to those that bear net costs. To be effective, this approach needs an
international compensation mechanism, and the Global Environmental Facility and Ozone Trust Fund jointly
administered by the World Bank, UNEP and the UNDP are a small step in this direction. Even in this case,
the possibility of non-compliance with agreements arise. Many World Bank borrowers, for example, have
failed to meet the conditions agreed to in loan agreements.               <
    Sometimes, disbursements can be halted. If not, further loans can be withheld. The use of "carrots" does
not obviate the need for "sticks."
    Another approach is the coercive use of trade sanctions to compel compliance.  Such use of trade
measures has some precedent in other areas—for example, in human rights or to reverse aggression. There
are at least two serious problems with coercive measures, however.  First, they may compromise the trade
system which, itself, provides a form of public good, and in which countries have voluntarily agreed to certain
trade disciplines to secure the gains from liberal trade. Second, the use of trade sanctions, and especially trade
sanctions applied unilaterally, revokes the requirement that the benefits from the protective measures exceed
their costs. One country with market power may impose protection costs on another that are altogether
disproportionate to the benefits generated. Indeed, a country might use trade measures to shift protection
costs from itself to others. Put somewhat differently, while the voluntary approach raises a "free rider" type
problem and the coercive approach raises a "forced rider'' type problem, the problems aT^nSt"symmetrical.
Environmental protection through a voluntary agreement and accompanied by compensation implies that
benefits exceed costs; a coercive agreement lacks that discipline.
     Another consideration is the effectiveness of trade measures in actually  achieving environmental
Objectives. For example, it is unclear whether an import tax on tropical timber harvested in an unsustainable
                                                                       SUPPORTING PAPERS a  99

-------
fashion would, in fact, improve the management of tropical forests. Such a tax would in the first instance
depress timber prices for producers, might encourage consumption by nonrestraining countries, or lead to
more rapid conversion of forest land to agricultural purposes in an effort to maintain foreign exchange
earnings and income, and lead to increased timber exploitation. In similar fashion, an export tax on timber
is less efficient than a production tax, and may have the effect of stimulating downstream processing without
reducing total forest harvesting. Much would depend on the universality of the tax, how the proceeds were
distributed, and the property rights systems in producing countries. Questions have also been raised whether
the trade provisions of the Convention on International Trade in Endangered Species (CITES) are the most
effective way of protecting elephants.
     A third consideration is equity. Voluntary agreements with compensation will have quite different
welfare distributional consequences than would coercive arrangements imposed through trade restrictions.
Consumers in the countries imposing restrictions and producers in the countries imposed upon would suffer
losses through trade restrictions. The environmental gains and losses are more indeterminate. No simple
formula emerges. However, trade sanctions imposed by rich countries to elicit changes in environmental
policies in poor countries would generally be inequitable, particularly since the rich countries have been and
still are the major contributors to global environmental problems.
     A fourth consideration is whether trade measures are essential or an integral part of environmental
protection, or whether alternative measures more sparing of the trade system are available. In some cases—
for example, the Basel Convention on  shipment of hazardous wastes—trade restrictions are at the core of the
protective effort. They are functionally necessary. Trade restrictions may have been essential to the Montreal
Protocol to prevent the migration of CFC-producing and using industries to non-signatory countries. In other
instances, perhaps in the U.S.-EC beef hormone dispute, consumers' environmental preferences could be
expressed through strict labeling requirements without invoking trade measures.
     In general, however, there are few obvious international mechanisms available with which to penalize
non-compliance with international agreements other than trade sanctions, although the search for induce-
ment mechanisms relying on compensation has not been active.  Trade  measures have for this reason
oftentimes been invoked as enforcement mechanisms in international agreements.
     These reflections suggest tentative criteria that might be incorporated into a guiding principle concern-
ing the use of trade measures to secure international environmental objectives.
     The criteria are that trade measures should only be used:
    (1) in situations involving international externalities (e.g., transnational pollution or degradation of
       international common property resources),
    (2) when inducement or compensation type agreements are clearly unavailable or not effective,
    (3) when market type responses are clearly unavailable or not effective (i.e., product labeling or direct
       consumer action),
    (4) when there is strong evidence that the trade measure will be effective at accomplishing the
       environmental objective,
    (5) when there is clear evidence that the environment benefit exceeds the abatement cost,
100  n THE GREENING OF WORLD TRADE

-------
    (6) when the countries imposing the trade measures undertake appropriate protective measures
       themselves,
    (7) with a presumption in favor of multilateral rather than unilateral application,
    (8) with a presumption that they are more acceptable if an international norm for environmental
       protection exists.
    Moreover, in a world still riddled with trade barriers, it may often be possible to induce cooperation in
international environmental efforts by offering trade concessions that could be withdrawn because of non-
compliance. When possible, this option is clearly superior on efficiency and equity grounds. Reducing
existing trade barriers in exchange for cooperation on environmental matters is clearly welfare-enhancing,
but imposing trade barriers to penalize non-cooperation is not. When applied to developing countries, the
concessions approach is also more equitable, because it will promote rather than retard economic growth in
low-income countries.
 APPENDIX A: EMPIRICAL STUDIES OF TRADE EFFECTS AND INDUSTRY RELOCATION
       DUE TO NATIONAL DIFFERENCES IN ENVIRONMENTAL CONTROL COSTS

     A relatively large number of empirical studies have accumulated over the past two decades that estimate
the extent to which national differences in environmental control costs have changed the level and pattern
of international trade or industrial location. The issue is important for policy in that large shifts in trade or
industrial location, even if conforming to an expanded concept of comparative advantage in which
environmental services are treated as a factor of production and comparative advantage, and therefore are
a source of gains from trade, may cause short-term transitional adjustment costs, or may be perceived by
policy makers as a reason for delay in establishing strong environmental protection measures. Conversely,
if the trade and industrial relocation effects are small, the case for border adjustments to offset environmental
control cost differences is considerably weakened. Equally important, policy makers in developing countries
would have little reason to deliberately pursue a "pollution haven" strategy to secure a trade advantage.
     The studies vary considerably as to assumptions, analytical methods, level of disaggregation, and data.
A persistent difficulty is the unavailability or weakness of environmental control cost data outside the U.S.
Most of the studies assume no environmental control costs abroad, and therefore tend to overstate  trade
changes.  On the  other hand, it has been difficult to include certain costs  that might be considered
environmentally-related—for example, worker health and safety measures or the effects of environmentally-
related industrial zoning. This may understate the changes. The studies have emphasized pollution control
costs in the industrial and processing sectors. We know of no systematic studjes^of enyiror^mer\tally-related
costs in the extractive or natural resource sectors except as they relate to pollution control.
     The earlier studies were reviewed by Ugelow (1982). More recently Dean (1991) has provided a survey
of studies through 1990. Given the diversity, the studies are difficult to summarize. Overall, it would appear
that there is no significant impact on aggregate trade levels or patterns, although certain high environmental
control cost sectors may have experienced some trade change. Even so, some trade change is considered
                                                                      SUPPORTING PAPERS  n 101

-------
 desirable as countries moved from a trade-distorted pattern, in which the environment was neglected, to
 enforcing environmental protection.
     A similar conclusion emerges from the surveys of studies of foreign investment and industrial
 relocation. Differences in environmental regulations have not led to large-scale investment by firms in
 countries in which environmental regulations are thought to be weak. Leonard (1988) does believe that
 certain countries (Ireland, Spain, Mexico, Romania) may have attempted to attract industry on the basis of
 weak environmental regulations in the 1970s, but have since given up that strategy (Dean 1991).
     We can speculate why the trade and industrial relocation effects have been weak or absent. Perhaps most
 important, environmental control costs in most industries are a relatively small fraction of production costs
 and can easily be swamped by other relative cost differences (e.g., wages, raw materials or energy costs) and
 exchange rate changes. For example, for U.S. industry the weighted average ratio of pollution abatement
 operating costs, including depreciation, to sales is estimated to be 0.5 percent (1988). The highest ratio is in
 cement (3.2%) and only 18 of 123 industrial sectors have cost ratios above 1 %. Moreover, U.S. total public and
 private pollution control expenditures have been declining. They reached a peak of 1.62% of GDP in 1979 and
 1980, declining to 1.47% in 1985 and 1986. A second reason is that cost differences at least among industrial
 countries appear very small as other countries have  established environmental regulations.  The OECD
 estimates public and private pollution control expenditure as a percent of GDP to be 1.47% for the US, 0.89%
 for France, 1.52% for Germany and 1.25% for the United Kingdom. Public pollution control expenditures in
 Japan are estimated at 1.17% of GDP (1986). With regard to industrial relocation, multinational corporations
 often report that they use similar, new technology on a world-wide basis in part because it is cleaner, but in
 part because it is energy and materials efficient. Moreover, they report that they build "clean" in anticipation
 of future environmental regulations in developing countries and because they are vulnerable to adverse
 environmental publicity. If this is generally the case, the pollution haven appeal would be weakened.
     Several new studies have circulated since Dean's review and may be interpreted to cast a somewhat
 different light on the trade and industry relocation questions. Grossman and Krueger (1991) investigate two
 questions of interest here. First, using cross sectional data they estimate the effects of per capita GDP on three
 types of air pollutants (sulphur dioxide, dark matter and suspended particles). They find that concentrations
 of two pollutants, sulphur dioxide and dark matter, increase up to a per capita GDP level of $4000-5000 and
 decline at higher income levels. Suspended particles decline monotonically with per capita GDP.  They
 speculate that as developing countries are successful  in economic  growth, the demand for a cleaner
 environment may result in stronger pollution regulations and enforcement.
     Second, Grossman and Krueger examine the sectoral composition of maquiladora activity in Mexico,
 U.S. imports from Mexico under the offshore assembly provisions, and overall U.S. imports from Mexico.
 They find that the traditional determinants of trade—factor intensities and U.S. tariff rates—are significant,
but that pollution abatement costs (as measured by sector in the U.S.) do not explain the sectoral composition.
This finding undercuts the pollution haven hypothesis.
    Lucas, Wheeler and Hittige (1991) propose three hypotheses concerning industrial pollution during the
development process:
    (1) in the early stage of economic growth the pollution intensity of manufacturing rises but, past some
102  n  THE GREENING OF WORLD TRADE

-------
       per capita income level, it tends to fall (a variation of Grossman and Krueger). They speculate that
       this might be due to changing sectoral composition of industry (first toward, then against, smoke-
       stack sectors) and a declining share of manufacturing in income.
    (2) Strict regulations in OECD countries may have led to a reallocation of pollution-intensive production
       to developing countries.
    (3) Pollution intensity has grown more rapidly in relatively closed developing countries than in open
       economies, due to the latter taking advantage of relatively labor-intensive, clean industries.
    Using EPA's Toxic Release Inventory Data and UN sectoral output data, various pooled regression
analyses are run. They interpret their findings as (a) support for the hypothesis that pollution intensity of
manufacturing has  an inverse U-shaped relation with per capita income if intensity is measured as
manufacturing emissions per unit GDP, (b) mixed results in explaining declining intensity by the changing
composition of industry and the falling share of manufacturing in national output, (c) support for the
hypothesis that stricter regulations of pollution intensive production in the OECD has led to significant
locational displacement, (d) support for the hypothesis that pollution intensity has grown most rapidly in
relatively closed economies (i.e., those not open to international trade). Their conclusion (c), however, is at
variance with their further conclusions that "policy problems, rather than regulatory cost differences, may
have been the main stimulus to toxic industrial migration."
    Low and Yeats (1991) use trade flow data to examine whether "dirty" industries migrate. Trade data
represent a proxy for industrial production (consumption). They find dirty industry products to be about the
same share of exports of industrial and other countries in 1988 (15-16 percent), but the share  rose by four
percentage points between 1965 and 1988 for Eastern Europe, Latin America and West Asia, whereas it fell
by four percentage points for industrial countries.
    While this shift may be a normal result of developing countries moving through the early phase of heavy
industry industrialization, or greater protection offered to heavy industry in developing countries, it is also
consistent with the hypothesis that strict regulation has shifted, on the margin, some dirty industry output
to non-OECD countries. One problem with the study, apart from the use of trade data as a proxy, is the use
of value rather than output data. Changes in relative prices among traded goods;could have been responsible
for the shift in shares; on the other hand, a quantity based measure might have shown greater share changes.
     Wheeler and Martin (1991) have investigated the  diffusion of "clean" technology in the wood pulp
industry.  Using Food Agriculture Organization (FAO) data on technology-specific pulp capacity in 60
countries for the period 1969-1991, they attempt to explain speed with which countries adopt new, clean
technology as a function of changing input prices, per capita income, scale  of production and the policy
regime—OECD, COMECON; and a measure of openness to international trade and competition as measured
by relative price distortions.... .„.-._ __. „ , ,„„.,,„ „.,„.„,,I0,rr, ,.,„,,, ^^;,..,,,, rjl..},,s.,,fiuijji,^' -f^^ ^ ,,
     The interesting finding is that the policy regime (i.e., openness), along with scale, is  a significant
determinant of when  a country first  adopts the clean technology, and how rapidly the clean technology
replaces the "dirty" technology. Open economies adopt the clean technology more rapidly. Per capita income
has no effect on the speed with which the new technology is first adopted.
                                                                        SUPPORTING PAPERS a  103

-------
     To summarize, the empirical studies through 1990 generally concluded that there were no significant
 effects on overall trade and investment due to differences in environmental control costs. The very recent
 studies do not sharply contradict this, but do  suggest that the story is  somewhat more complicated.
 Specifically, some of them indicate that developing countries may follow an inverted-U path, first increasing
 and then declining relative production of pollution intensive goods. This shows up as some increase in non-
 OECD countries' share of world trade in products produced by dirty industries. Countries that are relatively
 closed to international trade appear to have greater pollution intensity of production.  Whether these patterns
 are attributable to environmental control cost differentials or other factors remains an open question.
                                  APPENDIX: REFERENCES

      Dean, J. (1991), 'Trade and the Environment: A Survey of Literature," prepared for World Bank, World Develop-
 ment Report.

      Grossman, G.M. and A. B. Krueger (1991), "Environmental Impacts of a North American Free Trade Agreement,"
 prepared for SECOFJ conference on U.S.-Mexico Free Trade Agreement.
      Leonard, HJ. (1988), Pollution and the Struggle for the World Product, New York: Cambridge.
      Low, P. and A. Yeats (1991), "Do Dirty Industries Migrate?," prepared for World Bank Symposium on International
 Trade and Environment, November 21-22,1991.

      Lucas, R., D.  Wheeler, and  H. Hettige (1991), "Economic Development, Environmental  Regulation and the
 International Migration of Toxic Industrial Pollution: 1960-1988", prepared for World Bank Symposium on International
 Trade and Environment, November 21-22,1991.

     Ugelow, J. (1982), "A Survey of Recent Studies on Costs of Pollution Control and the Effects on Trade," in S. Rubin
 (ed.), Environment and Trade. New Jersey: Allanheld, Ogmun.

     Wheeler, D. and P. Martin (1991), "Price, Policies, and the International Diffusion of Clean Technology: The Case
 of Wood Pulp Production," prepared for World Bank Symposium on International Trade and Environment, November
 21-22,1991.

                                       About the Authors

    Charles Pearson is Professor and Director of the International Economics Program at the Paul H. Nitze
 School of Advanced International Studies, part of The Johns Hopkins University. He previously worked at
 the World Resources Institute as an Adjunct Senior Associate, at the East West Center as an Adjunct Senior
 Fellow, and at the Commission on International Trade and Investment as a Senior Staff Economist.
    Dr. Pearson received his B.A. in economics from Middlebury College, an M.A. in international relations
 from Johns Hopkins/SAIS, and a second M. A. as well as his Ph.D. in economics from Cornell University. He
 is associated with the SAIS Reischauer Center for East Asian Studies, with the SAIS Foreign Policy Institute,
 with the American Economic Association, and with the East West Center.

    Robert Repetto (See biographical note following "Notes On Complementarities Between Trade and
Environment Policies.")


104  n THE GREENING OF WORLD TRADE

-------
                      Changing GAIT Rules


                                   John H. Jackson


    I have been asked to review the various techniques by which governments may be able to change GATT
rules, perhaps to provide that these rules better accommodate some of the important environmental concerns
and objectives of G ATT Contracting Parties.
    The following is a brief review of this subject. I have appended a list of some of the published works by
this author, which can be consulted for greater detail.


                                  I. INTRODUCTION

    Despite some occasional misguided or misinformed statements to the contrary, the G ATT is a binding
treaty obligation accepted by the nations which are Contracting Parties. Because of the odd beginnings of the
G ATT, however, there is considerable confusion about this and other matters concerning it.1 The G ATT was
not originally intended to be an international organization, nor to be the central international institution for
facilitating international trade. That role was to be for an ITO - International Trade Organization, as embodied
in the so-called Havana Charter of 1948 which never came into force.  Because it never came into force, the
GATT has had to fill that role. Because of the structureof the drafting of the G ATT agreement, theGATT treaty
as such has never come into force either, but it is nevertheless applied by the 1947 Protocol of Provisional
Application (PP A), which is a binding treaty obligation. The practice of nations in GATT since this treaty came
into force on January 1,1948, entirely confirms the treaty nature. There is very little doubt expressed among
the people who have looked at this issue closely, that the GATT has this binding treaty status.
     However, because of this peculiar history of origin, the GATT has a number of institutional weaknesses,
what I have sometimes called "birth defects". I will not elaborate on these, but reference can be made to some
of my other works where I have given this detail.2 One example has been the difficulty of amending the
GATT, and this has led to approaches other than amendments, such as the various separate treaty "side-
codes" resulting from the Tokyo Round. Furthermore, ambiguities in the GATT treaty relating to institutional
procedures such as powers of the contracting parties,  or voting,  have provided a number of risks to the
contracting parties, risks that have been felt particularly important to large trading powers. Thus, although
the language in some cases might be deemed loose enough to authorize certain kinds of procedural ways to


                                                                    SUPPORTING PAPERS a  105

-------
 change the G ATT, the contracting parties have been understandably and appropriately reluctant to exercise
 these procedures to their fullest scope.
                           II. CHANGING THE GATT RULES

     The following is a quick summary outline of most of the various possibilities:


                         A. Formal Amendments to the GATT Treaty

     Article XXX of the GATT provides for amendment. Of course, the GATT is applied through the Protocol
 of Provisional Application, and one must look first to that protocol, but the practice in GATT has been to
 utilize the provisions of GATT as applied by the PPA, including Article XXX regarding amendments. In
 technical legal terms, the Protocol of Provisional Application applying the GATT is amended through the
 procedure of Article XXX, as incorporated in the PPA.
     The provisions of Article XXX, however, are very stringent. This article requires unanimous consent to
 amend certain portions of the GATT (particularly Articles I & II on MFN and tariff concessions), and two-
 thirds approval to amend other provisions of the GATT. The practice has been that approval must be through
 a treaty ratification process of a protocol of amendment. Thus, many national governments find it necessary
 to submit amendments to their parliaments.  When the "membership" was numbered in the treaties, this
 procedure of amendment was more feasible. However, a unanimous amendment has never succeeded. As
 the membership has enlarged. It now exceeds 100. It appears to be increasingly difficult to fulfil the amending
 requirements. The Council of GATT was set up in the late 1950's by resolution of the Contracting Parties (there
 is no provision in the treaty for such a body), and the Council was formulated to be open to any Contracting
 Party which is interested. Yet, only about two-thirds of the GATT Contracting Parties have established
 membership in the Council as "interested". This can be a signal of relative lack of interest of the other one-
 third, which could make it very difficult to achieve a two-thirds vote, especially if among the two-thirds
 "interested" parties there were even a small number who opposed an amendment.
     Even if an amendment procedure succeeds, GATT Article XXX provides that those countries that do not
 accept the amendment are not bound by it.  Thus, even an amendment has a certain "GATT a  la carte"
 characteristic, with some countries bound and others not. In the Uruguay Round, there is some discussion
 of a fairly radical new technique for changing the GATT by substituting a whole new treaty. I will refer to
 this below.
                                         B.  Waivers

    Article XXV paragraph 5 of GATT, provides that the Contracting Parties can adopt a "waiver" of the
GATT, in circumstances not otherwise provided for, by two-thirds of votes cast (which must include at least
a majority of the total membership).  Waivers have been used for a variety of circumstances in GATT,
106 a  THE GREENING OF WORLD TRADE

-------
including even waivers from Articles I & II  (thus somewhat undermining the amending unanimity
requirement). Some waivers have been open-ended without a termination date, and there is considerable
discussion about a) whether that is appropriate; and b) whether even such waivers can be terminated by later
vote of the Contracting Parties. Nevertheless, a waiver can be a very important and flexible means of changing
GATT rules, at least for a temporary period of time, For example, a five-year waiver could be adopted by the
Contracting Parties that would specifically refer to certain listed multilateral environmental agreements
(such as the Montreal Protocol) and provide that actions under them would not be deemed inconsistent with
other GATT rules.


                                 C. Decisions of Article XXV

     The language of Article XXV provides that the Contracting Parties acting jointly can "meet from time to
time for the purpose of giving effect to those provisions of this agreement which involve joint action and,
generally, with a view to facilitating the operation and furthering the objectives of this agreement." Article
XXV provides for one nation, one vote, and unless otherwise specified, actions by a majority of the votes cast.
     This is extraordinarily broad and flexible language, and thus could be subject to abuse. A large number
of small countries could theoretically adopt new binding rules in the GATT to achieve an advantage for
themselves at the expense of a minority of even very large and powerful trading countries, although such
rules would not likely be followed. However, during the history of GATT it appears that there has never been
a Contracting Party vote that imposed a new pbligation on GATT Contracting Parties (except sometimes as
a condition or prerequisite to a waiver opportunity).


                          D. Interpretations of the GATT Agreement

     The language of GATT Article XXV is broad enough to conclude that the Contracting Parties have the
power to definitively interpret the GATT provisions. By definitive interpretation, Imean an interpretation
. which would be binding as a matter of treaty law on all parties to the agreement including those which oppose
the interpretation. Such is explicitly provided for in the charters of a number of other organizations including
the IMF and the World Bank.  There is no such explicit provision in GATT, and thus it could be contrarily
argued that the intent of the draftsmen was to exclude this power. However,, the language of Article XXV is
 so broad, and there have been a number of instances of GATT practice consistent with the notion of GATT
Contracting Party interpretations of the agreement, that in my judgement it can be successfully argued that
 Contracting Parties have this power of interpretation.       ,                               ,
     However, this raises a number of additional legal issues. An important first consideration is how to draw
 the line between an "interpretation" and a "new rule, or new obligation".  There is no easy way,  except in
 general interpretation implies that the structure of the existing language reasonably permits a legal body, or
 tribunal, to conclude that that language shall  have the implications decided by the "interpretation." In
 instances of interpretation practice of the GATT, this has been the case.                    "     ,
     Under general international law regarding treaties, as expressed, inter alia, in the Vienna Convention
                                                                       SUPPORTING PAPERS  a  107

-------
 on the La w of Treaties, the practice of an international organizations bodies and organs over a period of time,
 is an important source of interpreting the charter, at least when that practice implies the agreement of the
 parties in the organization. Thus, the practice of GATT, including practice which interprets the provisions
 of GATT (whether by chairman's rulings, formal resolutions, waivers, etc.) all becomes part of the source
 material on which to base interpretations.


                          E. Dispute Settlement Panel Interpretations

     In the light of the previous section, dispute settlement panel  reports which almost always include
 interpretations of the GATT rules become an important element of GATT practice.  This is also the case for
 various dispute settlement bodies of the other related GATT treaties or side codes.
     In fact there are several different ways to interpret the impact  of a GATT dispute panel report.  The
 practice of GATT is that these reports must be approved by the Council.  Thus, it can be successfully argued
 that without approval, the panel reports do not have any legal binding status (but they may still be persuasive
 as the opinion of important experts).
     Assuming that a panel report is adopted by the Council, however, there is still considerable ambiguity
 about its impact. There are at least two possibilities for that impact: 1 )That the adoption by the Council is an
 exercise of the Contracting Parties' authority under Article XXV to issue a definitive interpretation of the
 GATT binding on all; or 2)a decision by the Contracting Parties to adopt the panel report is a statement of how
 the particular dispute between the disputing parties involved in the case shall be resolved, thus imposing a
 binding international law obligation on those disputing parties (and  only those disputing parties), to carry
 out the recommendations, decisions, or implications of the panel report.
     It seems reasonably clear to me that the general practice of GATT supports the second but not the first
 interpretation.  Indeed, arguably if the first were intended, a formal vote (at least a mail or telegraph ballot)
 should be taken of the Contracting Parties, and action should not merely be by Council  decision. Further-
 more, if one were to ask delegates at a Council meeting which adopted a panel report if  they intended that
 to be definitive in the broader binding sense, I feel secure in saying that most would indicate  they had not
 thought of that question, but did not intend such an important impact.
     If the second interpretation is the correct one about the result of an adopted GATT panel report, then we
 must understand that under international law there is no formal doctrine of "stare decisis" or precedent.
 Thus, the panel report legally binds only the disputants in the particular case, and even then only for that case
 (not even for a future case between the same disputants). Thisistheimpactofexplicitprovisionsinthestatute
 governing the world court (the International Court of Justice, statute Article 59), which is also generally
 deemed to be the rule in international law (and indeed in most legal systems of the world, excepting the
 common law systems such as the UK and the United States). Nevertheless, such a GATT panel report is now
 "practice" of the organization, and becomes part of the source materials for interpreting the agreement.
 Furthermore, the panels themselves often use precedent, by referring to prior panel reports, and certainly
after a period of time, panel reports are relied and acted upon in a way that reinforces their impact as definitive
interpretations through practice. Nevertheless, it must be understood that the Contracting Parties (and thus
108  a THE GREENING OF WORLD TRADE

-------
the Council) do have the authority to depart from prior panel reports, and indeed subsequent panels
themselves have departed from the conclusions of prior panel reports.
    Of course, again, a panel's work engages the issue of when a recommendation/ decision is an "interpre-
tation", or really an exercise in "law making", of new rules. This issue is always involved in legal systems,
and is certainly prominent among those debated in the context of national courts such as the U.S. Supreme
Court. At the international level, there are likewise similar issues, and one can find in GATT panel reports
language which is criticized because of the alleged overreach of a panel, encroaching upon the authority of
the nation-state contracting parties to negotiate new rules.


                                     F.  Separate Treaties

    Another way to effectively change the significance and impact of GATT rules is for those countries that
are willing to undertake such change to enter into a separate treaty agreement embodying that change. This
was the technique heavily used in the Tokyo Round Negotiation, developing a series of side "stand alone"
treaties, sometimes called codes (such as those for customs valuation, antidumping, subsidies, government
procurement, product standards, aircraft, etc.). This can be an effective legal device, particularly if such a
treaty agreement is accepted by a large number of Contracting Parties representing a very large proportion
of world trade. Such treaties, of course, only bind those that accept it, so that those that refuse to accept it can
argue that they are entitled  to continue  to rely upon the GATT agreement.  Since the GATT agreement
includes MFN  (Most Favored Nation), some of those hold-out countries can argue they are entitled to the
benefits of a side agreement, even though they do not accept the side agreement or its obligations. This has
been an important limitation - sometimes termed the "free rider" or "foot dragger" problem of MFN. In the
GATT, among  the Tokyo Round codes, the one most widely accepted is that of product standards, and the
number of countries which have accepted that is only about 40. Because this approach fragmented the rules
system, it is termed "GATT a la carte" and has been heavily criticized, particularly in the context of Uruguay
Round plans.
     Treaties can have an impact on GATT, even though they are not negotiated or concluded in the GATT
context.  For example, if a number of GATT Contracting Parties in a totally different context (such as a
multilateral environmental conference) enter into a treaty, that latter treaty will prevail in the event of conflict
with GATT, as to the Contracting  Parties which have accepted the latter treaty. Thus, for example, the
Montreal Protocol dealing with CFC's would be deemed to prevail as among those countries which have
accepted it, even if inconsistent with GATT provisions. However, once again, it would not be deemed as a
matter of law  to prevail over the GATT obligations owed to GATT Contracting Parties which  have not
accepted the later treaty, or Montreal Protocol. Sometimes a sufficiently large number of important trading
countries have accepted a later treaty such that those members have felt that the risk of complaint by GATT
Contracting Parties who have not accepted the later treaty making is minimal. This is legally a bit messy, but
may be pragmatically acceptable.
                                                                      SUPPORTING PAPERS o  109

-------
                   G. Replacement Treaty Concepts and the Uruguay Round

      An additional way to change G ATT rules, probably only available in the context of a very broad-based
 reform or negotiation, such as the result of a major trading round, is in effect to replace the G ATT with a totally
 new G ATTagreement. Under the Protocol of Provisional Application of G ATT, countries can withdraw from
 the protocol and GATT by only sixty days notice. It is possible that a large number of GATT Contracting
 Parties, embodying an overwhelmingly large part of world trade, could come to a new GATT agreement, and
 agree to offer the benefits of the new agreement only to those countries which accept it. At the same time (or
 after a delay) these countries would exercise their right to terminate their obligations in the old GATT. If the
 numbers of new GATT followers were sufficiently large, this could effectively establish a new GATT and put
 such heavy pressure on the hold out countries that they would deem it virtually essential to go along with
 the new GATT, thus abandoning the old GATT entirely.
     This is not an approach to be lightly or repeatedly undertaken. It is probably available  only in major
 reform circumstances, such as embodying the results of the end of the Uruguay Round. It would not be useful
 for time-to-time adjustments in  the rules to keep abreast of rapidly changing international trade circum-
 stances. It is also not likely to be  available at this stage of the Uruguay Round for new subjects that could be
 acrimoniously controversial and thus a threat to the success of the Round as a whole.
                              III.  CONCLUDING REMARKS

     To summarize, there are a number of different ways to effectively change the GATT rules. It is likely that
 the most flexible for time-limited and short-term changes may be the "waiver," at least when the result is not
 to impose a new obligation on GATT Contracting Parties.   But overall, the  institutional defects  and
 ambiguities of the GATT legal structure, while apparently providing a number of different options for
 changing  the  GATT rules, do not easily accommodate permanent change of a nature requiring new
 affirmative obligations. To slide by the legal requirements of GATT, or to rely on ambiguous clauses such as
 those of Article XXV, can raise considerable risks at least for major trading countries. These risks arise from
 the vulnerability to a one-nation, one-vote system in the context of more than 100 nation participants.  It is
 thus likely that the United States, Europe, and Japan, among others, would be reluctant to endorse a
 procedure that would provide a precedent for such future risks.
                                           NOTES

1 See Jackson, World Trade and the Law of GATT, Bobbs-Merrill Company (1969), especially Ch. 2.
   Jackson, The  World Trading System: Law and Policy of International Economic Relations, MA: The MIT Press (1989),
especially Ch. 2.
110 a  THE GREENING OF WORLD TRADE

-------
2 Jackson, The World Trading System: Law and Policy of International Economic Relations, MA: The MIT Press (1989), especially
§§2.4 and 14.3.
 Jackson, Restructuring the GATT System, London: The Royal Institute of International Affairs (Chatham House) (1990),
especially Ch. 5.
     Bibliography — works by this author
World Trade and the Law of GATT (Bobbs-Merrill Company, December 1969). Treatise on a Legal Analysis of the General
Agreement on Tariffs and  Trade. Korean translation published in 1988.
Legal Problems of International Economic Relations—Cases, Materials and Text on the National and International Regulation
of International Economic Relations (West Publishing Company, August 1977).  Approximately 1100 pages plus
Document Supplement. Second Edition co-authored with Professor William J. Davey (West Publishing Company, August
1986).
The World Trading System:  Law and Policy of International Economic Relations. Published by The MIT Press, Cambridge,
Massachusetts, September 1989.    Japanese translation published 1990; Chinese translation likely.
Restructuring the GATT System. Monograph prepared for The Royal Institute for International Affairs, (Chatham House),
London, January 1990. Japanese translation August 1990.
                                        About the Author

    Professor John Jackson is a well-known authority on the GATT and has written extensively on trade and
 related fields. Since 1983, he has been Hessel E. Yntema Professor of Law at the University of Michigan. Dr.
 Jackson is a graduate of Princeton University and the University of Michigan Law School.  He practiced law
 in Milwaukee, and later became Professor of Law at the University of California, Berkeley.  In 1965 he was
 a research scholar in Geneva at the headquarters of GATT and completed a book on GATT that is widely
 considered one of the most authoritative on the subject.
    Dr. Jackson joined the Michigan faculty in 1966 and was visiting Professor of Law in India, 1968-69. He
 served in Washington as General Counsel of USTR, working with Congress on the Trade Act of 1974 and
 participating in international trade negotiations. During 1975-76 he was a Rockefeller Foundation fellow
 residing in Brussels to study the European Common Market. In 1978-79 he was Consultant for the U.S. Senate
 Committee on Finance on matters concerning implementation of the Tokyo Round of international  trade
 negotiations.
                                                                           SUPPORTING PAPERS  a  ill

-------
       Dispute Resolution  and Transparency

                                 Konrad von Moltke
                                  1. INTRODUCTION

     Dispute settlement is a central feature of the General Agreement on Tariffs and Trade (GATT) and
 related regimes. Like most other international regimes the GATT is based on implementation of international
 obligations through action by its member states. The dispute settlement procedure provides a joint mecha-
 nism to settle differences arising from conflicting interpretations of these obligations and serves to develop
 a body of "case law" which stands alongside the legal texts as a consensus view of the meaning of these texts.
 The dispute settlement procedure can serve to shift the accepted boundaries of the regime or to adapt it to
 circumstances not foreseen when it was established.
     The interpretative aspect of dispute settlement has  not generally been emphasized but is clearly
 significant from an environmental policy perspective. Because it provides a dynamic element in the regime
 outside the formal and cumbersome negotiating rounds, the dispute settlement procedure has been the focus
 of much attention and has evolved only very slowly under the watchful eye of the member states.
     In theory, dispute settlement could be the basis of a pragmatic approach to reconciling the goals of
 environmental management and trade liberalization. In practice, this is unlikely to occur. Without clear
 guidance from the GATT Council, interpretation of the General Agreement will continue to be restrictive.
 Moreover, trade dispute settlement procedures are not a  forum likely to develop solutions which are
 adequate from an environmental perspective.
     International environmental regimes hardly use dispute settlement procedures. They are also based,
 like other international regimes, on the principle of member state implementation of international obliga-
 tions. Like other regimes, this approach has severe limitations in practice so that ancillary means are required
 to ensure implementation in environmental regimes, these ancillary means are not  based  on dispute
settlement. They typically incorporate public awareness, consumer pressure and the potential for embarrass-
mentfor governments seen not to be livingup to their commitments. Some examples may illustrate this point.
    A complex regime has developed  around the North Sea. Until recently, this regime did not lead to
112 a  THE GREENING OF WORLD TRADE

-------
satisfactory results. Public pressure in the Netherlands and Germany forced governments to act and led to
a series of ministerial conferences which brought impetus to implementation of the existing agreements.
    The Montreal Protocol as recently amended in London provides for a rapid phase-out of several
controlled substances  which deplete the stratospheric  ozone  layer. Apart from the problem of non-
compliance by signatories, parties must cope with loopholes created by non-signatories which can serve to
nullify the effect of the agreement everywhere. It transpires that a British firm, ICI, which is phasing out
halons —- which' are severely ozone depleting -^ in its home market is quite legally promoting their use in
India, a non-signatory. The British government, and other parties to the London agreements, are powerless
to stop this activity. However publicity can exert strong pressure on ICI to discontinue the sales in India.
Certainly, a purely Indian company could produce the substances and market them legally under the
international accords, still defeating their effectiveness. However, such a company would need to acquire the
necessary technology and production know-how and could be severely hampered in attempts to trade
internationally, again by consumer pressure. No dispute settlement procedure can cope with these difficul-
ties, only publication of crucial information concerning production, marketing and use of the substances in
question.
    This example illustrates the complexities of potential relationships between  environment and trade
regimes. Many  other  environmental management  issues — such as global wanning, acid rain, toxic
substances control, waste reduction, pollution prevention procedures—have already or will develop similar
kinds of problems. In  the absence of adequate international environmental regimes such as  the Vienna
Convention and its protocols for stratospheric ozone depletion, many of these issues will become the subject
of trade disputes, severely straining the existing dispute settlement process. It is important to consider how
the dispute settlement process has evolved, how it has handled environmental issues in recent years, and
what kinds of issues it is likely to face in the future. This is the essential basis for an assessment of needed
environmental management tools, possible modifications to trade dispute settlement procedures and the
scope for developing viable relationships between them.


                           2. Dispute Settlement in Trade Regimes

    2.1  GENERAL AGREEMENT ON  TARIFFS AND TRADE (G ATT)
    The General  Agreement on Tariffs and Trade is an unusual international institution, based oh an
unratified executive agreement between governments. This somewhat tenuous legal  status  reflects the
origins  of the GATT  which evolved from negotiations which were  to create an International Trade
Organization. When the ITO failed to be ratified, the General Agreement was the residue which governments
could work with. The General Agreement, which was concluded prior to the Havana Conference, incorpo-
rated  the fundamental principles of trade liberalization underlying the ITO without creating a  formal
international organization. It lacks in particular provisions to confront social policy issues related to trade.
Indeed,  the Agreement does not explicitly provide for the establishment of a Secretariat but only mentions
the need for a "secretary" in three places.                                                 .
  .  The structure of the GATT directly reflects its legal status. It is the servant of the governments which
                                                                      SUPPORTING PAPERS  a  113

-------
created it. The GATT Secretariat is less independent than that of other international organizations. The
dispute settlement process also reflects the institutional status of the organization.1 During the first 25 years,
the panels were composed primarily of "insiders," persons with direct experience of the GATT and its
operations or who had participated in formulating the Agreement. This dispute settlement process could be
described as a "club."2
     In view of widespread and growing dissatisfaction with the dispute settlement procedure, it became a
negotiating issue in the Tokyo Round of trade talks.3 The result was a modest reform of the principal
procedure based on Art. XXIII of the General Agreement and the development of separate dispute settlement
procedures for some of the newly established codes, for example on non-tariff barriers to trade (NTBs).4 In
particular, the rules of access were tightened, outlining conditions for panel formation, and the panels now
began to include "outsiders," persons with expertise on the contentious issue but with limited experience of
the GATT and its functioning.
     Despite these reforms, the basic problems have persisted.5 The principal issues have been delays and
composition (and competence) of the panels. Delays occur in establishing the panels, in adoption of panel
reports by the Council and in the implementation of panel decisions by the losing party. The Uruguay Round
Midterm Agreement on Dispute Settlement, implemented in May 1989 sought to address the issues of delay
and panel composition. It creates procedures which should ensure that a panel is created within two months
of the beginning of a dispute.6 While "automatic" procedures create automatic tensions and countries will
hesitate before pursuing their position with excessive zeal, the Midterm Agreement does provide a means for
determined parties to obtain a panel. It also gives additional support to the practice of using "nongovernmen-
tal" experts — although in practice these are frequently persons with close links to trade policy.
     Dispute resolution has continued to be under negotiation in the final stages of the Uruguay Round. The
focus of attention has continued to be the formation and functioning of panels. The Draft Final Act circulated
in December 1991 included two sections further addressing dispute settlement, including the creation of an
integrated dispute settlement system and the establishment of an appellate review system7
     It is possible to  characterize the GATT dispute settlement process as being in a  state of cautious
evolution. It is  seen as successful because it is reaching "good decisions in the sense of continuing to strictly
enforce the GATT."8 The success of the GATT dispute procedure depends on narrow and predictable
interpretation  of the  the General Agreement and subsequent accords. However,  to adapt the General
Agreement to environmental needs requires creative interpretation. Despite a legislative history of the GATT
which is suggestive of environmental sensitivity,9 attempts to achieve silent amendments of the GATT
through interpretation of the Agreement in dispute procedures are uncertain at best, and more likely doomed
from the start. Indeed, the likelihood is that the dispute settlement process will contribute to conflicts between
trade and environmental policy goals until it is given an unambiguous mandate on how to handle these
issues.

    2.2 CANADA-UNITED STATES  FREE TRADE AGREEMENT
     Dispute settlement was one of the motivating factors which led to the negotiations on the Canada-United
States Free Trade Agreement (FTA). Canadians felt unsure of the future of dispute settlement under the
GATT, in particular the role of the more heavily politicized U.S. institutions responsible for adjudicating
114 a  THE GREENING OF WORLD TRADE

-------
disputes before they reached the GATT. In view of the importance of the United States as a trading partner
for Canada, this uncertainty was disturbing and developing a better dispute settlement process was a
Canadian priority in the negotiations. "Canada wanted binding dispute settlement and a wholly new regime
to deal with the practices addressed by trade remedy law. U.S. officials on the other hand, countered that it
would be very difficult if not impossible to accept binding dispute settlement, to establish any permanent
institutional machinery, or to negotiate a new trade remedy regime that would stretch disciplines beyond
those enshrined in the GATT."10
     This is significant because bilateral negotiations tend to re veal the positions of the countries involved in
greater clarity and detail (since each country must articulate a position on every issue that arises and cannot
leave development of the debate to other participants). In a real sense, the FTA defines the current limits of
dispute settlement in trade regimes: it is highly unlikely that many countries will agree on procedures which
these two countries were unable or unwilling to adopt in a bilateral negotiation.
     The dispute settlement process under the FTA is a complex compromise between the two countries. It
hasbeen the subject of extensive commentary, particularly from the Canadian perspective.11 While the major
provisions are contained in Chapters 18 and 19 of the FTA, dispute settlement provisions permeate the entire
Agreement. The overriding goal is, of course, the avoidance of disputes, hence notification and consultation
are provided for prior to action by one government affecting the trade interests of the other country. This
aspect of the regime, going far beyond the provisions of the GATT, reflect the advantages of limited
membership (only two countries are involved) and geographic proximity (much trade being local or regional
in nature and involving the national governments to  a lesser extent). It is important to recognize the
significance of these provisions since they represent the nucleus of a process which could be used to achieve
joint agreement on environmental issues before they turn into trade disputes.
     Chapter 18 of the FTA creates the structure which applies to all trade disputes between the'two countries
except those related to trade remedies (which are covered by Chapter 18) and financial services (which are
excluded from the FTA). It is based on a number of obligations:
     •   Mandatory notification of any measure which might materially affect the operation of the FTA.
     •   Mandatory provision of information on any measure (without restriction) once requested to do so.
     •   Consultations at the request of either  party regarding any actual or proposed measure, with an
        obligation to make every attempt to arrive at a mutually satisfactory resolution.
     •   Referral to a  Canada-United States Trade Commission (composed of the cabinet level official
        primarily responsible for international trade, or their designees), should resolution through consul-
        tation fail. This initiates formal proceedings with provision for an informal resolution prior to
        undertaking formal dispute settlement.                    ,              ,
     •   Dispute settlement procedures, involving
           - compulsory arbitration, binding on both parties, for disputes arising from the interpretation
             and application of the safeguards provision,
           - binding arbitration in all other disputes where both parties agree,
           - panel recommendations to the Commission
                                                                       SUPPORTING PAPERS  a 115

-------
           - A special committee of judges can serve as ultimate review body if one of the parties feels the
             panel is so corrupted, or so manifestly exceeds its jurisdiction, that it would bring the whole FTA
             system into disrepute
     The FTA dispute settlement process is directly related to the GATT Article XXIII process. The FTA
 stipulates that disputes arising under both the FTA and the GATT may be settled in either forum, according
 to the rules of that forum, at the discretion of the complaining* party. Once a forum has been chosen, it will
 be used to the exclusion of the other.12 In practice, both parties have preferred the bilateral process which has
 resolved numerous issues without recourse to formal panel proceedings. Over the past three years, four
 disputes have been taken to the GATT, including two which concern conservation. Of the disputes handled
 under FTA procedures, none has direct environmental application. The FTA incorporates numerous sections
 from the GATT, including Article XX(g) concerning exceptions based on conservation of exhaustible natural
 resources.1"*
     It has been suggested that the reference to Secretariat offices in Art. 1909could open the door to further
 institutionalization of the FTA.14 This is clearly a Canadian interpretation, and a close reading of the text
 suggests that this is not very likely. The Secretariat is initially tied closely to the Chapter 19 proceedings.
 Involving it in Chapter 18 procedures (which are more numerous and likely to provide the more dynamic
 substantive elements) is placed in the discretion of the Commission. More importantly, the Secretariat is in
 reality two separate offices, and the FTA makes no provision for their joint operation. Compared to the
 construct of the International Joint Commission (IJC), itself a cumbersome instrument by modern standards,
 this is a weak institutional arrangement. It is unlikely that the governments will act to strengthen it at a time
 when they are backing away from the IJC as well.
     The FTA dispute settlement procedure has been satisfactory thus far, although it is being strained by a
 continuing argument over pork exports from Canada.15 In general, the number of disputes has declined in
 the past few years, and the volume of trade affected is large in only a few cases.16 In the pork dispute, however,
 the findings have been against the United States at every stage, yet the U.S. Administration has been unwilling
 to implement them for political reasons. It has now brought the issue before the panel of judges which was
 to have been used in extremis. This draws into question the adequacy of the institutional structure, since the
 criteria for appeal to the judges' panel have not been met. The Canadian trade minister is reported to have
 been "outraged over what he regarded as a gross abuse of the system."17
     At the heart of the FTA dispute settlement issue is a delicate balance between binding forms of
 international dispute settlement which override national institutions on the one hand and procedures leading
 to recommendations carrying heavy international pressure on national institutions to comply on the other.
 11 hasbeen pointed out that the need for more elaborate, increasingly binding international dispute settlement
 is a function of the extensiveness of the substantive obligations in sensitive areas: the more important the
 international  obligations, the more need for international institutions which all parties can recognize as
 reasonably representing their interests.18
    In negotiating the FTA the range of substantive obligations was steadily reduced, also reducing the need
for fully institutionalized dispute settlement procedures. This experience holds important lessons from an
environmental perspective. Indeed, the result has been summed up as follows: "... a basis has been laid for
116  a THE GREENING OF WORLD TRADE

-------
expanding rights and obligations, and negotiations will undoubtedly progress into potentially more difficult
areas, such as subsidies or phytosanitary regulations. More extensive dispute settlement obligations may
then be required to keep the peace."19

    2.3  EUROPEAN COMMUNITY (EC)
    The European Community is distinctively different from the GATT or the FTA, yet it is also an
international free trade area.20 Over the past decade, the EC Treaties have twice been significantly modified:
the Single European Act (SEA) of 1987 and the  Maastricht treaties adopted'in December 1901. Both
amendments involved an important expansion of the Community's substantive responsibilities as well as
changes in the institutional relationships. They illustrate the axiom that expanded substantive responsibili-
ties require expanded institutional capabilities.                                  .
    The SEA formalized the Community's role in environmental management.21 In Part Three of the EEC
Treaty, dealing with Community policy, it introduced the process towards "Economic and monetary union"
(commonly known as "1992" because of the date by which internal barriers to trade were to have been
eliminated) as well as new Titles on "Economic and social cohesion," "Research and technological develop-
ment" and "Environment." The three new policy areas are not fortuitous: they represent the three areas in
which trade liberalization creates additional needs for substantive international policy  coordination. The
Maastricht treaties dramatically developed the move towards economic union and joint social policy.
    The EC is unique among international organizations in its ability to legislate through its own institutions,
binding its Member States without further accession or ratification procedures. The institutions involved in
this process are the Commission, the Council, the European Parliament, the Economic and Social Committee
and the (European) Court of Justice. Most of the amendments of the EEC Treaty concern the legislative process
rather than dispute settlement and judicial review. Clearly, sound rule-making is the basis for avoiding
disputes. As the EC's range  of responsibility has been enlarged, its legislative process has been adapted to
ensure greater scope for advance participation of interested parties, through the Commission, the Parliament
and the Economic and Social Council. The Council, the ultimate legislative body, remains remarkably
inaccessible and closed, with not even the minutes of the meetings rendered public. However, the introduc-
tion of qualified majority voting will certainly increase pressures to render the proceedings public, since not
all participants can be assumed to have approved every measure adopted by majority vote.
     The EC's dispute resolution process has not changed significantly since its inception in 1954. Indeed, the
stability of the European Court of Justice is one of the more remarkable features of the institutional pattern
established almost forty years ago. The European Court has some essential attributes of a true court of justice,
in that it has an independent panel of judges deciding on the basis of both the EC Treaties and, subsequent
EC legislation. Judges are appointed for renewable terms of six years.                    ,
     At present the Court of Justice has thirteen Judges who si t either in plenary session or in Chambers each
consisting of three or five judges, according to the issues to be adjudicated. It is assisted by an Advocate-
General (at present six) who are also appointed to six-year renewable terms. The composition of the Court
can be adjusted to the case load by action of the Council.                                       ;
     Clearly such a court is also able to develop its own case law and contributes significantly to the
                                                                       SUPPORTING PAPERS  n  117

-------
development of the institutional character of the EC through interpretation of the law. The Court determines
whether instruments adopted by the EC and actions of Member States are in conformity with the EC Treaties
and rules on the adequacy of the implementation of EC directives by Member States. Over the years, the Court
has found against all Members states, sometimes on issues which were politically extremely sensitive. While
Member States have on occasion been dilatory in complying with the Court's rulings - occasionally to the
point of a  second judgment against them - none has thus far failed to ultimately  meet the Court's
requirements, despite the absence of any direct sanctions to enforce compliance.
     Until recently, only the Commission of the EC and Member States or courts within them could bring
actions before the Court of Justice (except that the Court has jurisdiction over disputes between the EC and
its servants). The SEA made provisions for the creation of a new court, "attached to the Court of Justice," with
jurisdiction to hear and determine in the first instance certain classes of action or proceeding brought by
natural or legal persons.
     This entire system of dispute settlement appears remote from the experience of any other trade regime
in its elaborateness, powers and effectiveness. Its significance in a broader context derives from the fact that
certain kinds of international trade disputes are liable to arise before the European Court of Justice before they
emerge in any other forum (for example the Danish bottle bill case22) and because it illustrates once again that
the dispute settlement procedure needs to be adjusted to meet the extent of powers and  substantive issues
which are liable to arise under a trade regime. The European Court took its current shape well before the
extensions of the European Community which have been undertaken in the past decade. A special link exists
between the Court of Justice and the GATT insofar as justices of the European Court serve on GATT dispute
settlement panels. Indeed, one justice-Judge Pesca tore-served on four such panels to issue decisions in 1990.
It is interesting to note that justices of the European Court are viewed as "non-governmental" panel members
within the GATT.
                                                                                  ,23
         3. Selected Past or Current Trade Disputes of Environmental Significance

     The General Agreement is ambiguous concerning environmental management priorities. Article XX
might be read to cover a wide range of issues, and the legislative history is suggestive that this may be
consistent with the intention of the drafters.24 The Canada-United States Free Trade Agreement is extraor-
dinarily silent in this regard, implicitly leaving the GATT as the governing document. Since adoption of the
SEA, the EC has a clear mandate to be proactive on environmental management.
     Nevertheless, in the absence of a clear declaration of intent by the relevant authorities—in practice the
member states of each trade regime — the main source of guidance concerning the adaptability of the
respective regimes to environmental priorities is the "case law" of past disputes and what is known about the
likely outcome of current disputes.
     The number of trade disputes with implications for environmental management is remarkably high.
They are indicative of the need to confront the potential conflicts between environmental management and
trade policy. A review of the disputes from an environmental perspective needs to focus on the lessons which
may be drawn from them rather than on specifics of each case. These disputes provide an indication of the
118 a  THE GREENING OF WORLD TRADE

-------
issues which are likely to arise, and of the extent to which they can be managed within the existing framework
or may require some degree of change in current trade regimes.

    3.1 GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

      3.1.1. U.S. Taxes on Petroleum and Certain Imported Substances.25
    The U.S. Superf und Act of 1986 reauthorized a program to Clean up hazardous waste sites. It reimposed
an excise tax on petroleum at higher rates than before, re-imposed a tax on certain feedstock chemicals, and
imposed a new tax on certain imported substances produced or manufactured from taxable feedstock
chemicals. Taxes were thus increased to 8.2 cents per barrel for "crude oil received at a U.S. refinery/' and 11.7
cents per barrel for crude oil entering into the United States. Imported substances were taxed at a rate
equivalent to the tax for imported crude oil; comparable domestic products were not taxed since they were
presumed to have internalized the cost of the tax on crude oil and feedstocks.
    Following complaints from Canada, the EC, and Mexico, a GATT Panel found against .the differential
tax on petroleum. It stated that the Agreement's rules on  tax adjustment give the contracting parties the
possibility of following a polluter pays principle but do not require them to do so.
    The Superfund Case involves a number of issues of broad relevance to the relationship between GATT
and the environment: consequences of unilateral attempts to manage environmental issues; effects of a
carbon tax; application of the polluter pays principle.                                               x
    The differential tax in effect exacted a higher contribution from importers than from domestic sources,
a politically attractive way to raise revenue. However, in the absence of internationally agreed principles of
environmental management-including their application in practice-this leads to trade conflicts.
    The tax on crude oil and certain imported substances bears a striking resemblance to a carbon tax. The
Superfund Case raises the issue of "double jeopardy," that internationally traded products are taxed twice,
once in the country of production and again at importation. The approach suggested by the Superfund Panel
report is based upon the fact that such taxes are adjustable at the border (i.e. can be refunded at export or
imposed at import, as the case may be).  A carbon tax would be adjustable, but the process of adjustment
would become convoluted as the implied content of products made from substances or intermediates subject
to tax would need to be calculated. The alternative is to ensure that application of the polluter pays principle
is undertaken in a sufficiently comparable manner in all states participating in a trade regime.  ,   ,
    The Superfund Panel took a rigorously national view of the environment, considering countries' interest
and authority to be limited to protecting their own environment.  There  is no suggestion in the panel report
that the GATT system is capable of confronting national actions taken to protect global resources.
    The Panel declined to take a position on the application of the polluter pays principle, considering this
to be beyond  its mandate.  It pointed out, however, that the  Group on Environmental Measures and
International Trade would provide the EC with a forum in which to obtain consideration of these matters.
Since the Group had never met—as the Panel must have known—this remark implied that the issues were
of no consequence to the GATT. No systematic consideration has thus far been given to the position of the
polluter pays principle within the GATT.                                        .,....•,.
                                                                      SUPPORTING PAPERS  a 119

-------
       3.13. United States Tuna Ban26
     Through the Marine Mammal Protection Act (MMPA), the United States seeks to "impose its conserva-
 tion and management standards on the incidental taking of marine mammals by foreign fishermen by
 imposing an import ban on fish or fish products harvested by fishermen using technologies where the
 incidental taking exceeded U.S. standards, unless 'reasonable proof was provided that the U.S. standards
 were being met."27 Meeting U.S. standards is defined as an incidental taking not in excess of 125 percent of
 actual incidental takings per unit by the U.S. fleet in any given year. For dolphin protection, this applies in
 particular  to the Eastern Tropical  Pacific, an area including the EEZ of several countries as well as
 international waters, with ships from many countries participating in the catch. Through the Dolphin
 Protection Consumer Information Act (DPCIA) optional labeling to identify "Dolphin Safe" tuna products
 is possible.  Like the Superfund Act Case, the tuna/dolphin case demonstrates that equitable international
 solutions cannot be found through unilateral national legislative procedures. The solution to this dilemma
 is an adequate international regime for protection of small cetaceans, an approach strongly suggested by an
 analysis of the tuna/dolphin panel.
     The GATT case arose from an embargo imposed against Mexico under the MMPA. It included a
 complaint against the DPCIA.
     The Panel found against the United States on several counts. The criterion established by the MMPA
 for admissible levels of dolphin bycatch is impossible to meet since Mexicans (and nationals from other
 countries) were being held to a standard which only became known after the U.S. fleet had docked.  The
 United States had not exhausted all avenues of bilateral negotiation to establish mutually agreed criteria for
 dolphin protection. The United States was not allowed to legislate to protect humans, animals or plants
 outside its jurisdiction, including species found in international waters outside any country's jurisdiction.
 This ruling applied the standard view of marine law that the flag country has jurisdiction over ships and
 opened the possibility that U.S. ships seeking to escape the stricture of U.S. law concerning species protection
 could simply reflag. The United States could not discriminate against "like" products because of their mode
 of production; in other words, the manner in which tuna were caught was immaterial to the rules governing
 trade.  Finally the panel threatened  to rule against any use of the Pelly Amendment to protect dolphins,
 essentially because there is no international agreement to which this would refer. The Panel ruled that the
 United States could maintain the labeling requirement of the DPCIA since it applied to all tuna in a uniform
 manner.
    The tuna/dolphin Panel report has not been brought before the GATT Council so it has not yet been
 formally adopted. It is possible that  it will not be adopted. Nevertheless there is no doubt that it represents
 a viable interpretation of the General  Agreement which presumably has the support of the GATT Secretariat.
 Thus any other cases to come before  the GATT which involve comparable issues are likely to be settled in a
 comparable manner, unless the Contracting Parties move to avoid such an  occurrence.
    From an environmental perspective, the tuna/dolphin panel report is one of the most important
documents to come from the GATT. It takes strong positions on several issues which are likely to prove crucial
 to establishing adequate international management of the environment. It demonstrates that the GATT as
120  a  THE GREENING OF WORLD TRADE

-------
currently constituted is in conflict with important principles of environmental management and that the
dispute settlement process is incapable of handling this conflict in a sensitive manner.
    The GATT is an institution fashioned fifty years ago according to traditional views of sovereignty and
international order. Without adequate institutional structure, it has evolved to meet new challenges of trade
but it has not evolved to confront fundamental changes in international relations.  Environmental manage-
ment has confronted the international order with problems which transcend sovereign control: stratospheric
ozone protection, global warming, protection of Antarctica and ocean resources, migratory or endangered
species, ubiquitous toxic substances such as DDT, PCBs or dioxins. These require cooperative forms of
management not envisioned under the GATT which views each country's jurisdiction as strictly delineated
against any other country's, a comfortable fiction which allows border adjustment to function as the
balancing tool.  The tuna/dolphin panel finding  highlights this difference between trade  policy and
environmental management.
    International trade policy has been evolving from Most Favored Nation Treatment (MFN) towards
National Treatment; that is, from treating all foreign products alike towards treating all products alike. Its
initial focus is on products (services representing an important additional category). It generally assumes that
"like" products will be treated alike. This is the principle underlying the tuna/dolphin panel, report.  For
environmental management, however, the product phase of a controlled substance is but a small part of the
problem. The overriding need is to ensure environmentally sound management throughout the product life-
cycle, including production, commercialization, use, and recycling or disposal. Thus "like" products are only
those which have like life-cycles. For environmental purposes it is important to be able to distinguish
products according to  the characteristics of their production, a principle explicitly rejected by the tuna/
dolphin panel.
    Finally, the tuna/dolphin dispute illustrates the consequences of a lack of openness and transparency
in GATT dispute proceedings. There is no indication that those involved in deciding this case were aware
of its broad implications for environmental policy, going far beyond dolphin protection.  Lacking any
experience in modern environmental management, they can hardly be expected to understand its operation;
operating in a closed system with ex post public accountability they could not be told what they were doing.

    3.2.  CANADA-UNITED STATES FREE TRADE AGREEMENT

      3.2.1. Measures on Export of Unprocessed Herring and Salmon28
    Canada wishes to maintain a prohibition on the exportation of unprocessed herring and pink and
sockeye salmon, claiming that this is a necessary measure to preserve the fragile stocks of these fish. It claims
that the vulnerability of these species to depletion requires a detailed catch reporting system, that the highly
cyclical nature of fisheries create complex management problems and a need to provide a steady supply of
fish to Canadian processing plants and that these particular species are sensitive to quality control problems
both prior and during processing. The United States claims that Canada's restriction is to protect Canadian
processors and maintain jobs in British Columbia.
    Canada claimed protection under Art. XX(g).2^ In doing so, it that Art XX(g) should be interpreted
broadly and that later fisheries conventions modified Canada's obligations under GATT. In rebutting this
                                                                       SUPPORTING PAPERS  a  121

-------
 claim, the United States took the view that "the preamble to Article XX made it very clear that all the
 exceptions to that Article should be narrowly construed so as to prevent disguised restrictions on interna-
 tional trade." The United States also noted that other international agreements did not modify obligations
 under the General Agreement.
     The panel found the Canadian prohibitions contrary to Art X:l of the GATT. It further found that the
 prohibitions could not be deemed to be primarily aimed at the conservation of salmon and herring stocks and
 therefore concluded that they were not justified by Article XX(g). After discussing the precise wording of
 Article XX, the panel concluded that "while a trade measure did not have to be necessary or essential to the
 conservation of an exhaustible natural resource [such as fish], it had to be primarily aimed at the conservation
 of an exhaustible resource to be considered as 'relating to' conservation within the meaning of Article XX(g)."
 It enunciated four conditions for application of Article XX(g): a measure must relate to an exhaustible natural
 resource; domestic production of the resource must be likewise restricted, the measure must not involve
 arbitrary or unjustifiable discrimination between foreign countries, and the measure must be primarily aimed
 at conservation. These conditions have become GATT guidelines for interpreting Article XX(g). The panel
 declined to consider the relationship of the GATT to international agreements on fisheries and the Law of the
 Sea, believing this to be beyond its mandate.
     The panel findings state clearly, albeit in diplomatic language, that the Canadian restrictions represent
 a classic case of using measures claimed to be for conservation as a pretext for the creation of non-tariff barriers
 to trade. It also indicates that GATT panels are likely to take a restrictive view of the application of Article
 XX(g), suggesting that a different interpretation will only be possible if member states give panels clear
 guidance to this effect. It is certainly unfortunate that such a dubious case of conservation  should provide
 the occasion for defining the limits of Article XX(g), since the resulting principles are liable to be affected by
 the nature of evidence put before the panel which does not provide an adequate argument  for the needs of
 conservation.

      3.2.2.  Lobsters from Canada30
     Both the United States and Canada maintain minimum size requirements for American lobsters which
 are widely distributed over the continental shelf of the Western North Atlantic Ocean. The purpose of these
 size limitations is to allow lobsters to reach reproductive age before they are taken, thus ensuring continued
 stability of the resource. It may take a lobster up to 10 years to attain maturity in cold waters and only five
 years in warmer waters, where the lobster molts more frequently. Canadian size limitations allow the taking
 of smaller lobsters but while the U.S. stocks continue to be under pressure, Canadian scientists believe
 Canadian stocks are now healthy. In other words, the smaller size limitation more effectively achieves the
desired conservation goal. In 1989, an amendment to the Magnuson Fishery Conservation and Management
Act prohibited whole live lobsters smaller than the U.S. minimum size from entering into interstate
commerce. This amendment gave rise to the Canadian complaint.
    Canada argued that, because the ban on importation of smaller sized lobsters affects only Canadian
imports, the size limitation was in effect a "trade restriction which the United States is attempting to disguise
as a conservation measure." It claimed that Canadian lobster enjoy a "competitive advantage" because they
mature earlier. The United States claimed that the measures were consistent with the principle of "National
122  a THE GREENING OF WORLD TRADE

-------
Treatment" under the FTA since U.S. and Canadian lobster were being treated alike. Moreover, it argued that
the U.S. size limitation could not in practice be enforced in the presence of indistinguishable undersized
lobsters from Canada on the U.S. market. Citing the Herring and Salmon report, the United States argued
that its regulations met all the requirements set out there for application of Article XX(g).
     In the event, the panel concluded that Article 111:4 was applicable but Article XI not. Its decision turned
to a significant degree on the question whether U.S. controls on Canadian lobster applied at the border or
internally. Because it determined that these were not border controls, U.S. administrative needs for enforcing
its own size limitation provided adequate grounds for finding in favor of the United States. Since Article XI
was considered inapplicable by the majority, only a minority of the panel addressed the question whether
Article XX(g) provided an exception/This minority followed the view of the United States that the Herring
and Lobster Case had established clear criteria for application of Article XX(g). Its argument turned on the
question whether alternative methods to enforce the U.S. size restriction were available and considered by
the United States.  The minority concluded that "the objectives of the 1989 amendment were both of a
conservation nature and a trade restriction."
     The Lobster Case reinforced the restrictive interpretation of Article XX(g), again without advancing to
consider the conservation merits of the case. The conundrum arises from the fact that like products can have
different environmental consequences or different products-in this instance smaller lobsters-can achieve the
same conservation goal, namely protection of the stock. Current trade regulations appear to be incapable of
considering these two related issues, both of which are vital to the conduct of effective environmental policy.
In effect, neither process standards nor environmental quality standards are relevant from a trade perspec-
tive, only product standards-narrowly defined-being taken  into account.  The Lobster Case report is
particularly unsatisfactory from a conservation point of view since it clearly sets out the conservation issues
in its statement of facts and then proceeds to decide the case on exclusively procedural grounds, entirely
ignoring the conservation evidence.

    3.3. EUROPEAN COMMUNITY
     The European Community has developed a comprehensive body of environmental law, comprising
more than 200 binding legal instruments.31 Only two are discussed here because they raise issues of broad
significance for environmental management and trade regimes.

      3.3.1. Sixth Amendment
     The "Sixth Amendment" is the most important of 17 EC directives concerned with testing of new
chemical substances and with classification, packaging and labeling.32 It establishes testing requirements for
all new substances coming  to market as well packaging and labeling requirements for all substances. Its
salient characteristic is a system of testing, beginning with a minimum data set for all new substances and
increasing step by step, depending on total production volume. It provides a notification system by which
manufacturers can notify the competent .authority in one Member state (providing the required data) and
within 90 days may market  the substance in all Member States. Whereas the U.S. Toxic Substances Control
Act is directed towards controlling risk  prior to manufacture of new substances, the Sixth  Amendment
focuses on marketing, reflecting the trade orientation of the EC.
                                                                        SUPPORTING PAPERS a  123

-------
      The directive has been updated regularly, mainly through Commission Directives (i.e. instruments
 adopted by the EC Commission alone, based on recommendations of a technical committee established by
 the directive).33
      The right to market in all countries following notification in one only has established an intensive
 relationship between the "competent authorities" (i.e. the government agency or agencies responsible for
 toxic substances control). In effect, each agency depends on the appropriateness of the response of the
 receiving agency to a notification.
      The differences between the Sixth Amendment and national legislation in the United States or Japan are
 indicative of the structures likely to be needed for international management of risks from chemicals.34 The
 focus on pre-market control rather than pre-manufacture (in effect leaving the control of manufacturing risks
 within national jurisdiction), the use of explicitly defined steps in the testing sequence to reduce administra-
 tive discretion, and the intensive linkages between competent authorities all reflect not only the specific needs
 of the EC but also tendencies in the international management of risks from chemicals.
      The OECD Chemicals Program has developed the basis for broader cooperation between the developed
 market economies, including definition of a minimum set of data (which has, however, not been adopted by
 the United States), good laboratory practice, shared testing of high volume chemicals, and steps towards an
 initial joint risk evaluation by member states.

       3.32. Danish Bottle Bill
      The Danish Bottles case arose from Danish regulation, adopted in 1981, requiring all beer and soft drinks
 to be sold exclusively in returnable containers.35 German and Dutch beverage companies immediately
 protested that the need to establish a return cycle for their containers imposed a discriminatory penalty on
 importers who had to cope with longer distances and smaller turnover in the Danish market, rendering the
 marginal cost noticeably higher than for domestic brewers and soft drink manufacturers.
      Following extensive negotiations between the EC Commission and affected  Member states,  the
 Commission took Denmark to Court, arguing that the Danish bottle bill was  contrary to the EC Treaties
 because  of its discriminatory impact on imported beverages.  This argument,  while made under the EEC
 Treaty, could presumably have been made equally under the G ATT, for example by Sweden or Norway, since
 both  countries were not at the time members of the EC.
     The European Court did no t deny that the Danish law was potentially discriminatory and thus in conflict
 with Art. 30 of the EC Treaties. However, it accepted the Danish contention that  the bottle bill was necessary
 to achieve overriding goals of environmental policy, and was thus covered by  the exceptions of Article 36
 which is modelled after  Article XX  of the GATT: "The provisions of Articles 30 to 34 [concerning  the
 elimination of quantitative restrictions between Member States] shall not preclude prohibitions or restric-
, tions on  imports, exports or goods in transit justified on grounds of... the protection of  health and life of
 humans, animals or plants...  Such prohibitions or restrictions shall not, however, constitute a means of
 arbitrary discrimination or a disguised restriction to trade between Member States."36
     As always, it is necessary to recognize that the Danish bottle bill arose within the EC, an organization
 very different from other trade regimes. Nevertheless, the European Court of Justice's decision resides on
 124  n  THE GREENING OF WORLD TRADE

-------
principles which the EC shares with the GATT and which are therefore potentially of broad application,
particularly in light of the informal linkages which exist between the European Court of Justice and GATT
dispute settlement panels. It would at least suggest that Article XX of the GATT could be interpreted in a
similar fashion, allowing more scope for environmental issues and opening the way to a balancing of trade
and environmental policy priorities.
     The significance of the Danish Bottle decision transcends, however, the immediate concern of beverage
containers, a small but visible corner of the overwhelming problem of waste management which is dominated
by the need to decrease total volume and eliminate toxic components. Indicative of the wider purport of the
Danish bottle bill decision is the German response to the opening thus created in the international discipline
of the EC Treaties. Over the past two years, the German government has been moving aggressively to put
in place new regulations governing not only beverage containers but all forms of packaging and ultimately
aiming at dramatic reductions in the volume of wastes.  Essentially, the German  regulations require all
packaging to be returned and recycled.37 The impact of these regulations is comparable to the Danish bottle
bill, except that they apply comprehensively to all forms of packaging. Companies that are unable to establish
a return cycle in Germany will not be able to sell into that market. Presumably these regulations are not
reversible and will set a pattern for the EC, and possibly beyond.

      3.3.3. European Environment Agency
     The need to consider substantive environmental issues at the European level rather than just legislate
and adjudicate has led directly to a decision to establish a European Environment Agency.  The initial
mandate for this Agency is quite severely limited. It will not be responsible for direct enforcement, and the
extent of its independent monitoring remains to be determined. The launching of this Agency has been held
up pending settlement of a dispute concerning its location.
    4.  POTENTIAL TRADE DISPUTES OF ENVIRONMENTAL SIGNIFICANCE

    The number of past trade disputes of environmental significance, even outside the EC, is striking. They
highlight many of the difficulties in balancing environmental and trade policy priorities in institutions which
reflect the procedural needs of trade management. In effect, the forum, its procedures and its terms of
reference tend to promote a restrictive interpretation of possible environmental exceptions in the General
Agreement and to render substantive consideration of environmental issues virtually impossible.
    Past trade disputes already define a broad agenda requiring the attention of environment and trade
policy makers. In addition there are several emerging disputes which raise additional important issues, or
are likely to focus issues more sharply. The EC has proven remarkably capable of adjusting to the challenges
posed by changing requirements of environmental policy. Consequently the most difficult issues are liable
to arise in the fora less capable of satisfactory resolution — GATT and the FTA.
    Bovine Growth Hormone (BGH) enables dairy farmers to increase their milk production dramatically.
A rapid rise in milk production threatens the stability of agricultural subsidy programs in the United States
                                                                      SUPPORTING PAPERS  a  125

-------
and the EC. There are remaining uncertainties about the potential effects of the product which may be
harmful to animals or to consumer health, particularly under conditions of use in farms. In the EC, a major
public scandal in the eighties has made public opinion and health authorities extremely cautious in accepting
the use of hormonal veterinary products. Producers of veal had overused growth hormones in calves, leading
to residues in meat which was used for infant food.  Consequently the EC has additional hesitations
concerning the use of BGH. The U.S. federal government believes BGH to be safe under normal use and some
U.S. states already permit it. The ensuing dispute has not yet reached the stage of a formal G ATT proceeding
but it raises crucial questions concerning the process by which science assessments are introduced into trade
disputes. In terms of trade regulation, the BGH case hinges on the evaluation of the scientific evidence, with
a wide range of interpretations propounded by varying researchers and governments. The G ATT is incapable
of evaluating scientific evidence and requires the assistance of independent, scientifically credible institu-
tions, which must be internationally based to rule out interference of national policy considerations. The U.S.
government suggested using the Codex Alimentarius Commission  to undertake such an evaluation. The
Commission, a body under the auspices of the Food and  Agriculture Organization (FAO) but cosponsored
by the World Health Organization (WHO), is currently dominated by scientists closely linked to transnational
corporations which produce agricultural chemicals or process food and thus has little scientific credibility.
It appears susceptible to political pressure, in the case of BGH from  the EC.
    While not strictly  speaking an  environmental issue, the BGH case highlights the need for science
assessment to deal with the  newly emerging substantive issues  confronting trade  regimes, of which
environmental management is arguably the most important. G ATT must seek out internationally credible
science assessments to conduct its business. In environmental management, most decisions hinge on science
assessments, so trade disputes with an environmental dimension are bound to involve contentious scientific
issues. In the absence of appropriate environmental institutions, trade panels will be unable to handle the
disputes which are liable to arise.
    An example of such a dispute in the environmental field concerns asbestos imports from Canada to the
United States. The United States has banned all uses of all forms of asbestos. Canadian asbestos producers
claim such a ban is based on flawed interpretation of scientific data: while certain forms of asbestos are indeed
very carcinogenic, the Canadian product represents a limited and acceptable risk.  The trade issues in this
instance revolve around the assessment of the hazards of asbestos and whether the U.S. ban is discriminatory
against Canada and a border or an internal measure. While it is theoretically conceivable that the U.S. ban
couldbe illegal under trade law if it is shown to be discriminatory and a border measure and contrary to sound
scientific evidence requiring such a measure to protect public health, such an outcome is unlikely since the
issues are substantive rather than procedural. To believe that the U.S. asbestos ban is illegal under the G ATT
assumes that the U.S. regulatory process is so flawed as to produce fundamentally erroneous decisions.
Nevertheless, a GATT panel incapable of considering the scientific evidence could reach conclusions which
are procedurally correct but scientifically flawed. Thus far the Canadian government has not adopted the
position of the asbestos manufacturers, and it is unlikely that it will push the asbestos issue so far as to create
a crisis because it is well aware of the implications for U.S. environmental policy.
    Asbestos is in many respects a special case of a broader phenomenon known as "sunset chemicals."38
As knowledge about the environmental hazards of certain chemicals increases, a growing number of
126  a THE GREENING OF WORLD TRADE

-------
substances may need to be phased out entirely from use. Several chlorofluoroearbons (CFC's) have been
identified as posing exceptional hazards for the stratospheric ozone layer and are slated to be phased out.^9
Other CFC's remain in use while posing a lesser threat to the ozone layer; they will need to be controlled in
the coming years, and some phased out. A range of industrial chemicals have already been widely banned,
including PCB's and DDT. And certain heavy metals, cadmium in particular, have been banned in some
countries which are now pushing for wider controls.^ Some countries are demanding zero emissions of
certain of these substances as a condition of licensing industrial facilities.  This entire process by now
represents a comprehensive international toxics control program, currently focused in large measure on the
EC and the Chemicals Group of the OECD. Over the years, as this process gathers momentum, differences
will arise in the interpretation of the scientific evidence and in the approach chosen by individual countries
to control risks which have been identified.  Unless a sound international environmental management
structure has been created, these differences are liable to be carried into the trade dispute settlement process,
which is virtually incapable of resolving them.
    More complex than the chemicals control issues, for which practical international steps have at least been
identified, is the need to distinguish between "like" products according to their environmental impacts. This
is exemplified by the dispute about hydropower from the James Bay generation complex in Northern Quebec
in Canada. A large hydropower complex has been created in that region and is already supplying a major
portion of the electricity used in Quebec. Plans exist for dramatic enlargements. The dams involved are likely
to impact natural resources in the region and will disrupt the traditional lifestyle of the Cree Indians who
inhabit the area.  Electricity is also exported to several U.S. states and consumers in these states are
complaining that the environmental consequences of the dams have not been adequately considered so that
they do not wish to purchase the electricity. That is their right, if they can convince the public utilities, or the
regulators who oversee them, not to buy power. But electricity is transported in large grids. There is no way
to distinguish between the source of the electricity, and trade law does not allow such distinctions to be made.
In practice, virtually any utility which is part of the grid can receive power from James Bay at some point
without knowing it.  No adequate solution  to the problems created by this situation exists, short of
environmental assessments in Canada which are accepted as comprehensive and fair by U.S. consumers.
That has not yet happened, but U.S. regulators have indicated that they need to be convinced by the Canadian
process if they  are to purchase power.  In addition to the issue of "internationalizing"  environmental
assessments in Canada, electricity currently being generated at James Bay isbeingused by Quebec authorities
to attract large natural resources processingindustries to the remote northern region of the province. A strong
suspicion exists that these enterprises are receiving concessionary power contracts, in effect a subsidy which
compounds the problems associated with James Bay by encouraging wasteful use of power. This issue may
also ultimately become the topic of trade disputes, and prove difficult to manage in the a'bsence of clear rules
governing energy policy.
    What constitutes a subsidy is at the heart of another potential trade dispute between Canada and the
United States. Within GATT, the subsidies code provides an operational definition. However, U.S. forest
products industries have been complaining that provincial governments in Canada take a fee for the right to
cut trees on public lands ("stumpage") which does not reflect the true value of the lumber, nor the public costs
of making it available. They have claimed that this "subsidy" represents an unfair trade practice. The issue
                                                                      SUPPORTING PAPERS a  127

-------
of stumpage would present FTA (or GATT) with a range of issues arising from the pricing of public goods
and services used by private interests. Typical examples of subsidies in this area are road building in U.S.
national forests or water pricing in the American West.41 In both instances, environmental and trade policy
would equally seek elimination of the subsidies. However, this would require revision of the subsidies code,
which is currently unlikely to occur. The stumpage case is to be welcomed because it raises issues of public
policy which are important from an environmental perspective.
     Related to the stumpage case, but requiring quite different management techniques, is the issue of
tropical forestry. The market for tropical forest products is international in nature, since the suppliers are
typically in developing countries while the consumers are in the developed world. The pricing and structure
of international timber markets have not allowed tropical countries to enforce sustainable management
practices in their forests since this would tend to price their product out of the market which does not make
allowances for responsible timber management but is oriented towards cheap, destructive harvesting
methods. Consumers in the developed world are increasingly willing to pay premium prices for "sustainably"
harvested tropical forest products but wish to boycott all others. This requires reliable identification of
sustainably harvested products (an extremely complex scientific task) and market differentiation, based on
the mode of production. Further, environmental policy will require an end to destructive harvesting since
that threatens the destruction of a key global ecosystem. Consequently the need is for bans on some tropical
forest products, and regulation of others so as to allow producers to capture a greater economic rent which
is a condition of introducing sustainable management practices. The international trade system is not
currently equipped to handle such a structure. Other international organizations which might achieve that
result may exist, but they are not effective and have not established working relations with the trade
regimes.42
     The Danish bottle bill—and the German follow-up in the area of packaging and waste in general—raise
numerous issues relevant to trade which will require attention. Most trade rules seek to eliminate barriers
to trade other than the costs of transportation. Introducing a requirement to take back and recycle all
packagingmaterials creates an additional structure which may disadvantage products transported over large
distances. Producers of such products must either pay for the return of packaging, or pay an agent in the
consumer country to discharge their obligations under waste management laws. It can reasonably be argued
that manufacturers are responsible for producing products which are safe and environmentally benign in
their entirety, and that internalizing the costs of waste disposal into the product is both good economics and
good environmental policy. Nevertheless, the scope for problems in trading regimes remains significant.
Germany will now seek to universalize its approach; other countries may feel that this is either inappropriate
for them, or that it provides German manufacturers with an unfair trading advantage, and may create systems
which have different characteristics. Such differences can be handled — if there is a forum (such as the EC)
to do so; in the absence of such a forum, the likelihood is once more that they will give rise to trade disputes.
     These problems will further proliferate as countries move to full product life cycle management, with
manufacturers responsible not only for safe production and recycling of packaging butalso for safe recycling
or disposal of the product itself. In Germany, one  automobile manufacturer (Volkswagen) has already
announced that it will take  back, disassemble and recycle all of its products. Such an undertaking becomes
increasingly difficult with decreasing market share,  creating entry barriers and  obstacles for foreign
128  a THE GREENING OF WORLD TRADE

-------
producers with low volume in a given market. Virtually no consideration has thus far been given to the
appropriate response by trade institutions.
     Maybe the most complex issues concerning trade and environment are liable to arise in relation to major
global negotiations with regard to stratospheric ozone depletion, global warming and the related issues
concerning technology transfer and international terms of trade. The Montreal Protocol on Substances Which
Deplete the Ozone Layer in Article 4 contains provisions on the control of trade which have been called "in
effect the only enforcement mechanism in the Protocol."43 These provisions involve bans on import and
exports of controlled substances, bans of imports from states not party to the Protocol of products containing
controlled substa.nces, and bans on imports from such states of products produced with, but not containing,
controlled substances. Only the first of these provisions has entered into force, and complex trade policy
issues remain to be resolved as the further provisions are activated.  Indeed, the relationship between
obligations under the Montreal Protocol and the General Agreement  remains unresolved although the
presumption must be that the later Protocol which is a formally ratified treaty takes precedence over
obligations under the unratified General Agreement, the Herring and Salmon decision not withstanding.
     Matters will get more rather than less complicated as agreements on measures to combat global warming
emerge. The Montreal Protocol established relatively straightforward measures (bans) on a readily identi-
fiable, limited number of industrial chemicals involving very limited economic interests by global standards.
Management of global warming will affect naturally occurring substances which are part of life processes and
at the same time central to energy supply. There can be no question of outright bans', so that international tools
need to be developed which equitably apportion a limited supply of currently free environmental resources.
It is difficult to conceive of such measures without superimposing an additional level of regulation on current
trade regimes. This conclusion is readily reached and can be implemented in national jurisdictions; there are
no precedents for such an undertaking at the international level. While a more equitable and more efficient
economic system will ultimately emerge — as has happened through domestic regulation of otherwise free
markets—the transition will be marked by major conflicts. These conflicts are likely to focus on international
economic relations: trade, finance, and technology transfer.
             5.  OPTIONS FOR TRADE AND ENVIRONMENTAL POLICY

   ,  The trade dispute settlement process highlights potential conflicts surrounding the dual policy priorities
of environmental management and trade liberalization. The difficulties which can already be anticipated
threaten to grow into major crises unless measures are taken soon to defuse the conflict. Apart from the
examples listed, it is difficult to predict where a crisis may erupt; certainly, few would have predicted that
protection of dolphins could grow into the kind of major trade issue which it has become.
     A number of options are available to lessen the chances of conflict between trade and environmental
priorities.  Since trade regimes are international, the available options are all necessarily oriented towards
international procedures.
                                                                       SUPPORTING PAPERS a  129

-------
                   5.1 Strengthen International Environmental Institutions

    Several cases with environmental implications which have already come before the GATT, in particular
the tuna/dolphin and the lobster disputes, illustrate how failure of international environmental management
can lead to trade disputes. Most of the currently identifiable disputes also reflect this basic fact. The most
important measure which could be taken to protect trade regimes from the risks of mishandled environmen-
tal disputes would be a systematic strengthening of international environmental management capability
which remains rudimentary.
    This is not the place to describe the strengths and weaknesses of current international environmental
regimes.44 Judged by the needs  of substantive agreement  on significant  environmental management
strategies for issues ranging from global warming to small cetaceans, the current management structure is
rudimentary at best. There are no environmental institutions which correspond to the dimensions of the
North American Free Trade Area. The traditional forms of intergovernmental cooperation suffer from a
serious lack of accountability and have no means to attract public participation and support. They may serve
to bridge the immediate need in bilateral relations; they are seriously inadequate for the multilateral issues
typical of environmental management.
    The environmental imperative  arose in the sixties and emerged on the international agenda in the
seventies. The past twenty years have been a period of extreme resistance to institutional innovation at the
international level, presumably because of international polarization and because most countries were still
engaged in domestic debates to identify the contours of environmental issues. Now that international
relations has changed and the permanence of the environmental agenda is no longer under dispute, the time
has presumably come to move creatively on the institutional front.  This paper illustrates that this is not just
necessary for environmental policy reasons, but also a priority when viewed from a trade perspective. It is
hard to imagine a conflict more harmful to the prospects  for environmental management and trade
liberalization than one which pits these two policy priorities against each other.

    5.1.1 IMPROVE INTERNATIONAL TRANSPARENCY OF ENVIRONMENTAL POLICY
    Environmental policy depends almost entirely on the consent of those directly affected by it, in the event
every person on the planet. Authoritarian regimes have not responded well to the environmental imperative
because it is typically a democratic concern. Thus the democracies have consistently been in the forefront of
environmental management innovation.
    It is inconceivable that democratic rights will permanently end at a nation's frontier. As an increasing
number of issues require international action, the basic principles of democratic societies must also extend
to their international management.  In other words, freedom of information, rights of participation, and
procedural guarantees of due process in decision-making which are central to environmental management
must also be incorporated into international decision-making. This represents a significant departure, going
well beyond the limited rights currently available to citizens in international institutions, much closer to the
procedural safeguards of the EC.
    The lack of transparency is particularly salient on the North American continent where proximity can
cause the issues to be of immediate concern for citizens.
130  a THE GREENING OF WORLD TRADE

-------
    5.1.2 PROVIDE INTERNATIONAL ACCESS TO INFORMATION
    A first step in the direction of greater democratization of international decision-making would be the
provision of much more open access to information held by international agencies and the networking of
national information systems.  This is not a trivial task, since it implies the creation of information
management structures in addition to the establishment of rights of access. The exemplary openness of the
preparatory process for the United Nations Conference on Environment and Development (UNGED) can
provide an example for appropriate solutions.


           5.2 Provide Guidance to Trade Panels on Interpretation of Article XX(g)

    The GATT needs to become sensitive to environmental imperatives. This is not the same as seeking to
transform the General  Agreement into a tool of environmental policy.  Nevertheless,  measures must be
adopted which ensure that the ecological limits to economic policy are equally respected internationally and
nationally. Where they are, conflicts between environment and economy become readily manageable.
    GATT panels have a long tradition of cautious, even conservative, interpretation of the General
Agreement. The tuna/dolphin decision is a clear example, since nothing leads to believe that it was an error.
Despite strong evidence that the drafters of Article XX(g) had an extensive view of an admittedly much more
narrow agenda of public health and conservation issues, the GATT Secretariat will not change its role in
assisting panels unless clearly instructed to do so by the Council. This should be the first priority for the
Environment Working Group.
    Clearly appropriate provisions should be included in the NAFTA from the outset.

    5.2.1 ADOPT THE POLLUTER PAYS PRINCIPLE FOR TRADE REGIMES
    The Polluter Pays Principle is a market-oriented principle of environmental management with far-
reaching consequences.45 There is no reason why the GATT should not adopt it as a basis for its own approach
to environmental issues and as a guideline for its members.

    5.2.2 ADOPT THE PRECAUTIONARY PRINCIPLE FOR TRADE REGIMES
    The precautionary principle represents a vital bridge between technology and ecology.46 It needs to
become the basis of all institutions which seek to balance economic policy priorities with environmental
imperatives.

    5.2.3 INCREASE THE TRANSPARENCY OF TRADE PROCESSES
    International trade processes are even more cloaked in secrecy than international environmental issues.
Without greater transparency, it will be difficult to allay public suspicions that important decisions of public
policy are being made in secret. This has been an issue within GATT, since governments are subject to
different rules of openness. The Draft Final Act at least recognizes the need for greater transparency, albeit
only as a domestic issue.4^                                                             "
                                                                     SUPPORTING PAPERS D  131

-------
                                 5.3  Institutionalize the GATT

     The ambiguous legal character of the GATT has not hindered it from being an effective instrument for
 the reduction of tariffs and the negotiation of agreements to limi t other restrictions on trade. As trade barriers
 fall, however, further liberalization will require increasingly substantive agreements which entail a much
 higher level of monitoring. In this respect, the potential conflicts between environmental management and
 trade policy are a symptom of a deeper institutional problem.  It is unlikely that these difficulties will be
 resolved without the negotiation of a formal treaty establishing an international organization with authority
 to act within its charter to identify emerging issues and bring them to negotiation in a timely manner without
 requiring consensus on all details.  The dreadful history of the Working Group on the Environment —
 established in 1971 but never convened, reconstituted 1991 only after months of negotiation — provides
 ample illustration of the reasons for institutionalization.


                 5.4 Develop International Institutions for Science Assessment

     Science provides no clear answers to environmental problems until it is too late.  Thus it is always
 necessary to undertake assessments of the scientific evidence with a view to establishing the need for policy
 action. Such assessments require an institutional framework and open debate if they are to be credible and
 comprehensive. The lack of adequate science assessment institutions at an international level will continue
 to hinder environmental policy formation  and render its implementation controversial.
                                             NOTES


1 Robert E. Hudec, Adjudication of International Trade Disputes (Thames Essay No. 16). London: Trade Policy Research
Centre, 1978. Robert E. Hudec, William J. Davey, "Remarks,"
2 Robert E. Hudec, (see fn. 1): 7-11.
3 Robert E. Hudec, "GAIT Dispute Settlement After the Tokyo Round: An Unfinished Business," Cornell International Law
Journal, vol. 13 no. 2 (Summer 1980): 145-203.
4 Agreements Reached in the Tokyo Round of Multilateral Trade Negotiations, H.R. Doc. No. 153,96 Cong., 1st Sess. (1979).
5 Robert E. Hudec, "GAIT Dispute Settlement After the Tokyo Round: An Unfinished Business," Cornell International Law
Journal, vol. 13 no. 2 (Summer 1980): 145-203.
6 Davey, "Remarks,": 138.
7 Multilateral Trade Negotiations, The Uruguay Round, "Draft Final Act Embodying the Results of the Uruguay Round
of Multilateral Trade Negotiations,"  MTN.TNC/W/FA, Sections S,T.
8 Davey, "Remarks," : 138.
9 Steve Charnovitz, "Exploring the Environmental Exceptions in GATT Article XX," Journal of World Trade vol. 25 (October
1991): 37^56.
132  n THE GREENING OF WORLD TRADE

-------
10 Michael Hart, "A Lower Temperature: The Dispute Settlement Experience Under the Canada-United States Free Trade
Agreement," The American Review of Canadian Studies, vol 23 no. 2/3 (Summer/Autumn 1991): 198.
11 Gary D. Horlick, Geoffrey D. Oliver and Debra P. Steger, "Dispute Resolution Mechanisms," in: Jeffrey J. Schott and
Murray G. Smith, eds., The Canada-United States Free Trade Agreement: The Global Impact (Washington, D.C.: Institute for
International Economics, 1988). Alan Krugman, "U.S. Protectionism and Canadian Trade Policy," Journal of World Trade
Law vol. 20 no. 4:363-379. Bruce H. Fisher, "Politics of FTA Trade Disputes," International Perspectives (Sep/Oct 1988): 17-
20. See also Michael Hart (see fn. 8). Gordon Ritchie, 'The Free Trade Agreement Revisited," The American Review of
Canadian Studies, vol. 21 no. 2/3 (Summer/Autumn 191): 207-213.
12 FTA, Art. 1801..
13 FTA Art. 1201.
14 Michael Hart, (see fn. 10): 200.
15 There are three separate cases involving pork between the two countries: two FTA procedures and one GATT panel.
16 Michael Hart, (see fn. 10)
17 Gordon Ritchie, (see fn. 11): 211.
18 Michael Hart, (see fn. 10): 199.
19 Michael Hart, (see fn. 10): 200.
20 Commission of the European Communities, Treaties Establishing the European Communities (ECSC, EEC, EAEC)-Single
European Act-Other Basic Instruments. Abridged Edition. (Luxembourg: Office for Official Publications of the European
Communities, 1987). Although the legal name is "European Communities," the  common name is now "European
Community"-both abbreviated as "EC."
21 Cameron Keyes, The European Community and Environmental Policy. An Introduction for Americans. Washington, D.C.:
World Wildlife Fund, 1991.
22 See below.
23 See General Agreement on Tariffs and Trade, 'Trade and Environment. Factual Note by the Secretariat" (L/6896,
August 1991) for a more limited interpretation. That a "factual note" should be a restricted document is an illustration
of the lack of transparency in GATT proceedings.
24 Steve Charnovitz, 1991 (see fn. 7)
25 BISD (34th Supplement): 136-166.
26 Inside U.S. Trade, "Special Report: GATT Tuna Ruling Spawns Environmentalist, Congressional Backlash," Inside U.S.
Trade, September 6,1991.
27 Ted L. McDorman, 'The GATT Consistency of U.S. Fish Import Embargoes to Stop Driftnet Fishing and Save Whales,
Dolphins and Turtles," The George 'Washington Journal of International Law and Economics vol. 24 no. 3 (1991): 492.
28 BISD (35th Supplement): 98-115.
29 "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 the 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;..."
                                                                              SUPPORTING PAPERS 'a   133

-------
30 BISD, "Lobsters from Canada, Final Report of the Panel" (USA 89-1807-01), date of submission: May 25,1990.
31 See Nigel Haigh, EEC Environmental Policy & Britain (2nd edition). London: Longmans, 1989. Ludwig Kramer, EEC
Treaty and Environmental Protection. London: Sweet & Maxwell, 1990.                                  '    '
32 Directive amending for the sixth time Directive 67/548/EEC on the approximation of the laws, regulations and
administrative provisions relating to the classification, packaging and labelling of dangerous substances (79/831/EEC,
OJL25915.10.79).
33 For a list of these adaptations, see Nigel Haigh (see fn. 31): 236.
34 Sam Gusman, et al., Public Policy for Chemicals. National and International Issues. Washington, D.C.: The Conservation
Foundation, 1980.
35 Pascale Kromarek, "Environmental Protection and Free Movement of Goods: the Danish Bottles Case: Commission
of the European Communities (supported by United Kingdom) v Kingdom of Denmark," Journal of Environmental Law
Vol. 2 No. 1 (1990): 124-134.
36 See Steve Charnovitz, (see fn. 9) for a history of development of this text within the ITO negotiations.
37 Richard Weiner and Stefan Tostmann, "What Can the EC Learn from Germany's Bold Legislation on Packaging
Waste?" International Environmental Affairs Vol. 3 No. 4 (Fall 1991): 282-291.8
38 See Jeffrey Foran, "The Sunset Chemical Proposal," International Environmental Affairs Vol. 2 No. 4:303-316.
39 Richard Benedick, Ozone Diplomacy. New Directions in Safeguarding the Planet. Cambridge, MA: Harvard University
Press, 1991.                                                         .         ,
40 Konrad von Moltke, The Regulation of Existing Chemicals in the European Community. Possibilities for the Development of
a Community Strategy for the Control of Cadmium. Brussels: Commission of the European Communities, 1985.
41 Mohammed T. El-Ashry and Diana C. Gibbons, Troubled Waters. New Policies for Managing Water in the American West.
Washington, D.C.: World Resources Institute, 1986.
42 The International Tropical Timber Organization (ITTO) and the Food and Agriculture Organization through the
Tropical Forest Action Plan (TFAP) share responsibility in this area.
43 Richard Benedick (see fn 39): 91.
44 Peter H. Sand, Lessons Learned in Global Environmental Governance. Washington, D.C.: World Resources Institute, 1990.
45 Organisation for Economic Cooperation and  Development, "Guiding Principles Concerning International Economic
Aspects of Environmental Policies," Recommendation adopted May 26,1972,  C(72)128.
46 Konrad von Moltke, "The Vorsorgeprinzip in West German Environmental Policy," in Royal Commission  on
Environmental Pollution, Twelfth Report: Best Practicable Environmental Option. London: HMSO, 1988:57-70 (also: London:
Institute for European Environmental Policy, 1987).
47 Final Act (see fn. 9), Page Y.I.
134  a  THE GREENING OF WORLD TRADE

-------
                                      About the Author

   Konrad von Moltke works on international environmental relations. Recent work has focused on
environmental policy and international economic relations: debt, trade and development. Dr. von Moltke is
a Senior Fellow at World Wildlife Fund in Washington, D.C.,and Adjunct Professor of Environmental Studies
at Dartmouth College. He is editor of International Environmental Affairs, a journal for research and policy. He
is President of Bioprime, Ltd., a Vermont corporation devoted to the transfer of environmental technology
from Europe.
   Dr. von Moltke studied mathematics at Dartmouth College (B.A. 1964) and medieval history at the
University of Munich and the University of Gottingen (Ph.D.) 1970. He taught at the State University of New
York/Buffalo where he was also a member of the administration.
   From 1972 to 1974, Dr. von Moltke lived in Europe where he developed American Studies curriculum
materials and was active in founding a  number of private European policy-oriented institutions in the
European Cultural Foundation (Amsterdam). Between 1976 and 1984, he was founding Director of the
Institute for European Environmental Policy (Bonn, Paris, London), a private institution devoted to the
analysis of policy alternatives for European environmental problems.
   Dr. von Moltke is a citizen of the Federal Republic of Germany and lives in Norwich, Vermont. He has
published extensively on medieval history, comparative education and curriculum development, and
international environmental policy.

   Portions of this report are based on work currently being undertaken under contract to the U.S. Congress,
Office of Technology Assessment.
                                                                     SUPPORTING PAPERS -a  135

-------
                The Montreal Protocol  Case
             Christopher A. Cummings and Matthew B. Arnold
                                 I. INTRODUCTION

    In September 1987, theMowf real Protocol on Substances That Deplete the Ozone Layer was established by 60
countries to reduce the use of industrial compounds called Chlorofluorocarbons (CFCs) in order to avoid
depletion of the stratospheric ozone layer that protects earth from ultraviolet radiation (UV-B). Inquiry into
three important areas of the history and provisions of the protocol is necessary.
    •  Sound Science: What was the scientific history of the protocol? Why was action undertaken given this
       history? What are the implications for future environmental agreements?
    •  International Trade and GATT: Why was international trade chosen as a vehicle to administer the
       agreement? Is this the most efficient vehicle? What other options were available? What are the
       conflicts with and implications for GATT?
    •  North/South Issues: Are industrialized countries merely imposing their value structure on industri-
       alizing countries? What can be done to encourage participating countries to join the protocol? What
       options aside from an international agreement might effect the same ends?
                          II. THE MONTREAL PROTOCOL

                                     A. Background

    The Montreal Protocol mandated significant reductions in production, consumption, and general use
of CFCs in September, 1987. At the time of the negotiations, CFC use was rapidly increasing in volume and
variety of use and new compounds were proliferating. CFCs were used or present in literally thousands of
products, including aerosol sprays, industrial solvents, air conditioning, refrigeration, and foam insulation.
However, scientists theorized that CFCs were depleting ozone concentrations in the stratosphere (10-50 km
136 a  THE GREENING OF WORLD TRADE

-------
above earth's surface), which shields the biosphere from potentially disastrous levels of UV-B. Specific effects
of increased UV-B are poorly understood, yet scientists generally agree that an increase could threaten human
life, harm forests, fisheries, and agriculture, and advance global climate change. Industrialized countries, in
particular the United States, Canada, and a number of Scandinavian countries pushed for an international
agreement to cap and reduce production and consumption of CFCs based on the potential negative effects
of ozone depletion and the risks of inaction.         •


                         B. Process, Representation, and Provisions

     Scientific uncertainty spurred collaborative efforts to measure and model stratospheric ozone depletion.
UNEP, led  by Mostafa Tolba, provided the impetus for these collaborative efforts and single-handedly
pushed the issue into the international political arena. Various intergovernmental meetings, such as in April
1977 in  the US  and December 1978 in Germany,  provided the setting for discussion on implementing
international brakes on CFC use, despite the lack of scientific certainty of its ill-effects. At this early stage, a
majority of participating governments favored a  voluntary international agreement to eliminate non-
essential aerosols, but no consensus could be reached.
     As ozone depletion estimates dropped in the 1980s, the impetus behind any kind of international
agreement was nearly lost. In January of 1982, UNEP convened representatives from 24 countries to begin
an Ad Hoc  Working Group on a potential framework for an international accord. The Ad Hoc Working
Group would convene periodically over the next 5 years.
     The Ad Hoc Working Group was comprised of experts from participating governments and various
outside  organizations, such as the World Meteorological Organization (WMO) and  the International
Chamber of Commerce.  As the process matured  from a fledgling movement to an international force,
government attendance increased and environmental  ministers and high-ranking government officials
attended the sessions. For instance, the US was represented primarily by high-ranking environmental
officials from the State Department and EPA. Moreover, the process included still more external organiza-
tions, such as the Institute for European Environmental Policy, the Environmental Defense Fund, and the
World Resources Institute. Notable exceptions to this growing list were domestic and international trade
organizations (i.e., GATT). Consulted on few occasions, trade representatives were largely external to the
process. Ultimately, the Ad Hoc Working Group was responsible for the bulk of the provisions contained in
the protocol and its revisions.
     By  this time, the US, Canada, Switzerland, Norway, Sweden and Finland supported an international
agreement, while the EC, Japan, and the Soviet Union (the three largest producers aside from the US) flatly
rejected such an  idea. The EC in particular opposed  any agreement due to the lack of scientific certainty and
the negative stance of the EC chemical industry.
     As  scientific evidence began to mount, 43 nations, including 16 developing countries, convened in
Vienna in March 1985 to work on the ozone convention. The Vienna Convention for the Protection of the Ozone
Layer was signed by 20 nations, including the US, EC, and the Soviet Union. Although the agreement
contained no provision for reducing CFC production or consumption, it called for governments to take
                                                                      SUPPORTING PAPERS  a  137

-------
"appropriate measures" to protect the ozone layer, to exchange production and consumption data, and to
collaborate on scientific research. A last minute provision, sponsored by the US and its allies and supported
by the US chemical industry, called for a legally binding protocol to limit CFC use in 1987. In essence, the
Vienna Convention both established the framework for the Montreal Protocol and increased the drive to
create it.
    Ad Hoc Working Group sessions ensued, determining the framework and explicit details of the future
protocol.  Reports from the collaborative scientific efforts and news of an Antarctic Ozone Hole' discovered
by a joint British and American expedition in 1985, directly influenced the protocol's provisions, which called
for a 50% decrease of 1986 levels of CFC production and consumption by mid-1998.
    Other important areas included measures on trade with nonparties and obligations for industrializing
countries. Specifically, the treaty banned trade in bulk CFCs, products containing CFCs, CFC technology;
potentially it banned products using CFCs in their production processes with nonparties.1  Industrializing
countries were allowed to expand their use of CFCs over a ten year period, after which they would have to
adhere to the reduction schedule, outlined below:

    CFC REDUCTIONS
    •  CFCs 11/12/113/114/115
                    Freeze at 1986 Levels by mid-1989
                    20% Reduction by mid-1993
                    50% Reduction by mid-1998
    •  Halons 1211/1301/2402
                    Freeze at 1986 Levels by 1992
    The  protocol formally took effect  on January 1, 1989, representing  29 countries and  the EC, thus
accounting for an estimated 83% of global consumption. However, new scientific findings  by the Ozone
Trends Panel indicated that the  provisions of the Montreal Protocol were not strong enough. The 50%
reduction had been based on ozone depletion estimates that were now outdated and significantly lower than
new projections. The Ad Hoc Working Group began again on a stronger set of provisions designed not only
to further reduce CFCs, but to include other ozone depleting substances and to stimulate ratification by more
countries, specifically developing countries.
    With the international machinery firmly in place, the London Revisions to the Montreal Protocol of June,
1990 significantly quickened the pace of the reductions and provided for the total elimination of CFCs and
other ozone depleting substances by the year 2000. The reductions schedule is as follows:

    CFC ELIMINATIONS (FIGURES APPLY TO 1986 LEVELS):
    •  CFCs 11/12/113/114/115
                    50% reduction in 1995
                    80% reduction in 1997
                    Phaseout 2000
138  o THE GREENING OF WORLD TRADE

-------
    •  Halons (13 in total)
                   50% reduction in 1995
                   Phaseout2000                            .                 .
    •  Carbon Tetrachloride
                   Freeze 198? Levels .            ,.
                   85% reduction in 1995
                   Phaseout2000        '
    • Methyl Chloroform
                   Freeze 1989 Levels in 1993
                   30% reduction in 1995
                   70% reduction in 2000
                   Phaseout 2005
     As of December 31st, 1991, there were a total of 81 parties to the protocol, approximately one-third of
which are developed countries (see exhibit 1). More countries are expected to accede to the protocol at the
next meeting on this issue in October, 1992.

                                C. Process Recommendations
     Although the protocol has attracted a great number of parties, these original protocol provisions, which
were dominated by the U.S. and EC negotiating parties, failed to gain wide acceptance by industrializing
countries and the trade community. Initially, industrializing countries regarded the protocol as a "rich man's
solution," ignoring the call to action. By contrast, the trade community was hostile towards the agreement.
Uncertain of its scientific validity or need, the trade community continues to regard the agreement with
disdain.  However,  both groups are necessary to  the overall efficacy of the agreement: industrializing
countries in order to lower CFC use and the trade community in order to ensure enforcement. Hence, both
groups must be included in the process from the beginning, thereby ensuring their commitment to the ideals
and provisions of the protocol.

                 III. SOUND SCIENCE AND FUTURE IMPLICATIONS
                                   A. Chlorofluorocarbons
     CFCs are a class of industrial compouhdscontaining chlorine, carbon,and fluorine. Invented by Du Pont
                                                                      SUPPORTING PAPERS  a  139

-------
in the early 1930s, CFCs were widely used by a number of industries due to their stability, low toxicity, and
non-flammability. CFCs can be divided into two primary classes—chloromethanes and chloroethanes.
     Two chloromethane compounds that are widely used by commercial industry: CFC-11 and CFC-12.
CFC-11 is used primarily as a blowing agent for foams, such as soft foams for mattresses and furniture (20%
of its application), foams for food packaging and refrigerator insulation (20%), and rigid foams used for
building insulation (60%). CFC-12 is used primarily as a coolant in refrigeration systems, including home
refrigeration units and automobile and building air conditioning units. Both compounds are well suited to
be used as aerosol propellants. At their peak in 1972, chloromethanes accounted for 93% of all CFC produced
(see exhibit 2). Today, they remain the most popular of the CFCs.
     The other major class of CFCs, Chloroethanes, includes CFC-113, CFC-114, and CFC-115, of which CFC-
113 accounts for over 90% of all chloroethanes used in industrial processes. CFC-113 is used primarily as a
solvent in the electronics and defense industries, which, in the past accounted for nearly 50% of the demand
for the compound.  Other applications include dry cleaning and metal degreasing. This class of CFCs is
primarily a part of the production process, rather than contained in the final product.
     Although not technically CFCs, a number of other  compounds displaying similar characteristics,
including ozone depletion potential (ODP), were of importance to industry for similar purposes. HCFCs,
composed of the same atoms as CFCs with the addition of hydrogen, served the manufacture of synthetics,
such as polytetrafluoroethylene (better known under its DuPont trademark "Teflon"). HCFCs also have
ODP, but only 15% of that of common CFC's.  Halons, with extremely high ODPs, are used mainly in
commercial and military fire protection systems, yet their production is relatively small. Methyl chloride, a
popular commercial solvent, and carbon tetrachloride, a chemical feedstock (notably for the production of
CFCs) and a commercial compound, round out the field of ozone-depleting compounds.
     At the time of the Montreal Protocol, true CFCs accounted for approximately 75% of total chlorine
concentration, with methyl chloride and carbon tetrachloride contributing 16-17% and Halons and HCFCs
the remainder. Depending on their chemical formulae, these substances have differing ODPs (see exhibit 3).
Thus, the amount of the substance in the atmosphere multiplied by its ODP determines the total chlorine
loading potential. Regardless, given their expanse of use and commercial importance, industries fought to
retain their usage.
*

                          B. CFC Science and Atmospheric Effects

     Stratospheric ozone has been characterized as the single most important trace gas in earth's atmosphere,
largely due to two traits: first, its capacity to absorb UV-B that could have dangerous consequences for life
in the biosphere; second, its influence on circulation patterns and temperatures throughout the world, which
control, to an unknown extent, the world's climate and regional variations. Composed of a great number of
gases and natural compounds, ozone accounts for a scant 1 part per million (ppm) average concentration, of
the stratosphere. An unstable compound, ozone breaks down and builds up on the order of 300 million tons
per day in certain dynamic regions of the stratosphere. One of the key elements in this process is chlorine,
represented by methyl chloride, a naturally occurring compound. Pre-industrial chlorine loading estimates
140  n THE GREENING OF WORLD TRADE

-------
set chlorine concentration levels at approximately 0.6 parts per billion (ppb). However, before researchefforts
in the 1970s, the interplay between ozone and chlorine was poorly understood.
    In 1973, Stolarski and Cicerone from the University of Michigan, while exploring the atmospheric effects
from NASA rockets, hypothesized that, under normal circumstances, chlorine would unleash a complicated
chain of reactions that would destroy ozone for decades after its emission. Hence, a single atom of chlorine
could eliminate thousands upon thousands of ozone molecules.
    In 1974, Molina and Rowland from the University  of California at Irvine undertook an academic
investigation of CFCs. They determined that CFCs are not rained out as acid or broken down organically in
the biosphere and troposphere, but instead, due to their chemical stability, migrate to the stratosphere.
Depending on their chemical structure, CFGs could remain present in the stratosphere for years or decades.
    Taken together, these independent theories implied that use of CFC could have severe impact on
stratospheric ozone. Simple chemistry clarifies this nebulous concept.  Solar radiation (hv) produces a
photochemical reaction releasing the chlorine (CD atom of the CFC, which will react with ozone (Og) to create
oxygen (02). For example, CFC-12, a common aerosol propellant:
           CCL2F2 + hv=> Cl + CC1F2
    when combined with Oo
                         •V                 •         '               *      .-•--.
           Cl + O3 => CIO + O2       .                         ,                ...
    Thereafter, the Chloride (CIO) combines with other compounds, releasing the chlorine atom, and the
second reaction is repeated. Ultimately, the chlorine atom will stabilize, but not until after it has affected a
great number of ozone compounds.
    Further research efforts ensued, but given the complexity of the situation, empirical measurement,
scientific modelling, and overall analysis proved highly  problematic.  After years of research, scientists
gained valuable knowledge, but still did not  reach definitive and conclusive proof that what had been
postulated was actually taking place in the stratosphere due to the various research problems:
    •  Ozone Concentration—only 1 ppm of stratosphere
    •  Distance Above Ground—upwards of 10 km, making measurement difficult
    •  Temporal Variability—daily, seasonal and solarcyclical ozone variability                      f
    •  Geographic Variability—abundance changes over different latitudes and altitudes              '
    •  Instability—increases reactivity, promotes greater variability
    These difficulties often put models at odds with measurements. On average, models set ozone depletion
percentages far below empirical findings, yet figures from neither source were considered credible.  Two
results ensued: many questioned the general theory and ozone depletion estimates fluctuated between 3 and
19 percent between 1974 and 1985.
    In 1984, NASA, UNEP, and WMO, among others, spearheaded an international task force to analyze the
validity of the theory and determine an accurate and credible ozone depletion percentage. What they found
proved to be very alarming: concentrations of  CFCs 11 and 12 had doubled from 1974 to 1985; other CFC
                                                                      SUPPORTING PAPERS a  141

-------
compounds were also found in heavy concentrations. The task force estimated that if emissions rates
continued at the 1980 world rate, ozone depletion would be approximately 9% by the second half of the 21st
Century. If the findings were true, the implications for human, animal, and plant life, short-term weather,
and climate change were severe. Scientists still were not convinced of the scope and scale of the problem,
citing lack of confidence in the models and measurement techniques. In the political sphere, scientific doubt
allowed country representatives to downplay the importance of CFCs.
    Although significant doubt remained regarding ozone depletion percentages, British scientists reported
in 1985 that atmospheric concentrations over Antarctica had dropped over 50% since the 1960s. Springtime
(October through December) solar reactions had ceased, leaving an ozone Tiole' bigger in size than the US.
Although they could not establish causation between CFCs and the ozone hole, the findings provoked
response. The protocol was based on theory, potential risk, and crude scientific goal of cutting chlorine
concentration from a potential 5 ppb to 2 ppb.
    As the final touches were being put on the Montreal Protocol, an international expedition was taking
place over Antarctica. Headed by NASA, NOAA, and NSF, the Ozone Trends Panel found a substantial
worsening of ozone depletion beyond the findings of the British coupled with abnormally high chlorine
levels.  However, the panel stopped short of stating causation on the part of CFCs.
    Six months later, in a paper published in the Ozone Trends Report, the group went beyond its provisional
findings, substantiating the theory with hard evidence.2 Thus, after 15 years of research, CFCs and Halons
had been implicated beyond doubt. Conversely, the findings cast the provisions of the Montreal Protocol into
great doubt. The protocol had been based on a potential 2% loss in stratospheric ozone. Although the Ozone
Trends Panel could not  quantify its data, it stated that the 2% loss basis for the protocol was a gross
underestimate. Various signatories to the protocol moved quickly to further the reductions specified.


                                       C. Implications

    The relationship between ozone depletion and UV-B is simple.  Scientists believe a 1% decrease in
stratospheric ozone could cause approximately a 2% increase in UV-B passing through the stratospheric
shield. These numbers vary marginally according to the specific waveband, season, and zenith angle to the
sun.
    The implications to human health and the biosphere in general are not  so easily quantified.  The
predominant  focus of health studies  has  been  on the incidence of  human skin cancer.  Incidence of
nonmelonoma and melanoma skin cancer is expected to increase dramatically.  Currently, nonmelanoma
skin cancer accounts for approximately 400,000 cases per year, with a 1% annual fatality rate. Scientists
estimate that a 1 % loss of stratospheric ozone accounts for a 2-3% rise in nonmelanoma incidence. Malignant
melanoma incidence has increased throughout the 1980's. Approximately 25,000 new cases occur every year,
with a fatality rate of over 25%—6,000 fatalities. For each 1% loss of stratospheric ozone, scientists estimate
a 1-2% increase in melanoma incidence. EPA estimates from 1987 predict that stratospheric ozone depletion
will result in 10,000 additional annual deaths by 2100, lower than the above indicators prescribe. However,
establishing direct causation is highly problematic and remains a topic for further research.
142 o THE GREENING OF WORLD TRADE

-------
     The implications for the future of terrestrial and aquatic ecosystems and, ultimately, climate change are
 even less certain.  There is significant evidence, however, that crops and terrestrial ecosystems would be
 adversely affected by increased UV-B exposure.  Studies of 4 of the 10 major terrestrial plant ecosystems
 during the late 1980s show that increased UV-B exposure affected crop yield and quality in half of all plant
 species examined. Aquatic ecosystems examined were negatively affected as well. Scientists predict major
 disruptions in the aquatic food chain, particularly in the polar regions. Finally, climate change remains a
 major question. Increased UV-B exposure is expected to deleteriously affect life in the biosphere, but the scope
 and scale of the damage is as yet unclear.
     Although scientific data has confirmed that significant stratospheric ozone depletion has occurred, the
 corresponding rise in UV-B rays has not been confirmed. 'Biologically effective' UV-B that reach earth's
 surface have increased in some areas, but not in the United States. Ground-level monitoring stations in the
 United States indicate no statistical upward change in the amount of UV-B reaching earth's surface. As a
 result, scientists now believe that meteorological, climatic, and environmental factors in the troposphere may
 play a greater role in attenuating radiation than was previously thought. Ironically, ozone in the troposphere,
 the major component of smog and a significant threat to public health, may have a positive effect on UV-B
 levels.
     The differences between predicted and evidenced findings further complicate the issue. The lack of a
 clear understanding of the troposphere's role in UV-B absorption and long-range weather determination
 indicates no certain effects for life in the biosphere, yet scientists note that stratospheric ozone depletion, over
, the long run, will have general adverse effects.


                                D. Solutions to Ozone Depletion

     The range of solutions to stratospheric ozone depletions seems to be self-evident: scientifically alter the
 ozone content of the stratosphere, adapt to new atmospheric conditions, or reduce CFC emissions in order
 to limit ozone depletion. Altering the ozone content of the atmosphere is a far-fetched solution. Currently,
 scientists are still struggling to understand the problem of stratospheric ozone depletion. The very factors
 that limit human ability to model and measure ozone depletion limit the abili ty to rectify the problem through
 some scientific means. Tampering with the ozone balance may also necessitateother trade-offs. Certain gases
 such as carbon dioxide, nitrous oxide, and methane are known to increase stratosphere ozone, but also
 contribute significantly to the greenhouse effect.  And  while human alteration may become a technical
 solution in the future, scientists are decades away from such a solution.
     Although originally a somewhat whimsical suggestion, adaption may become a  necessary part of a
 comprehensive strategy to confront ozone depletion. In late May, 1987, then Secretary of the Interior Donald
 Hodel suggested 'personal protection,' such as sunscreen, hats and sunglasses, as a method of confronting
 increased UV-B.  Although Hodel's  suggestion was lampooned throughout the country and in Congress,
 increased UV-B, regardless of alternative actions  to confront the problem, will necessitate adaptation for
 personal protection. Considering the scope and scale of the above potential effects, however, it is clear that
 adaptation will not suffice as a total solution.             ,
                                                                       SUPPORTING PAPERS  a  143

-------
     In light of scientific evidence regarding stratospheric ozone depletion, reducing CFCs emerged as the
only practical solution to the problem.  Furthermore, the problem warranted action on a global scale;
unilateral action on the part of one country would accomplish little (i.e., the US ban on CFCs for non-essential
aerosol uses). The United States among others pushed for an international agreement to fill the need for global
action.


                                      E. Sound Science?

     Although emerging scientific evidence made a compelling argument for action at the time of the
Montreal Protocol, sound, rational science was not the basis for the ultimate agreement.  Analysis of the
protocol's scientific history provides a confusing set of conclusions:
     •  Inconclusive Scientific Basis and Arbitrary Goals: Scientists were unable to establish direct causation
       between CFCs, stratospheric chlorine levels, and ozone depletion until 1988, after the protocol had
       been negotiated and signed. Moreover, the protocol's explicit goal, to cut chlorine levels to 2 ppb,
       was more or less an estimate - a "best guess" - of benevolent chlorine concentration. 2 ppb is the
       estimated value that caused the springtime ozone drop over Antarctica and became the value against
       which any models or proposed schedule of CFC reductions were measured. Science provided no
       clear guide for action or ultimate goal, yet countries acted anyway.
     •  The Montreal Precedent: In this case, science caught up with international action.  Although CFC
       science was inconclusive in 1987, by 1988 it identified causation and specified a proper course of
       action. With the international machinery already in place, further reductions were created and
       undertaken quickly. Although this CFC scenario cannot be taken as the norm, it does provide a
       confusing precedent and implications for other environmental areas. Can scientific theories with
       limited evidence be ruled out quickly?  If not, what potential time lapse provides an adequate basis
       for 'early' action, and conversely what time lapse does not? Should action be based purely on sound
       science?
     •  Sound Science as a Requirement for Action: One possible criterion for environmental exceptions to
       international agreements, specifically GATT, that has been advanced is that environmental actions
       be based on sound science. If such a criterion were in effect, action in the CFC arena would have been
       delayed for a number of years. Would such a requirement be beneficial to countries concerned about
       environmental  degradation?  The  answer appears to depend upon one's stance on the issue.
       Although many did not support an agreement due to the lack of strict causal evidence and potential
       disruptions to the CFC market, others viewed an early effort as an indication of foresight.  For
       example, the representative from  the Federal Republic of Germany during a working group session
       stated that because of the complexity of the problem, establishing "a causal link would in all
       probability only be proven when it was too  late to take efficient counter-measures." Although
       analysis is largely a value judgement, a new sound science requirement, although well-intentioned,
       could be problematic. Not only might such a requirement be excessive, it could provide a convenient
       excuse for countries to avoid environmental issues altogether.
144  a THE GREENING OF WORLD TRADE

-------
       A Return to Benefit-Cost Analysis: New environmental problems will have to be evaluated on a case-
       by-case basis. Despite its controversial history, benefit-cost analysis will likely serve as a basis for
       future action. A requirement for all federal projects under the Reagan Administration, benefit-cost
       analysis has usually resulted in judgements for development or industrial concerns over environ-
       mental ones.  However, when economists and scientists have included risk assessment in the
       analysis, environmental concerns have been favored.  For example, the US's final decision to
       vigorously pursue an international agreement to reduce CFCs was based on an EPA benefit-cost
       analysis (see exhibit 4).3  The result was a very uneven judgement in favor of reducing CFC use.
       Benefit-cost analysis will continue to be an important element of such decisions for individual
       governments, and could take a central component of future environmental agreements.
                      IV.  INTERNATIONAL TRADE AND GATT
                               A. Trade Restriction Measures

    Trade restrictions were incorporated into the agreement not merely to reduce CFC use, but to encourage
participation and adherence to the measures of the protocol, a far more encompassing set of obligations.
Overall CFC use was to be reduced by consistently reducing  a formula over time.  The formula was
production plus imports less exports. Trade between parties to the agreement was untouched, although trade
levels would inevitably fall  as the parties proceeded through the scheduled reductions. Formal trade
restrictions, in the form of quantitative  import and export restrictions (bans), only enter into effect with
nonparties. Trade restrictions are thought to accomplish this objective by two important means: first, by
disallowing non-signatories ('free-riders') trade and competitiveness advantages; and second, by curtailing
movement of CFC production facilities to these nonparties (disallowing 'pollution havens'). The relevant
trade provisions are summarized below:
    «  Ban Enacted January 1,1990 - Bulk Substance (Bulk CFC) Imports
    •  Ban Enacted January 1,1993 - Product and Technology  Exports; Imports of Products Containing
       CFCs
    •  By January 1,1995 - Determine Feasibility of Ban on Products Produced with CFCs
    The  difference in trade status accorded parties versus  nonparties has important implications, as
quantitative restrictions on imports and exports, which conflict with the goals of free trade, are not allowed
under GATT.


            B.  Context for Establishment of Trade Restrictions: The CFC Market

    Industry market share determined industry positions regarding international action on CFCs and had
                                                                     SUPPORTING PAPERS a  145

-------
a subsequent effect on the negotiating positions of various governments. Hence, falling US market share led
the US chemical industry to push the US government for an international accord, while market gains for the
EC chemical industry translated into inertia in the international arena by the EC.
     As industrial uses for CFCs grew throughout the 1950s and 1960s, CFC production grew by nearly 13%
annually. Figures documenting production from 1970 to 1987 indicate that the rate of growth had slowed to
4.5%, due primarily to US regulations. The market for CFCs was expected to experience continuous growth
in both industrialized and industrializing countries: industrialized countries were finding new uses for CFCs
constantly, while developing countries, the Pacific Rim countries in particular, were developing products
dependent on CFCs, especially in the electronics industry. For many industrializing countries, growth in CFC
consumption rates was far greater than GNP growth rates.
     The CFC market is comprised of a handful of producers and a large and steadily increasing number of
consumers. By the mid-1970s, the US and EC countries produced over 85% of world production, and were
also major consumers.  Responding to public concern, the US EPA, under the authority of the Clean Air Act
of 1977, banned CFCsas propellants for non-essential aerosols in early 1978. Thisban affected nearly $3 billion
in sales in a wide range of products,  both domestically and internationally.  Canada and a number of
Scandinavian countries followed shortly thereafter.
     The EC, under pressure from the European chemical industry, waited until 1980 before following suit;
it enacted only a 30% aerosol cutback, together with a cap on production capacity. However, prior to 1980,
consumption of CFCs for aerosols had dropped by 28%, and the capacity constraints, complete with
intentional loopholes, actually allowed for an increase in production of CFCs by 60%. Hence, the EC action
had a negligible effect on CFC production or use.
     This episode is emblematic of the differences between the US and EC position, the two dominant CFC
producers and consumers. Although US industry initially opposed the non-essential aerosol ban in 1978, the
EPA took regulatory action regardless of industry  objections. The US chemical industry, Du Pont in
particular, responded by substituting cheap and effective propellants. However, US market share dropped
significantly. Figures from 1974 and 1986 indicate a net loss of nearly 20% on the world CFC market (see exhibit
5). These losses translated into gains for smaller producers like Japan and the Soviet Union, but primarily for
EC.  New profits at  the expense of US firms led the EC chemical industry to use its influence with EC
representatives to forestall any negotiations on CFC production limitations or reductions, and it proved
successful.  Growth in industrializing countries was dependent on access to CFCs, and EC producers were
eager to cater to this market.
     Initially, the US ban marginally slowed world growth rates for affected CFCs (CFC-11 and CFC-12) but
CFC use continued to expand throughout the 1980's (see exhibit 2). The US ban merely translated into trade
losses, not environmental protection. As the ill-effects of CFC use became more evident and various countries
began to  push for CFC production and consumption limits, the US experience with unilateral action was
present in the minds of the representatives at the Montreal negotiations.
146 a  THE GREENING OF WORLD TRADE

-------
                                  C. Regulatory Alternatives

     Countries had a number of avenues open that simultaneously could have provided aneffective solution
to the problem and been more consistent with international trade objectives and GATT. The scope of the
measures (i.e., product versus process, technology considerations,etc.) will be discussed in ttveGATT Conflicts
section (below). The options are numerous, and are divided between unilateral and multilateral areas:

    UNILATERAL (DOMESTIC) ACTION:
     •  Quantitative Restrictions - consistent with GAIT, quantitative restrictions, such as quotas or bans,
       could be employed as long as they are applied to domestic as well as imported products, have
       proportional benefits to the costs imposed on producers, and are not disguised measures to disrupt
       trade. Such action could dramatically effect the domestic market and could start an international
       trend, thereby having  a positive effect. In terms of influence on international behavior, the lack of
       results from the ban employed by the US in 1978 proved to be substantial evidence to dismiss this
       option altogether.
     •  Standards - consistent with GATT, countries are allowed to implement standards or effect taxes so
       long as the  actions do not discriminate against imported products or unduly protect domestic
       producers and are proportional to the benefits achieved. This is the category under which the case
       of the Commission of the European Communities v. Kingdom of Denmark (see MEB Danish Bottles
       Case) falls. If the measures arefound to be the "least restrictive" and the trade effects are proportional
       to the environmental benefits, they will be allowed.
     •  Tariffs - consistent with GATT, domestic tariffs could be placed on CFC products. The tariff rate
       could be established based upon potential chlorine concentration in order to provide continuous
       economic incentives to encourage a total elimination of ozone depleting substances.  Moreover,
       tariffs directly affect the exporters of products (since they incur the expenses),  forcing them to
       internalize the externalities, in this case negative environmental effects, of their products.
     Unilateral actions could have provided only a marginally effective solution to stratospheric ozone
depletion. The global magnitude of the problem and the damaging effects on domestic industry suggested
a need for multilateral action.

    MULTILATERAL AND INTERNATIONAL ACTION:
     •  Labeling - consistent with GATT, labels on products would directly affect the producers of CFCs and
       CFC-using products. Labels, if used effectively, could accurately reflect the environmental impact
       of the product, thereby informing the consumer. Labels^were briefly examined as.a vehicle to reduce
       CFC production and consumption, but were dismissed as being too lenient and potentially ineffec-
       tive.
     •  Multilateral Harmonization of Standards or Tariffs - consistent with GATT, any country could seek
       international cooperative arrangements to effect similar standards or tariffs (i.e., the EC, which is
       formally a Regional Economic Integration Organization). In the CFC sphere, for instance, the US and
       the EC, if similarly convinced of an environmental problem, could agree to maintain similar
                                                                      SUPPORTING PAPERS  a 147

-------
       standards or tariffs as long as they adhere to the "golden rule," which states that countries may not
       regulate behavior outside their borders through the use of restrictions on imports to  ensure
       compliance. Hence, the golden rule would eliminate process standards. Problem areas include
       potential difficulty in enforcement and in attracting large numbers to the arrangements, due to
       perceived inequity of these arrangements for the industrializing world.  Note that the Montreal
       Protocol does not fall under this alternative, as the protocol's provisions do not merely set standards
       for parties, but entail a larger set of obligations.
    •  International Agreement without Quantitative Restrictions - consistent with GATT, countries can
       create multilateral international agreements that do not use quantitative restrictions or bans as their
       means of assuring compliance. In the CFCs case, an international agreement could limit production,
       consumption, or use in party countries, but without ever entering into the trade arena. This option
       seems to be the precedent in international agreements. A US International Trade Commission study
       revealed that of 170 agreements designed to protect cultural or historical property, natural resources,
       and  wildlife, over 150  specified various alternatives to quantitative restrictions, such as moral
       suasion, negotiation, international assistance, and compensation, to encourage participation and
       ensure compliance. Potential benefits for parties encourage participation, yet enforcement provi-
       sions are wanting.
    •  International Agreement with Quantitative Restrictions - inconsistent with GATT in a  number of
       areas, countries can create multilateral agreements that use quantitative restrictions or bans as their
       means of ensuring participation and compliance. International agreements of this nature have been
       allowed under GATT Article XX (General Exceptions), subpoints (b) and (g). However, this may not
       be the most efficacious vehicle for reducing CFC use, as the agreement targets trade as the problem
       rather than producer and consumer behavior, which is at the root of the problem.
    These appear to be the options open on the domestic and international fronts to reduce CFC production,
consumption, and use. Each alternative has merits and deficiencies that must be calculated and examined
on a case by case basis.


             D. Choice: International Agreement With Quantitative Restrictions

    Both the current state of the market and the US ban on non-essential aerosol use of CFCs all but
eliminated any form of unilateral action from the choice of alternatives, moving the issue into the interna-
tional arena. Unilateral  action  reduced domestic competitiveness, dramatically lowered profits (tempo-
rarily), and cut the US's CFC market share for no positive environmental benefits. The US, with the strong
support of the US chemical industry, was determined to effect an inter national agreement to, among other
considerations, reassert American competitiveness. What resulted was an international agreement employ-
ing quantitative restrictions with nonparties.
    Despite an anti-regulatory executive administration, the US negotiating team ended debate in the mid-
1980s and vowed for an international agreement. Both scientific evidence and the Alliance for Responsible
148  a THE GREENING OF WORLD TRADE

-------
CFC Policy, an industry group of CFC dependent firms, pushed the US team to pursue a cap and reduction
regime on CFC consumption levels in order to curtail CFC use.
    The EC was less than enthusiastic about such a plan, European negotiators argued that production
restrictions would be administratively simpler to measure and therefore regulate. They pointed out that there
were only a handful of CFC - and halon - producing countries as opposed to a great number of consuming
countries and thousands of consuming industries. Although their points had great merit, the EC's underlying
position was driven in large part by trade considerations. The EC feared that if consumption cutbacks were
established, US producers, which were operating at or near total capacity, might sell their excess supplies to
outside countries and thereby threaten EC exports.  Also, as in the EC unilateral action of 1980, the EC
chemical industry, operating below capacity, might have sought to lock in excess capacity.
    Outside of the US-EC dispute, many countries objected to the production cap method, citing that it
preserved inequitable power for producing countries and would not accommodate industrializing country
concerns regarding restricted access to CFCs.
    The negotiating positions merged in a final compromise, in which both production and consumption
were limited. The formula for measurement became production plus imports less exports, a surrogate for
consumption.  Based on 1986 production and consumption figures, emissions rates were determined,
weighted (multiplied by the ODPs), and  capped  on a country by country basis.  The formula allowed
countries to meet CFC demand through increased production and/or importation.
    Consequently, the negotiating provisions and the final compromise were driven by and based upon
international trade considerations. International trade provided  production figures and import/export
information that facilitated monitoring of the CFC market. Although figures alone did not assure compliance,
the formula was simple. More importantly, quantitative restrictions were instituted not only to encourage
participation, their more overt rationale, but to maintain market share and trade balance as well. Although
only a ban on bulk CFCs has entered into effect, the permissibility of these restrictions under GATT has
already come into question. To date, no formal challenges have been made against the trade restriction
measures, but no one believes that these restrictions will go unchallenged.


                                     E. GATT Conflicts

    Concerns surrounding the compatibility of the protocol with GATT surfaced from the initiation of the
Ad Hoc Working Group. Ultimately, at the April  1986 Geneva Session, the EC Commission blocked any
further discussion of trade restrictions, citing the need to determine the permissibility of such actions.  A
European legal expjert sjudiedjhei possibility of permissibility under Article XX (General Exceptions). The
headnote to Article XX states that "measures are not (to be) applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail."
Environmental protection exceptions have been construed to be measures (b) "necessary to protect human,
animal, or plant life or health," and (g) "relating to the conservation of exhaustible natural resources if such
measures are made effective in conjunction with restrictions on domestic production or consumption."
    He concluded that the language of the trade restrictions measure (Article 4) met the requirements,
                                                                     SUPPORTING PAPERS  a  149

-------
explaining that certain countries are party to the protocol yielding one set of conditions (treaty obligations),
while nonparties have another set of conditions (no obligations). However, exemption is based upon a loose
interpretation of G ATT measures, whereas a strict interpretation could nullify the agreement. Such actions
are reviewed on a case-by-case basis. Recent cases, the Danish Bottles case (see accompanying Danish Bottles
Case) and the GATT/Tuna Dispute in particular, indicate that differences in interpretation have an effect on
dispute outcomes.
     However, specific language within Article 4 strengthens the case for loose interpretation, as non-parties
are treated as parties as long as they adhere to the provisions of the protocol. Taiwan is a prime example:
although it will not become party to the agreement for political reasons, it has formally announced its
adherence to the protocol's provisions. As a result, the protocol is not considered 'purely restrictive,' which
improves the chances of its permissibility.
     Aside from the general trade  and environment problems, there are a number of areas in which the
protocol conflicts with GATT measures:
     •  Jurisdiction—Through the  protocol, countries essentially are seeking to regulate the environment
       both inside and outside of their territorial jurisdiction. In 1947, the creators of GATT simply did not
       foresee the need for exemptions, as environmental problems the magnitude of ozone depletion quite
       simply did not exist. Although domestic or international action to protect the environment in one's
       own country may be permissible (while regulating another country's environmental conditions is
       merely a spillover), significant clarification of GATT measures is necessary if any ruling is to be made.
     •  Extraterritoriality—The problem of product versus process comes into play here. By 1995, the Working
       Groups are to determine the feasibility of instituting a ban on imports of products using CFCs in their
       production processes. This  provision may lead to significant discrimination against products made
       with CFCs, eliciting equity and efficiency considerations. From an equity standpoint, parties should
       not be allowed to assert influence over processes outside their jurisdiction.
     Under GATT, countries, unilaterally or multilaterally, are not allowed to regulate production materials
or methods as long as the end product does not cause significant environmental damage upon importation
(i.e., electronics equipment which use CFCs as solvents). By contrast, GATT may need to be updated in order
to catch up to new product business standards for 'environmentability,' specifically Life Cycle Analysis and
Cradle-to-Grave ideals. The ruling in the recent Mexican Tuna case  suggests that processes in exporting
countries are beyond the control of the importing countries, and that attempts to do so may be challenged.
     •  Consistency With Like Products—Differentiation between CFCs and alternatives may prove another
       problem area. The protocol bans a certain set of CFCs, but specifically allows use of HCFCs, which
       on average have a lower OOP than common CFCs. HCFCs bring up two issues. First, use of these
       alternatives may undermine the effectiveness of the protocol. However, the negotiators were willing
       to compromise on HCFCs given the stringency of the provisions on CFCs. Second, discrimination
       between products using CFCs and those using HCFCs may be inconsistent with GATT.  Scientists
       have found that CFC use has a greater impact on stratospheric ozone than HCFC use, but the
       principle of consistency with like products has been breached.
150  a  THE GREENING OF WORLD TRADE

-------
     These areas of conflict highlight the areas where the protocol is inconsistent with the free trade objectives
ofGATT.
                                    F. Potential Solutions

     Four general solutions are available to reconcile international environmental agreements using trade
restrictions with free trade. First, many suggest that agreements should merely override GATT. However,
given the enormous benefits that GATT and free trade provide for its parties, granting untouchable status to
international environmental agreements could cause more harm than good.
     Second, many suggest that the waiver provisions (Article XXV) already contained in GATT could be
expanded to specifically include environmental protection. To date, this mechanism is used infrequently,
requiring a two-thirds vote by over half of all GATT members (i.e., if an agreement assembles over half of all
GATT members, a two-thirds vote allows an override of GATT measures for the agreement). Although use
of the waiver would help eliminate GATT inconsistencies, it may have the effect of increasing the use of trade
measures not merely as sanctions but as instruments within international treaties. However, this may not be
an efficient result, as trade, rather than CFC use, is targeted as the problem.
     The third option, negotiating an environmental amendment to GATT, may hold promise. Creating
precise language to incorporate environmental concerns into GATT would  eliminate the inconsistencies,
arising from problems of terminology.  Recently, the Mexican Tuna case panel implicitly sanctioned this"
suggestion. An environmental amendment would substantially reduce the number of trade and environ-
ment disputes, and appears to be a good alternative to overriding GATT or excepting its provisions. World
Wildlife Fund, among others, has researched this possibility in detail.4
     Last, and certainly the most politically feasible, clarifying specific rules and waiver requirements already
contained in GATT could solve most present problems. A number of questions must be addressed:
     •  Scope of General Exceptions Measure — What exceptions are  allowable and what criteria are
       necessary to meet the general exceptions requirements (i.e., sound science, environmental impact
       analyses)?  Should the General Exceptions measure be expanded to specifically include  "the
       environment"?
     •  Scope of the Standards Code — Should standards be limited to only product standards or process
       standardsas well? Trade-offs will have to be made between equity and efficiency considerations. To
       what lengths are countries and business willing to go to promote environmental goals?
     •  Applicability of Waivers—Should the waivers code be expanded to allow international agreements
                :.•  -, ,-,,„„„.•-..—..»— — -,^- .s^ ,..., fiv^iiiiujjlliVij MUL/TOWX BSVSfl W&Wre .f?0
       to circumvent GATT?
     Each of these areas in GATT must be examined as environmental concerns, actions, and international
agreements continue to emerge in the 1990s.
                                                                      SUPPORTING PAPERS  a  151

-------
                              V. NORTH / SOUTH ISSUES
         A.  Background on Industrializing Countries Participation and Perspectives

     Industrializing countries were members of the protocol process and offered a different perspective on
the problem of stratospheric ozone depletion. Prior to its inception, industrialized countries, with less than
25% of the world's population, were consuming approximately 88% of CFCs.  On average, their per capita
average consumption was over 20 times that of industrializing nations. Technology that had been available
to the industrialized world for decades was now to be restricted or even excluded from use. Industrializing
countries argued that the stratospheric ozone problem was not of their making, that any agreement should
not deprive them of CFC use, and that incremental costs from CFC reductions should be borne by
industrialized countries. Although industrializing countries could not dispute the effect of stratospheric
ozone depletion, they did rephrase the cause—not general CFC use but CFC use by industrialized countries.
     Scientific inquiry into production and consumption patterns demonstrated the necessity of including
industrializing countries in any CFC plan. Reports in 1987 indicated that if 20% of 1986 CFC use (the long-
term industrializing country projected level) were to continue unchecked, the scientific goal to reduce
chlorine loading to 2 ppb would never be obtained.  Moreover, industrializing countries were growing in
terms of population and GNP, which would increase the use of CFCs. Thus, industrializing countries were
not secondary components to an 'industrialized country' agreement, but were central to confronting the
problem.
     Despite this recognition, the protocol negotiations failed to attract more than a handful of industrializing
countries to the bargaining table and created only token provisions to encourage their participation.
Although industrializing countries were primarily concerned with proposed obligations and future financial
and technical assistance, industrialized countries accomplished little to facilitate legitimate concerns. The
provisions allowed for expansion of CFC consumption to 0.3 kg per capita until the year 2000, after which
developing countries must reduce CFC use. Industrialized countries also pledged to facilitate bilateral and
multilateral aid, to facilitate access to technology, and promote exchange of information and technical
assistance. Consequently, industrialized countries believed they had catered to the needs of the developing
world.
     Conversely, a majority of industrializing countries disagreed with this presumption.  First, allowances
for expanded use were not the same as actual expanded use. Near-term upward pressure on CFC prices
would limit importation and restrict use by developing countries, and replacement technologies, still under
development in industrialized countries, were predicted to be 2 to 4 times as expensive as CFCs. Although
the economic assessment panel believed that consumption reductions in industrialized countries would
ensure reasonable prices for exports, many questioned this assumption. In effect, the protocol mandated
reduced CFC use for industrializing countries and encouraged investment in  alternative  technologies.
However, the capital equipment costs, royalty fees for use, and operating costs for alternative technologies
all but precluded investment for industrializing countries. Although financial and technical assistance could
152  a THE GREENING OF WORLD TRADE

-------
 aid developing countries, the wording within the protocol did not require developed countries to assist in any
 capacity, be that financial or technical.  Accordingly, industrializing countries were largely displeased with
 the provisions.
     By August 1989, only 14 developing countries had formally ratified the protocol. By contrast/virtually
 every industrialized nation had  ratified the protocol.  A  1987 Rand study  predicted that, based on
 technological trends, population rates, and GNP growth, 13 countries would account for nearly 100% of the
 CFC demand of all industrializing countries, including China, India and Brazil (see exhibit 6).s At this time,
 only 3 of these, Nigeria, Mexico, and Venezuela, had become parties to the protocol. It became evident from
 the relatively small number of signatories and the objections to the provisions that revisions would have to
 be created to attract industrializing countries.
     Industrializing countries were primarily concerned with the cost aspects of CFC control rather than with
. CFCs themselves. These countries were well aware of the potential threat to life in the biosphere, but in order
 to give up CFC technologies and use, they needed assurance that they would not incur incremental costs. The
 London Revisions were aimed at mandating such assurance and quantifying financial and technical
 commitment on the part of industrialized countries. Mexico and Venezuela (parties) and China and India
 (then nonparties) headed the Ad Hoc Working Group on the needs of industrializing countries, which
 yielded new and strengthened provisions.
     The (London) revisions  established a multilateral fund, administered through the World Bank, to
 finance incremental costs, technology feasibility studies, and provide technical assistance. The initial 3-year
 budget of $160-240 million was the responsibility of industrialized countries.  Language surrounding
 technology transfer was strengthened, yet the obligations to industry were unclear. Despite the remaining
 problems, 5 more countries from the list of 13 have adopted the protocol, including China and Brazil, bringing
 the total to 8. Others, such as Saudi Arabia and South Korea, may become signatories in the next meeting in
 October, 1992.


                 B. Precedents and Implications for Industrializing Countries

     Actions toward protecting the 'global commons' are expected to increase significantly in the near future,
 primarily in the form of international agreements. The Montreal Protocol sets a precedent for the evaluation
 of industrializing country concerns and their treatment with respect to the provisions. It also prescribes some
 conclusions regarding their involvement in the process.
     •  Third World as 'Third Parties': It is clear that the negotiations regarding the Montreal Protocol were
        dominated by industrialized  countries, the US and EC, in particular. The provisions therein
        accommodate industrializing country concerns primarily as a means of encouraging entrance into
        the protocol, and thereby regulate their environmental practices, rather than to afford them use of
        CFCs. The result was a concerted lack of interest on the part of developing countries. The process
        was later rectified, specifically by allowing industrializing countries to draft the Article 5 revisions
        and to organize and  facilitate the meetings on financial and  technical assistance.  The  London
        Revisions were a successful draw to industrializing countries that had previously been uninterested,
                                                                       SUPPORTING PAPERS  a  153

-------
        most importantly including China. Hence, inclusion of industrializing countries in the process from
        the beginning is of extreme import.  Moreover, involving or catering to specific countries whose
        practices and potential effects are particularly disturbing (i.e., the group of 13) may yield direct
        benefits to participation rates and expedient implementation.
     •   Efficiency of Quantitative Restrictions on Small or Self-Contained Markets: The use of trade restrictions
        within the protocol to promote improved environmental behavior in industrializing countries is
        questionable. First, many times it is an effort to further impose the values of one country upon
        another, with economic might as justification. Second, often times it is ineffective, due to size of the
        market within the developing country. India provides a good example. Although an influential
        member of the protocol's working groups, India is not a party to the protocol. With the exception of
        imports, however, India's market for bulk CFCs and CFC-using products is fairly self-contained.
        India claims that it needs CFCs as a way of upgrading its quality of life. Already in possession of
        cheap and simple CFC technology, trade restrictions will have a negligible effect on the Indian
        economy, as industry will merely expand production. Hence, market characteristics determine the
        efficacy of trade restrictions.
     •   Fairness Considerations: Trade restrictions certainly have their place in the range of options for
        affecting environmental protection, but many observers argue that negotiation, moral suasion, and
        compensation are more equitable and effective methods to influence environmental practices and
        sustainable development and attract industrializing countries to environmental agreements. The
        financial funding and technical assistance provisions included in the London Revisions are  an
        important step in this direction, but have not proved to be sufficient to attract notable industrializing
        countries such as India, Indonesia, and Algeria. Hence, expanded financial and technical assistance
        are necessary,  and indeed equitable, if industrializing  countries are to be included in future
        international agreements. Incremental  and technology transfer costs must both be covered if
        industrializing countries are to switch to alternative environmental technologies.
     •    Changes in Intellectual Property and Patents:  Technical assistance is an important element of
        international agreements seeking to alter behavior in industrializing countries.  However, while
        governments may promise technical assistance and transfer of alternative technologies to industri-
        alizing countries, there is no established obligation for private industry to adhere to  such promises.
        During the recent Uruguay Rounds, industrialized countries sought to improve patent protection
        and limit loss  of ideas and technologies to industrializing countries.  Clarification is needed
        surrounding intellectual property rights and patents if technical assistance and technology transfer,
        which help balance the protocol and could be effectively used in future agreements, are needed to
        assist the industrializing world. Both individual governments and multilateral aid organizations
        will have to negotiate with private industry to rectify the situation.
     Global problems necessitate global  solutions, and  industrializing countries are central to future
environmental agreements. The success or failure is largely dependent on the incorporation of their concerns,
assurance of their participation, and, accordingly, the resolution of these important North/South issues.
154  a THE GREENING OF WORLD TRADE

-------
             ,                   VI. RECOMMENDATIONS                 ,

                                A.  Environmental Agreements

     •   Use of benefit-cost analysis is advisable in determining environmental improvement targets. Sound
        science requirements may prove to be too restrictive for environmentally-minded governments.
        Benefit-cost analysis, while not a perfect alternative, may provide a better indication of when
        environmental action should be taken.  ......       .                ,
     •   Inclusion of industrializing country parties and trade representatives at early stagemay generate less
        stringent targets, but better results from increased participation, acceptance by trade community,
        and reduced compliance problems. The Ad Hoc Working Group sessions just prior to the London
        Revisions serve as a good example: they included industrializing countries not merely as partici-
        pants/but project leaders. The result was a dramatic increase in participation by industrializing
        countries. The trade community remains an external element of the agreement.
     •   Use of an international agreement without quantitative restrictions, in combination with strong
        financial and technical assistance package, seems preferable to a trade approach. Not only are these
        arrangements more equitable for industrializing parties, theyare more efficient. Provisions could be
        made that regulate production and consumption without entering into the trade arena, limiting
        potential conflicts with free trade objectives.  Specifically, these international  agreements could
        regulate processes within countries without entering into direct conflict with GATT measures.
     •   Product standards and harmonized taxes are recommended over process standards, due to enforce-
        ment difficulties and political infeasibility of the latter. In the case where quantitative restrictions are
        implemented, process standards should be avoided. Not only do they conflict with GATT, process
       'standards would create enforcement difficulties  (i.e., CFCs used as solvents leave no trace) and
        political problems. Although an argument can be made to allow process standards under GATT, the
        prospects of such an allowance remain-distant and uncertain.


                           B. Trade Agreements and GATT Changes
    v
     •   Implement an 'exceptions standard' for environmental, problems based on risk assessment and
        potential damages. Exceptions under GATT could be allowed for environmental causes if a stated
        benefit-cost ratio is exceeded. This would facilitate, environmental action within the trade sphere
        when potential environrnental irnpact is great, yet the scientific basis is. inconclusive or unsupported.
                                           NOTES

1 The bulk of this information is drawn from Richard E. Benedick's account of the history and negotiations process of the
Montreal Protocol, as described in his book, Ozone Diplomacy: New Directions in Safeguarding the Planet (Cambridge, MA:
                                                                       SUPPORTING PAPERS  a  155

-------
Harvard University Press, 1991). His work represents a critical and comprehensive addition to the growing library of
information on the subject, to which the authors are greatly indebted.
2 The provisions included are from the Montreal Protocol on Substances that Deplete the Ozone Layer, Final Act (Nairobi,:
UNEP, 1987).
3 Richard A. Kerr, "Stratospheric Ozone is Decreasing," Research News, March 25,1988, pp. 1489-1491.
4 Information from Gilbert M. Masters, Introduction to Environmental Engineering and Science., New Jersey: Prentice Hall,
1991.
5 Scotto et. al., "Biologically Effective Ultraviolet Radiation: Surface Measurements in the United States, 1974 to 1985,"
Science, vol 239., pp. 762-763.
6 Forest Reinhardt, DuPont Freon Products Division (A), (B), Washington, DC: National Wildlife Federation, 1989.
7 See Charnowitz, Exploring the Environmental Exceptions in GATT Article XX, prepared for the Steering and Policy
Committee, US House of Representatives, Journal of World Trade, vol. 25, no. 5,1991.
8 Bendick,l99l.
9 See Charles Arden-Clarke, The General Agreement on Tariffs and Trade, Environmental Protection and Sustainable
Development: A WWF International Discussion Paper 1991., World Conservation Centre, Switzerland.
10 Daniel F.Kohler, John Haaga,and Frank A. Camm, Projections of Consumption of Products using Chlorofluorocarbons
in Developing Countries, (Santa Monica, CA: RAND, 1987), pp. 2,20.


                                       About the Authors

    Christopher A. Cummings conducts field research focusing on the interplay of industrial competitive-
ness and environmental management at the Management Institute for Environment and Business. He has
recently completed work on two studies of the automobile industry: one exploring BMW's program to recycle
spent vehicles, and the other investigating GM's electric vehicles program.  In addition  to serving as
regulatory guidance for foundation and EPA sponsors, his work has been distributed to  the academic
community as course material. Mr. Cummings holds an AB degree from Stanford University in Economics
and Political Science with an emphasis on environmental policy and implementation. He studied European
environmental policy and political economy at Oxford  University. Research while attending Stanford
included an investigation of the role of accounting rules and financial principles in Debt-for-Nature Swaps
and the role of tort law in victim compensation in hazardous waste cases.

    MatthewB. Arnold has led the development of the Management Institute for Environment and Business
from its inception. He has written papers, case studies and industry analyses describing a shift in corporate
behavior toward voluntary stewardship of the environment, and is currently authoring a chapter on Trade
and the Environment for a McGraw Hill book to be published in 1993. Mr. Arnold was previously with the
U.S. EPA in the Office of the Administrator. While with EPA he was a contributor to the Education and
Training Committee of the National Advisory Council on Environmental Policy and Technology (NACEPT).
Mr. Arnold also managed EPA's participation on an inter-agency working group which reviewed the U.S.
government's approach to industrial environmental statistics and re-designed the Bureau of the Census
survey on industrial expenditures for pollution abatement and control. He has held positions with Merrill
Lynch Capital Markets and IBM.  Mr. Arnold holds AB and MBA degrees from Harvard University, and an
MA degree from the Johns Hopkins School of Advanced International Studies.
156  a THE GREENING OF WORLD TRADE

-------
                                                  Exhibit 1
                                 Signatories of the Montreal Protocol
                                  (Updated  as of December 31, 1991)
Participant
Argentina
Austria
Australia
Bahrain
Bangladesh
Belgium
Botswana
Brazil
Bulgara
Burkina Faso
Byelorussian
  SSR
Cameroon
Canada
Chile
China
Congo
Costa Rica
Czechoslovakia
Denmark
Ecuador
Egypt
EEC
Fiji
Finland
France
Gambia
Germany
Ghana
Greece
Guatemala  •
Hungary
Iceland
Indonesia
Iran
Ireland
Israel
Italy
Japan
Jordan
Kenya
Liechtenstein
Luxembourg
Libyan Arab
  Jamahiriya
Action*
1990
1989
1989
1990
1990
1988
1991
1990
1990
1989

1988
1989
1988
1990
1991
**
1991
1990
1988
1990
1988
1988
1989
1998
1988
1990
1988
1989
1988
1989
1989
1989
**
1990
1988
**
1988
1988
1989
1988
1989
1988

1990
Participant                 Action*
Malaysia                   1989
Malawi                    1991
Maldives                   1989
Malta                     1988
Mexico                    1988
Morocco                   **
Netherlands                1988
New Zealand               1988 '
Nigeria                    1988
Norway                    1988
Panama                    1989
Philippines                 1991
Poland                    1990
Portugal                   1988
Senegal                    •*
Singapore                  1989
South Africa               1990
Spain                     1988
Sri Lanka                  1989
Sweden                    1988
Switzerland                 1988
Syrian Arab Republic        1989
Thailand                   1989
Togo                     **
Trinidad and Tobago        1989
Tunisia                    1989
Turkey                    1991
Uganda                    1988
Ukranian SSR              1988
USSR                     1988***
United Arab Emirates        1989
UK                       1988
United States               1988
Uruguay   ,                1991
Venezuela                  1989
Yugoslavia                 1991
Zambia      ,        ,     1990
 * action means ratification, accession, acceptance, or
   approval
 '* signed protocol with intent to ratify only
*** now defunct, status uncertain, but presumed to join as
   Commonwealth of Independent States
                                                                                  SUPPORTING PAPERS  a  157

-------
                                                   Exhibit 2
                                    Total World Production of CFC«, 1970-1987
Year
1970
1975
1980
1985
1987
CFC 11
(in tons)
537
654
642
688
745
CFC 12
(in tons)
660
821
819
809
898
CFC 113
(in tons)
102
150
272
545
650
Total
(in tons)
1299
1625
1733
2042
2293
                      Source: DuPont estimates and Reinhardt, Forest, "Du Pont Freon Division
                      Products (Ay-Case Study.   (Washington, DC: NWF, 1989)
                                                  Exhibits
                                            The Montreal Protocol
                                          Ozone-Depleting Substances
                                 Substance
Ozone Depletion Potential
(OOP)
                                 Original Controlled Substances
                                 CFC 11                 1.0
                                 CFC 12                 1.0
                                 CFC 113                 0.8
                                 CFC 114                 1.0
                                 CFC 115                 0.6
                                 Halon 1211              3.0
                                 Halon 1301              10.0
                                 Halon 2402              6.0

                                 Additional Controlled Substances
                                 Carbon Tetrachloride      1.1
                                 Methyl Chloroform        0.15

                                 Potential Substitutes
                                 HCFC 22                0.05
                                 HCFC123               0.02
                                 HCFC 124               0.02
                                 HCFC 141b              0.1
                                 HCFC 142b              O.06
                     Source: UNEP, The Montreal Protocol and London Revisions
158  a  THE GREENING OF WORLD TRADE

-------
                                   Exhibit 4


        Summary of US EPA's Benefit-Cost Analysis of the Montreal Protocol


BENEFITS:

      • Health Benefits

            -Value of avoided premature deaths from skin cancer = $6,349 billion
             (EPA used a value of $ 3 million per life saved)

            -Value of avoided cases of skin cancer and cataracts = $65 billion
             (includes avoided medical and social costs)

            -Avoided damage from increased tropospheric ozone = $12.4 billion
             (increase tropospheric ozone predicted to increase deleterious effects.)

      • Other Benefits

            -Avoided damage to crops from UV-B = $23.4 billion

            -Avoided damage to fish from UV-B = $5.5 billion

            -Avoided damage from sea level rise from global warming = $3.1 billion

            -Avoided damage to polymers from UV-B = $3.1 billion


  TOTAL BENEFITS: $ 6.462.7 billion
                   (98%  = Avoiding premature skin cancer deaths)


  TOTAL COSTS OF REGULATION:  $27 billion
      Sources: US EPA. Regulatory Impact Analysis: Protection of Stratospheric Ozone
      (Washington, DC: December, 1987); Reinhardt, Forest, "Du Pont Freon
      Products Division (A)"~Owe Study. (Washington, DC: NWF, 1989)
                                                          SUPPORTING PAPERS  o  159

-------
                                                     Exhibits
                                              World CFC Production
                                          (Percentages by Producing Country)
                                    Country
                                   EC
                                   US
                                   Japan
                                   Soviet Union
Market Share (%)
1974

40
50
1986

43-45
30
11-12
9-10
                       Note: small producers (Canada, China, Australia, Brazil
                       Mexico, Argentina, Venezuela, and India) round out totals

                       (Source: Benedick, Richard E., "Protecting the Ozone Layer,"
                       Preserving the Global Environment, ed. by Jessica Tuchman Mathews.
                       (New York: W.W. Norton, 1991).
                                                    Exhibit 6
                                       Industrializing Country CFC Demand
                                                (Top 13 Countries)
                                                    TIER I:
                                                (larger consumers)

                                  China*, India, Brazil*, Saudi Arabia, South Korea,
                                   Indonesia, Nigeria*, South Africa*, and Mexico*
                                                    TIER II:
                                               (smaller consumers)

                                 Turkey*, Argentina*, Venezuela*, Algeria, and Iran
                      Note: * Denotes party to protocol
                      Source: Kohler, Daniel F., John Haaga, and Frank A. Camm.
                      Projections of Consumption of Products using Chlorofluorocarbons
                      in Developing Countries.  (Santa Monica, CA: RAND, 1987)
160  a  THE GREENING OF WORLD TRADE

-------
                   The Danish Bottles  Case:
              Commission of the European Communities
                                          v.
                            Kingdom of Denmark

                      John Clark and Matthew B. Arnold
    In September 1988 the Court of the European Communities had to decide whether, by declaring that all
containers of beer and soft drinks must be returnable, Denmark had failed to fulfill its free trade duties under
the Single European Act (SEA), or whether Denmark's decision was justified on the grounds of environmental
protection.
                                  I. BACKGROUND

    It had long been the practice in Denmark to charge a deposit on the sale of beer and soft drink bottles.
This stimulated many consumers to return their bottles voluntarily, helping to keep the environment free of
discarded bottles. This system worked well when there were a few different bottle types, and when foreign
imports were often made under license or at least bottled in Denmark. However, in the mid 1970s, Danish
beer manufacturers began to use cans and different shaped bottles.  To ensure that the deposit system
continued to be effective legislation was introduced "limiting or prohibiting the use of certain materials and types
of container...  or requiring the use of certain materials and types of container" (Law No 297,8th June 1978).
    In 1981, as part of the Danish legislation on the reutilization of paper and beverage containers, the Danish
Government set new orders for containers of beer and soft drinks (Order 397,2nd July 1981). The Order said
that beers and soft drinks couldbe marketed only in "returnable containers." According to the definition given
in the Order, this meant that there had to be a system of collec tion and refilling under which a large proportion
of used containers were subsequently refilled. With existing technology, this effectively banned plastic and
metal containers. Also, the Order required formal approval for returned containers by the Danish National
Agency for the Protection of the Environment (MiljOstrelsen). The Agency could refuse approval if the
                                                                 SUPPORTING PAPERS a  161

-------
planned collection system did not ensure that enough containers were reused, or if a container of equal
capacity, already approved and suitable for the same use, was available.
     Danish brewers had initially been against the recycling regulations introduced in the 1970s. However,
they were forced to make significant investments in recycling processes and infrastructure. By the mid 1980s,
the Danish industry was in a good position to cope with the strict recycling standards imposed by
government.  These moves were supported by the Danish firm United Breweries.  A significant exporter,
United Breweries also dominated the Danish beer market with its leading brands Carlsberg and Tuborg
(together accounting for 70% of the Danish market). It was also a major player in the Danish soft drinks
market. In both markets it held minority share holdings in most of its local competitors. Finally, United
Breweries also owned the only glass bottling facility in Denmark. Exhibit 1 contains extracts from a relevant
United Breweries annual report.
     Outside Denmark the regulations were viewed less kindly. Producers of drinks and containers, and
European associations representing the retail trade from other EC Member States, would have been more
concerned, but for the small size of the Danish market.  However, some  industries did complain to the
European Commission about the Danish regulations.   The metal packaging industry was especially
vociferous. Its concern had less to do with the tiny Danish market per se, than with a precedent being set for
Germany's much larger market.  They argued that the legislation had the  effect of preventing imports of
foreign beer and soft drinks into Denmark, both because of administrative difficulties and the costs involved
for importers in establishing the required collection system.
     The Commission supported this claim and objected to the Danish Order. The Order was amended by
the Danes in 1984 (Order 95) to allow the use of non-approved containers (except metal) if volume was less
than 300,000 liters per producer per annum, or if the market was being tested, provided that a deposit and
return system was established.
     Despite this amendment the Commission considered the measures to be equivalent to a quantitative
restriction contrary to Article 30 of the EEC Treaty. The Commission tried to persuade the Danish authorities
to modify their position. However, negotiations failed and in December 1986 the Commission brought an
action against Denmark before the European Court of Justice.
               II.  ENVIRONMENT AND THE SINGLE EUROPEAN ACT

    A central issue of the case was whether an EC Member State should be allowed to erect potential barriers
to trade, on the grounds of environmental protection. The opening of the Single European Market in 1992 and
the promised benefits of free trade were a large part of the European business psyche during the 1980s. It was
only towards the end of this period that the environment and its implications impinged on the thinking of
voters, politicians and industry.  In 1992, the completion of the internal market would mean further
coordination of environmental policies at an EC level.
    EC environment policies are based on the principle of "subsidiarity." Subsidiarity means that environ-
mental policy decisions should be taken at the lowest possible level. The SEA explicitly recognizes the
162 a  THE GREENING OF WORLD TRADE

-------
importance of the environment in Article 130r (see Exhibit 2), which states that the EC will take action on the
environment only if EC environmental objectives can be better attained at the EC level than at the individual
state level.
     If each country is allowed to decide its own environmental standards and strategies, significant
differences in environmental quality will result. Some countries might set very low standards which would
be counter to the SEA (Article 3c). This provides for the free movement of EC citizens, with the implication
of minimum environmental standards, irrespective of location. On the other hand, countries setting high
environmental standards might come against Article lOOa of the SEA, which provides for the free movement
of goods. Thus "subsidiarity" might result in conflict between environmental and market integration
objectives. European legislation left it to the European Court to decide how this conflict should be balanced,
and the Danish bottles case provided the Court with the opportunity to do just that.
                               III. THE GATT DIMENSION

     Another complication for the Commission and the Danes to consider was the possible intervention of
GATT (General Agreement on Tariffs and Trade). G ATT was created in 1944, along with the World Bank and
the International Monetary Fund at the Brettpn Woods Conference. As an institution, GATT monitors the
trade policies of its members, serves the various committees that they set up, and helps to settle trade disputes.
     There are 3 guiding principles that govern GATT's existence and are embodied in its articles:
     •   Reciprocity: If one country lowers its tariffs against another's exports, it can expect the other country
        to lower its tariffs in return. The principle is based on downward tariffs and does not allow
        governments to threaten to raise their tariffs.
     •   Non discrimination: Countries should not grant one member or group of members preferential trade
        treatment over the others. It is known as the most favored nation rule, which despite the name means
        that every country is treated as favorably as the most favored.
     •   Transparency: The GATT urges countries to replace non-tariff barriers (e.g. import quotas) with
        tariffs, and then "bind" (i.e., fix) those tariffs. The logic here is that non-tariff barriers do more
        economic harm than tariffs.  Bound tariffs create greater certainty and are more amenable to
        negotiated reduction.
     The European Court could only judge on the basis of European law. However, the case could also be
taken to the GATT, where the applicability of Article XX (see Exhibit 3) would have to be judged.
                             IV. THE COMMISSION'S CASE

     To understand the context of the European Commission's case, the role and structure of the Commission
 need to be understood.  The Commission of the European Communities (CEC) fulfils a role broadly
                                                                       SUPPORTING PAPERS  a  163

-------
equivalent to that of the Civil Service in Britain.  But, it has considerably greater independence and is
responsible for the initiation of all EC legislation. It is headed by 17 commissioners each of whom run one
of 17 divisions called Directorate Generals (DCs). For the Danish bottles case the relevant DCs were: DGIII,
the guardian of the internal market; DGIV, the competition Directorate; and DGXI, covering the environment.
It was DGIII who led the case against Denmark. DGXI, on the other hand, seems to have been generally in
favor of the Danish stance.
     Along with the CEC, the three other relevant EC institutions are:
     • The EC Council, which consists of representatives from the governments of each member state, and
       is the principal law maker and focus of political control within the Community.
     • The EC Parliament, which consists of 518 elected members (MEPs) from each member state, and has
       the authority to  reject "common positions" proposed by the Council, as well as to propose
       amendments.
     • The Europeans Court of Justice, which consists of 13 judges assisted by 6 Advocates-General, and hears
       cases, such as the Danish case, brought against member states.  It also assists national courts in
       interpreting EC law.
     The CEC was represented by its legal adviser, Mr. Wainwright.  His main argument was that by
effectively creating a quantitative restriction, Denmark was acting contrary to Article 30 of the EEC Treaty.
Article 30 says that  "Quantitative restrictions on imports and all measures having equivalent effect shall. . . be
prohibited between Member States." These measures of equivalent effect include "all trading rules enacted by
Member States, which are capable of hindering directly or indirectly, actually or potentially, intra-Community trade."
     The CEC said that Article 30 was contravened  in 5 ways:
     • Only certain types of drink were affected, to be sold in returnable containers
     • Sale of these drinks in metal cans was prohibited
     • Systems for collecting and refilling containers had to be established
     • Prior authorization was required to market certain drinks, with the associated administrative burden
     •  Parallel imports into Denmark of these drinks was forbidden
     Hence, it was argued, Denmark was restricting imports and protecting its own producers.
     The CEC contended that the restrictive effect of the Danish rules was proved by the statistics shown in
Exhibits 4 and 5. These show that imports of foreign beer into Denmark were very low and had fallen since
therelevantlegislation was introduced. Furthermore, Wainwright argued that this was due to the restrictions
and not lack of demand for foreign beers by the Danish consumer. When the rules were suspended during
a strike by the Danish brewers in 1985, the quantity of imported beer soared to a level that the CEC said could
not be explained solely by the need to replace the national product.
     The European producers who had initiated the case  with the EC were particularly upset about the
effective ban on drink sales in metal cans in Denmark. There were no restrictions on exports of Danish beers
in metal cans.
164  a THE GREENING OF WORLD TRADE

-------
    The CEC argued that the Danish measures could only be justified "if any restrictive effects on trade are
not disproportionate to the intended objective of protecting the environment," and that it was possible to
encourage recycling by less restrictive means. A key concept here is that of proportionality. For example, in
Denmark there is no statutory collection system for containers of milk, wine, spirits, table oil or vinegar: all
are voluntarily returned and collected for re-use or for recycling, and the system seems to work satisfactorily,
suggesting that any stronger measures would be unnecessary and therefore "disproportionate." The CEG
doubted "the sincerity of the Kingdom of Denmark's ecological concerns," given that the milk and wine
markets were not subject to competition between domestic and foreign producers for different reasons, and
did not fall under the recycling restrictions. Mr. Wainwright pointed out that Denmark was one of Europe's
largest exporters of beer (see Exhibits 6 to 8).
    It was then the turn of Mr. Molde of the Danish Ministry of Foreign Affairs to present the case for
Denmark.
                                   V.  DENMARK'S CASE

     The Danish Government's main argument was that the contested legislation was justified by a legitimate
concern to protect the environment, by conserving resources and reducing the volume of waste. The Danish
legislation had been very effective: 99% of approved bottles were returned and reused up to 30 times.
     The Danes argued that the exclusion of milk and wine bottles was justified because:
     •   Milk containers were different in that they were usually paper cartons and could be burnt with the
        household waste.
     •   Wine containers are not much of a danger to the environment because of the very limited consump-
        tion of wine in Denmark.
     •   In any case milk and wine container recycling was now under investigation by the relevant authority.
     The Danes also argued that even if the rules might have adverse effects on trade, these effects were small
given the size of the market. In 1984 only 0.01 % of total Danish beer consumption was accounted for by foreign
beers.
     There are admissible exceptions to Article 30 that come under Article 36. These allow restrictions or even
bans on imports, provided they do not constitute a means of arbitrary discrimination, or disguised restriction
on trade between Member States. The measures must be "justified on the grounds of public morality, public policy.
or public security; the protection of health and life of humans, animals or plants; the protection of national treasures
possessing artistic, historic or archaeological value or the protection of industrial or commercial property" (note the
similarity in wording to the GATT's Article XX).
     Returning to the  environment, Mr. Molde said ". . .  it seems the Commission has not followed the
increasing ecological awareness which has arisen in recent years throughout Europe and which has led to the
giving of priority to the protection of the environment over the  free movement of goods, which, whilst
remaining a fundamental objective, is no longer seen as an aim which must be achieved at any price." Then,
                                                                       SUPPORTING' PAPERS  a-  165

-------
 he categorically rejected the CEC's suggestion that the environment could be "sufficient!/' protected by a less
 effective system than the Danish system, given that the voluntary systems did not give satisfactory results.
 Non-approved containers cannot be returned to any retailer, but only to retailers who stock that brand. As
 a result fewer bottles were returned.
     Finally, he said that the Danish Government was ready to accept alternative solutions which were
 equally effective, but that until such systems were found, the Danes could not accept abandoning of legitimate
 and effective rules for protecting the environment.
                       VI.  THE ADVOCATE GENERAL'S OPINION

     The European Court is assisted in each case by an Advocate General. They summarize the arguments
of the parties and make their own submissions to the court as an impartial spokesperson. Their opinions are
authoritative, and they rank equally in precedence with the judges of the court. The Advocate General for
the Danish bottle case was Sir Gordon Slynn.
     Having summarized the history of the case Sir Gordon's main point of reference was the "Cassis de Dijon
Principle." In the leading case of Cassis de Dijon (Case 120/78) German legislation prevented the sale in
Germany of alcoholic liquor below a specified minimum content. That legislation had the effect of preventing
the import into Germany of French Cassis which had a low alcohol content. The Court of Justice effectively
struck down the German legislation under Article 30 and established the important principle that Article 30
may apply to any national  measure that has the effect of preventing the sale in one Member State of any
product lawfully produced  and marketed in another Member State, though the measure applies to domestic
and imported goods alike.
     Exceptions are allowed to the Cassis de Dijon Principle.  Sir Gordon said the Danes' actions to protect
the environment was a justifiable exception.  Yet, he added that, "Cassis de Dijon does not give Member States
carte blanch — the level of protection required for one of the acceptable categories must not, as I see it, be excessive or
unreasonable and the  measures taken to achieve the requirement must be necessary and proportional."  The
Commission's case was that the measures go too far and, as Sir Gordon pointed out, "it is for the Danish
authorities to show that the measures are necessary and that they are not disproportionate."
     On the argument that the legislation imposed higher cost burdens on foreign than on domestic
producers, Sir Gordon's opinion was ".. . even though on the surface indiscriminately applicable to Danish and
non-Danish manufacturers, the rules bear in practice more heavily on the latter. On that basis Denmark cannot, as I
see it, rely on theprinciple stated in Cassis de Dijon, since theDanish provisions in practice if not inform are indis tinctly
applicable even if, as I accept, environmental protection is within the category of possible exceptions to the basic rules."
    In conclusion, Sir Gordon said: "Therehas tobea balancing of interests between the free movement of goods and
environmental protection, even if in achieving the balance the high standard of the protection sought has to be reduced.
The level of protection sought  must be a reasonable level: I am not satisfied that the various methods outlined in the
Council Directive and referred to at the hearing - selective collection by governmental authorities or private industry,
166  D THE GREENING OF WORLD TRADE

-------
a voluntary deposit system, penalties for litter, education of the public as to waste disposal - are incapable of achieving
a reasonable standard which impinges less;on the provisions of Article 30."
                                    VII.  THE DECISION

     With the evidence before them and Sir Gordon's opinion, the European Court of Justice considered its
judgement.                                  '
     On the 20th of September, 1988 The European Court of Justice delivered its verdict.
     The Court disagreed with much of Sir Gordon Slynn's opinion when it announced its verdict in
September 1988.  It argued that Denmark's case provided "good grounds for finding that protection of the
environment constitutes an imperative requirement which may limit the application of" the free trade rules.
     According to the Court, Denmark's bottle deposit and return arrangements were "an essential element of
a system which aims at ensuring the re-use of the package, and would therefore appear to be necessary for achieving the
aims pursued by the regulations." In this part of the action the Court concluded that the restraints which its law
imposes on the free movement of goods were not "disproportionate."
     The limits on the quantity of drinks sold in non-approved packages were held, however, to be illegal.
Since these bottles were returned, the Court ruled, they do not damage the environment, and the quantity
marketed is likely to remain small in view of the disincentives to importation imposed by the deposit return
system.
     The precedent set by the judgement is that it is the first to permit curbs on free trade on environmental
grounds.  In the UK, the drinks and container industry reacted strongly to  the Judgement. An official
representative for the Can Makers said, "We're very angry. We've had many assurances from the Commission that
there wouldn't be any discrimination between different types of packaging" (see Exhibit 7). The European Court
made no direct reference to Denmark's ban on cans, though the UK intervened in the action specifically to
make its opinion known on this issue. The UK Industry Committee on Packaging and the Environment
(INCPEN) said the Judgement had "absolutely enormous implications. If a can ban can be compatible with the Treaty
of Rome, then anything less far reaching, like a mandatory deposit system, is not going to be challenged."
     The Judgement cleared the way for German plans to introduce mandatory deposits on plastic bottles.
Paul Antonsen, Chairman of the Dansk Bryggeri Vorbund (Danish Brewer Society), said that Danish brewers,
major exporters to Germany, were "in a good position to cope with the strict German packaging laws," because of
the advanced nature of their own recycling systems.
     Similarly the Commission had to reconsider taking Italy to the European Court over a law restricting the
use of plastic packaging. Meanwhile the Irish authorities were encouraged to proceed with a ban on non-
refillable containers for beer and soft drinks. Finally the southern EC states were also encouraged to keep out
plastic bottles, in favor of indigenous glass producers. '
     The Judgement also had far reaching implications for other areas of environmental policy, including
                                                                        SUPPORTING PAPERS a  167

-------
Danish plans to impose stricter vehicle emission limits than those agreed at the EEC level. The attached article
(Exhibit 10) taken front The Economist shows the impact of the Judgement three years later.


                                     About the Authors

   John Clark is a freelance  environmental consultant who has advised industry/ governments and
international bodies on a variety of environmental policy issues. He is currently doing research at London
Business School into how firms can gain competitive advantage through environmental regulation. Prior to
his current position, Mr. Clark worked for Environmental Resources Limited, a large European environmen-
tal consultancy, and McKinsey & Co., international management consultants. He holds an MBA from
INSEAD and an MA in Engineering from Oxford University.

    Matthew B. Arnold (See biographical note following 'The Montreal Protocol Case.")
168 n  THE GREENING OF WORLD TRADE

-------
       Exhibit 1;  United Breweries: Sales and Activities
       United  Breweries  Group
       The Last Five Years
                             1981/82       1982/83       1983/84       1984/85      1985/86
                             DKK million   DKK million   DKK million   DKK.million   DKK million
       Receipts from sales
       and licences, net of
       Value Added Tax      8.619

       (Of which:
       Excise duties on beer
             10.324
                           11.324
                                         12.011
       UB's share of the profit
       for the financial year
       Investments in
       production plant, etc.
479
              573
                            626
                                          669
                                                       12.654
and soft drinks)
Net turnover ,
Profit (before tax)
Profit (after tax)
(2,622)
6,027
516
254
(3,147)
7,177'
618
299
(3,488)
7,836
660
321
(3,412)
8,599
673
325
(3,578)
9,076
748
375
(after tax)
Capital and reserves
273
1,943
303 .
2,178
369
2,482
348
3,028
415
3,267
                                                         458
       Number of Employees   12,373
             13,267
13,249
:  14,941
14,760
The Years Ahead
 It  is  intended  to  continue  the
expansion of brewery activities outside
Denmark with a view to consolidating
the favorable trend in sales of Group
brands in  recent years.  Substantial
investments are  to  be expected in
marketing, modernization and capacity
increases at a number of the Group's
foreign breweries. Similarly, it may be
necessary to strengthen the position of
the Group on a number of markets by
the acquisition of shareholdings in new
or  established  breweries  and  sales
companies.
 Growth in total beer consumption in
Denmark  is not  expected,  but the
Group has hopes of  regaining its
market share  before the prolonged
industrial disputes in 1985. The
modernization  of  the Copenhagen
breweries by investment in new
       technology continues.  At the same
       time measures  to  adjust sales  and
       distribution to structural changes at
       present   taking  place  among  our
       customers are under consideration.
        After  the  disposal of unprofitable
       'activities,  the  Cold  Stores  Group
       would be intensifying its activities 'in
       the other commercial areas and expects
       improved results.
        The Royal Copenhagen Group has
       initiated a series of reorganizational
       measures in the industrial art sector,
       and  an  integration  with  Bing  &
       Gr0ndahl  A/S  is  expected in  the
       slightly  longer  term  to lead   to  a
       substantial strengthening, particularly
       in export markets.
        The  Group's   research-based
       companies   which  market   new
       technology for application within the
                 brewing industry, the meat and fish-
                 processing  industries,  the  milling
                 industry  and  biotechnology expect
                 progress in sales,  but intend in the
                 immediate   future   to  utilize
                 considerable   resources   on
                 improvement of production maturity
                 and on the introduction of new high-
                 technology  products.
                  To summarize, the  Group  expects
                 over the next few years to stabilize its
                 earnings at about the present  level
                 with reasonable prospects for increased
                 profits in the slightly longer term.
                   SUPPORTING PAPERS  a 169

-------
  Sales  of  Beer and Soft  Drinks
  in  the  Domestic  Market	
 In  the  past  5 years aggregate beer sales in
 Denmark  have  levelled  off  and  per  capita
 consumption  has fallen.   Sales did  increase by
 almost 5 percent during the year under review, but
 this rise should be seen against the background of
 a  decline in  1985  as a  result  of prolonged
 industrial disputes.

 The breweries have not raised  their  prices since
 October  1984,  but  April  1, 1986  saw the
 government increase excise duty by DKK 0.1447
 per bottle.

 The import by private individuals of beer from
 Germany, where excise duty is only DKK 0.18 per
 bottle compared with DKK 1.59 in Denmark, has
 achieved, very considerable  proportions, which
 naturally has  a negative influence on  domestic
 sales.   In June  1986 the Danish  government
 introduced an import quota of 10 litres per adult,
 but the effect on aggregate private imports has so
 far only been very slight

 Carlsberg  and  Tuborg  domestic  beer  sales
 increased in 1985/86 by 459,000 hectolitres to 4.8
 million hectolitres, a rise of 10.6 per cent. This
 should also be viewed in the light of the dispute in
 early summer  1985; in 1984/85 Carlsberg and
 Tuborg beer sales fell by 641,000 hectolitres, and
 market shares forfeited due to  the dispute have
 thus not yet been fully recovered.

 After  several  years' decline, aggregate  domestic
 sales of soft drinks showed an increase of around
 6 per cent in  1985/86.  Carlsberg and Tuborg soft
 drinks recorded an increase of 46,000 hectolitres or
 9.1 per cent over the previous  year,  when sales
 dropped by 70,000 hectolitres due to the industrial
 dispute.  For soft drinks too the position held by
 our brands prior to the dispute has not fully been
 recaptured.
 (Source: UB Annual Report 1987)
170 n  THE GREENING OF WORLD TRADE
    .81/82    82/83    83/84    84/85    85/86


* Sold in Denmark      H Sold Outside Denmark
Sales of Carlsberg and Tuborg beer, including beer
brewed under licence, and beer brands brewed by
other breweries in the United Breweries Group.
Hectolitres(000)   81/82   82/83   83/84   84/85   85/86

Sold in Denmark  5.338   5.543   5.180   4.575   5.066

Sold outside of    8.346   8.453   8.403   9.686   10.639
Denmark
                                                   TOTAL
                                                                 13.684   13.996   13.583   14.261   15.705

-------
 International  Activities
 Carlsberg  and  Tuborg  brands
 strengthened their  international
 market position in the accounting
 year.   Exports  from Denmark,
 which  the year before showed a
 decline of just over 7 per cent
 due to  a  prolonged industrial
 dispute in Copenhagen, increased
 in 1985/1986 by  17.6 per cent or
 0.2 million hectolitres to 1.3
 million hectolitres.  At the same
 time   sales  of  Carlsberg  and
 Tuborg  beer,  including   beer
 brewed under license and brands
 produced  at foreign breweries
 within  the  United  Breweries
 Group, increased by 8.8 per cent
 or 0.8 million hectolitres to 9.3
 million hectolitres.
  As shown in the outline on page
  22 the  aggregate sales outside
  Denmark increased  by 9.8 per
  cent to 10.6 million hectolitres.

  In addition to exports to more
  than  130 markets, Carlsberg and
  Tuborg  beer  is brewed  at  44
  breweries in 2 countries...
Europe

Competition in  the  European
beer market has become more
fierce,  and  viewed against this
background it is gratifying to note
that the United Breweries Group
as a whole recorded progress and
a  consolidated  position  in  a
market which accounts for 80 per
cent of our international sales.

In  the  UK <-  still  the  most
important market - the positive
trend for the  Carlsberg brand
continued in close cooperation
with the Watney Mann Group.
Tuborg maintained its position in
the UK market

In  Eire, where  Carlsberg has
joined  forces with Beamish  &
Crawford, sales of Carlsberg again
progressed very favorably during
the past year, particularly in the
important Dublin area.

Hopes of increased Carlsberg and
Tuborg sales and a larger share of
the market  were realized  in a
Swedish  market now  showing
slight expansion.   In  Sweden,
Tuborg has an arrangement with
Pripps Breweries while Carlsberg
operates in conjunction with the
Falken Brewery.

Germany (F.R.)  continues to be
one of United  Breweries' most
important export  markets, and
satisfactory  advances   were
recorded  in   sales  of   both
Carlsberg and Tuborg.
Despite increased  competition,
Carlsberg  remains  the  leading
imported premium brand on the
Belgian  market, while  Tuborg
has not yet recovered from the
effects of the prolonged strike at
the  Danish breweries  in  the
summer of 1985.

Sales of Carlsberg and  Tuborg
beer in France continue to show
an upward  trend. , Cooperation
was begun with the Kronenbourg
brewery  for  distribution   of
Carlsberg  beer  outside  Paris.
Sales within  the  capital  are
managed by Carlsberg France.

In Italy, sales of Tuborg from the
Poretti breweries and of imported
Carlsberg continue to  advance.

In the Spanish market, sales of
Carlsberg  were  satisfactory,
particularly since June when local
brewing   began  at   Uni<5n
Cervecera.    Tuborg beer  is
imported,  but as yet  only  in
modest quantities.

Following Portugal's  entry into
the EEC, competition between
foreign beers intensified. In spite
of  this,  both   Carlsberg and
Tuborg maintained  a  prominent
position.

In  Switzerland,  Carlsberg and
Tuborg  have  figured  strongly
among imported  prestige brands
for a number of years.  Exports
 to this market  demonstrated  an
 upward trend.

 Sales of Carlsberg  beer brewed
 under  license  in  Greece  are
 improving,   but   the   market
 remains uncertain.

 In  Cyprus,  Carlsberg  beer  is
 brewed  by  Photos  Photiades
 Breweries  and  maintained  a
 leading position in this slightly
 improving  market    Tuborg is
 imported in small quantities from
 Copenhagen.

 Exports of both  our brands  to
 Eastern Europe are  increasing,
 and sales of Tuborg beer brewed
 in Hungary at KObanyai SOrgyar
 and   in  Yugoslavia   at   the
 Prodravka   brewery  remain
 satisfactory.

 As  a  result  of  government
 restrictions  on  beer  sales,
 performance  in Turkey, where
 Tuborg is produced at the Tflrk
 Tuborg   brewery   in  Izmir,
. improved   only     slightly.
 Substantial growth was  recorded
 in sales of soft drinks.
           SUPPORTING PAPERS a  171

-------
  United Breweries Ltd.
  Company capital DKK 813,621,700
  AFFILIATED COMPANIES:
  BREWERIES AND BREWERY COMPANIES
                                                                     UB's Interest
                                                                                               Company Capital
                                                                                               (000)
  Carlsberg Bier GmbH, Hamburg, Germany.	 100%            DEM    120
  Catisberg Brewery Hong Kong Limited, Hong Kong	 50%             HKD    100,000
  Carlsberg Brewery Limited, London, England	100%            GBP     20,000
          Carlsberg Distributors Limited, London England	 100%            GBP     7
          Carlsberg Sales Limited, Goole, England	100%            GBP     10
          Carlsberg Scottish Importer Limited, Edinburgh, Scotland	100%            GBP     4
          Carlsberg (Great Britain) Limited, Northhampton, England	100%            GBP     2,000
          Industrie Poretti S.pA., Varese, Italy.	50%             ITLm    8,400
                   1 affiliated company
  Carlsberg France S.A., Paris, France	 100%            FRF     4,000
  Carlsberg International A/S, Copenhagen	100%            DKK    1,000
  Carslberg Malawi Brewery Limited, Blantyre, Malawi	 49%             MWK    11,000
          Southern Bottlers Limited, Blantyre, Malawi	,	 50%             MWK    3,000
  Carlsberg Marketing (Singapore) Pte. Ltd.,  Singapore	50%             SOD     1,000
  A/S Dansk Coladrik, Copenhagen...	 62%             DKK    350
  Fredericia Bryggeri A/S, Fredericia, Denmark	100%            DKK    150,000
  Neptun Bryggeriet A/S Silkeborg, Denmark	100%            DKK    1,000
  Tuborg AB, Stockholm, Sweden	100%            SEK     50
  Tuborg International A/S Copenhagen	 100%            DKK    1,000
                   1 affiliated company
  Tuborg Lager Limited, Northampton, England	 100%            GBP     2
                   1 affiliated company
  UnhSn Cetvcrcera S.A. Madrid, Spain	 60%             ESPm    5,038
                   1 affiliated company
  United Breweries International Limited A/S, Copenhagen	 100%            DKK    300
  Wilbroes Bryggeri A/S, Elsinore, Denmark.	 100%            DKK    30,000


  OTHER AFFILIATED COMPANIES                            UB's Interest               Company Capital
                                                                                               ^jj^
  J.C. Bcntzcn Industri A/S Copenhagen	100%            DKK    38,150
  Carlsberg AB, Malmo, Sweden	100%            SEK     50
  Carlsberg Agency Inc., New York, USA.	 100%            USD     10
                   1 affiliated company
  Carlsberg Biotechnology Ltd.  A/S, Copenhagen	 70%             DKK    21,450
  Danbrew Consult Ltd.  A/S, Copenhagen	 100%            DKK    2,000
  A/S De Danske K01ehuse "Cold Stores", Kolding, Denmark	100%            DKK    58,627
                   8 affiliated companies
  Royal Copenhagen A/S, Copenhagen	76%             DKK     158,306
                   19 affiliated companies
  Invcsteringsselskabet af 29, oktober 1962 A/S, Copenhagen	'.,	100%            DKK     5,000
          Lumetech A/S Copenhagen	 100%            DKK     300
          Glent & Co. A/S, Copenhagen	 100%            DKK     7,000
                   2 affiliated companies
 A/S Rynkeby Mosteri, Rynkeby, Denmark,	75%             DKK     9,000
                   1 affiliated company
 United Milling Systems A/S, Copenhagen	100%            DKK     5,800


 ASSOCIATED  COMPANIES                            UB's Interest      Latest Capital              Lastest
                                                                             and Reserves               Profit
                                                                             (000)                     [TOD]
 Akticsclskabet Kj0bcnhavns Sommer-Tivoli, Copenhagen	44%     DKK    81,033    DKK             8,861
 Carlsbcrg Brewery Malaysia Berhad, Malaysia	22%     MYR   81,153    MYR            10,015
 Kasoda A/S, Nuuk, Greenland	24%
 Turk Tuborg Bira ve Malt Sanayii AS., Izmir, Turkey.	45%     TRLm   23,268    TRLm            -891
 Vingaarden A/S, Odense, Denmark.	25%     DKK    45,570    DKK             4,330
172  a   THE GREENING OF WORLD TRADE

-------
Exhibit 2:  The Single European Act; Title VII. Articles 130r. 130s. and 130t

                                       ARTICLE  130 R

1. Action by the Community relating to the environment,shall have the following objectives:

• to preserve, protect and improve the quality of the environment;

• to contribute towards protecting human health;

• to ensure a prudent and rational utilisation of natural  resources.

2. Action by the Community relating to the environment shall be based on the principle that preventive action
should be taken, that environmental damage should as a priority be rectified at source, and that the polluter
should pay.  Environmental protection requirements shall be a component of the Community's other policies.

3. In preparing its action relating to the environment, the Community shall take account of:

• available scientific and technical data;

• environmental conditions in the various regions of the Community;

• the potential benefits and costs of action or of lack of action;

• the economic and social development of the Community as a whole and the balanced development of its
regions.                                             '                               '

4. The Community shall take action relating to the environment to the extent to which the objectives referred
to in paragraph 1 can be attained better at Community level than at the level of the individual Member States.
Without prejudice to certain measures of a  Community nature, the Member States shall finance and
implement the other measures. •

5. Within their respective spheres of competence, the Community and the Member States shall cooperate with
third  countries and with  the  relevant  international organisations.  The arrangements for  Community
cooperation may be the subject of agreements between the Community and the third parties concerned, which
shall be negotiated and concluded in accordance with Article 228.

The previous paragraph shall be without prejudice to Member States' competence to negotiate in international
bodies and to conclude international agreements.


                                       ARTICLE  130 S

The Council, acting unanimously on a proposal from the Commission  and after consulting  the European
Parliament  and the Economic and Social Committee,  shall decide what action is to be taken by the
Community.

The Council shall, under the conditions  laid down in the preceding subparagraph, define those matters on
which decisions are taken by a qualified majority.

                                       ARTICLE 130 T
The protective measures adopted  in common pursuant to Article  130 S shall not prevent any member State
from maintaining or introducing more stringent protective measures compatible with  this Treaty.

                                                     .                   SUPPORTING PAPERS a 173

-------
Exhibit 3; GATT General Exceptions; Article XX
       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:

(a)    necessary to protect public morals;

(b)    necessary to protect human, animal or plant life or health;

(c)    relating to the importation or exportation of gold or silver;

(d)    necessary to secure compliance with laws or regulations which are not inconsistent
       with the provisions of this Agreement, including those relating to customs
       enforcement, the enforcement of monopolies operated under paragraph 4 of
       Article II and Article XVII, the protection of patents, trademarks and copyrights,
       and the prevention of deceptive practices;

(e)    relating to the products of prison labor;

(f)     imposed for the protection of national treasures  of artistic, historic or
       archaeological value;

(g)    relating to the conservation of exhaustible natural resources if such measures are
       made effective in conjunction with restrictions on domestic production or
       consumption;

(h)    undertaken in pursuance of obligations under any intergovernmental commodity
       agreement which conforms to criteria submitted to the CONTRACTING
       PARTIES and are not disapproved by them or which is itself so submitted and not
       so disapproved;

(i)     involving restrictions on exports of domestic materials necessary to ensure
       essential quantities of such materials to a domestic processing industry during
       periods when the domestic price of such materials is held below the world price as
       part of a governmental stabilization plan; PROVIDED that such restrictions shall
       not operate to increase the export of or the protection afforded to such domestic
       industry, and shall not depart  from the provisions of this Agreement relating to
       non-discrimination;

(j)     essential to the acquisition or  distribution of products in general or local short
       supply; PROVIDED that any  such measures shall be consistent with the principle
       that all contracting parties are entitled to an equitable share of the international
       supply of such products, and that any such measures, which are inconsistent with
       the other provisions of this Agreement shall be discontinued as soon as the
       conditions giving rise to them  have ceased to exist. The CONTRACTING
       PARTIES shall review the need for this sub-paragraph not later than 30 June
       1960.

-------
                        ci    •*  _   en
                           •
                        of
                                   a
                         5  <"  3 S  ..
                         «      •*     c»
                        ,OO

                                              <*>"
                                                                             V
                                                                                    p:
                                                                                    o
                                                               a.
o\ •*  «n  ^ ••••     ON
                         8
                         oT
                                                                             'M     i
                                                                              f-f
                                                                                     t~

                                                                                     oo"
           18
                                                                              g'     2
                                                         2S -  a
                                                         •*     s
•s

-------
         i
I
I     S
 a
                 t-oo  — o —
                 i^^S^SSSS
                 t~ddo\dt~c>5r!
oooooooosmn-
                                     -F5-
                                                              S  » 8 S  S  8
                                                              «s  to d o!  d  t^
                                                                          S  S  S

                                                                          o\  d  d
                                                              O  Tf      *rt  ^  Q\
                                                              --  VJ      00  O  O\

                                                              d  m      oo  d  MS
                                                              2  3  S  8  S
                                                              o  m  o  oo  o t-
                                                              S  S  S  S  2 IS
                                                              o  m  o  r~  o
                                                              o  •*  o  >o  o  •*
                                                              2  s;  8  P  s  is
                                                              o  m  o  \o  o  oi
                                                              a  «  s  s  s  s
                                                              o  **•  o  vo  o
\o  V)  «n  vs  en  i*»
en  \o  o  «-j  cs  -^

o  >n  o  \o  o  <-*
                                                              ^  c**  ^  op  in
                                                              en  ""4*  o  ^  oi

                                                              O  >X  o  
-------
Exhibit 6: Net Exports of Beer, Selected Countries
Exhibit 6
Net Exports of Beer ('000 hi)
1982
Belgium + Luxembourg 1,600
Denmark 1,625
Germany 323
France (26)
Italy ; 1,467
Netherlands 4,408
UK (20)


1984
1,988
1,650
374
(19)
1,636
4,929
(25)


1986
1,963
1,684
419
(18)
2,041
5,463
(28)
Source: Keynote
(Source: Keynote)
Exhibit 7: Comparative Retail Prices
Exhibit?
Comparative Retail Prices (1986
Beer
/I
Ireland
Denmark
UK
Netherlands
Belgium
Italy
Germany
Portugal
Greece
Spain
Luxembourg
France
2.35
1.75
1.70
1.20
1.10
1.00
0.97
0.95
0.90
0.90
0.87
0.60

ecus)

tax%
68
57
56
38
32
25
12
17
17
17
11
12


Wine
/I
4.75
3.15
2.90
1.60
1.70
1.15
1.20 ,
1.15
1.00
1.20
1.25
1.25



tax%
79
68
64
38
41
' 9
17
9'
0
16
20
"' 20


Spirits
/75CI
13.20
15.90
11.50
7.70
7.75
3.90
6.90
3.85
2.60
3.90
6.80
7.00



tax%
82
84
80
68
58
33
67
38
3
33
62
68












Source: EC • • .
                                                               SUPPORTING PAPERS a  vn
 (Source: EC, 1986)

-------
 Exhibit 8: Europe's Largest Brewers
               Exhibit 8
               Europe's Largest Brewers (1986)
               Company
Country   Sales (bn I)
Heineken
BSN
United Breweries
Bass
Allied-Lyons
Holland
France
Denmark
UK
UK
4.2
2.0
1.6
1.3
0.9
               Source: Drinks International
(Source: Drinks International, 1986)
178  a THE GREENING OF WORLD TRADE

-------
Exhibit 9; The Can Manufacturers' View of Denmark
 The decision, has given a "green light" to other national governments to go ahead with legislation restricting
 packaging, provided that such legislation is passed on environmental grounds rather than overtly protectionist
 ones.

 The net result in Denmark is that an effective can ban (under all circumstances) and a deposit system for other
 one-way packs stays in force.
 CANS

 As an effective can ban remains in existence there is no call to recycle cans at all.  The situation contrasts
 sharply with that of neighboring Sweden where can deposits have been in force for some years and very high
       +) recycling rates are achieved.                  •  •'                        -
 GLASS                                        	',       	

 Tonnage recycled goes up, but % recovery rate down.

 In 1988 the total tonnage of glass containers recycled (including cullet from all sources) in Denmark reached
 a new high of 46000 tonnes, but the % recycling rate dropped back to 27 per cent.

 Glass Recycling in Denmark - 1983 to 1988

1983
1984
1985
1986
1987
1988
Tonnage Collected
(tonnes)
23000
25000
25500
33000
35000
46000
% Share of
National Consumption
10%
20%
24%
32%
32%
27%
 The volume of glass recycled is all the more remarkable when one recalls that NRB's are virtually ruled out
 for beer and carbonated soft drinks and glass RB's account for 100% or thereabouts of the packaging of beer,
 bottled water and carbonates. One can only conclude that the 46000 tonnes represents wine bottles, spirits
 bottles and glass containers for food, toiletries, Pharmaceuticals etc.
 PET
 There is as yet no need for a PET recycling scheme.
 (Source: FEVE)
                                                                         SUPPORTING PAPERS o  179

-------
             Exhibit 10: The Economist. Free Trade's Green Hurdle.  June 15. 1991
    Free  trade's  green  hurdle
   Countries with (ough green standards often want to foist them on their
   trading partners. Usually, that is wrong
  HP HE packaging industry is irate, nccom-
   JL missioners  are unnerved. Both are
  alarmed by Germany's new law on packag-
  ing which crosses, in industry's eyes, the in-
  distinct linebctween national environmen-
  tal protection and protection of a  more
  reprehensible sort. The European Commis-
  sion's response—a packaging directive of its
  own-is causing so much uproar that, even
  though the first draft has just gone out for
  consultation, commissioners will take the
  ra re step of discussing the issue next week.
     The EC draft directive calls for 60% of
  Europe's packaging to be recycled within
  fiveycars.and fora freezeon packaging out-
  put. The commission  has been bounced
  into this nonsense by Germany, which took
  advantage of a ruling by the European
  Court in 1988 that Denmark could insist
  that drinks were sold in refillable bottles.
  Since then, European countries have been
  busily drawing up their own rules on recy-
 cling and on eco-labelling, while the Echas
 struggled to resolve the clash between the in-
 terests of trade.and the environment.
   The tension is greatest in the EC, because
 the building of the internal market requires
 that if a product meets standards set in its
 home  market,  it  should generally  be
 deemed to meetstandardsinothermember
 states. But the General Agreement on Tariffs
 and Trade (GATT), which insists only that a
 country apply the same standards to im-
 ports and to domestic products, also wor-
 ries that environmental goals  will conflict
 with those of free trade.
   GATT'S northern European  members
 have been pushing for the re-  -
 vival of a special committee
 which was set up in 1971 to dis-
 cuss  environmental-trade  is-
 sues  but has never  met. They
 are opposed by some third-
 world countries, which rightly
 fear  the  industrial  counsries
 will sometimes use the envi-
 ronment as one more excuse to
 exclude  their products. The
 OECD is also concerned:  in
 Maya mectingofofficials from
environmspt and trade minis-
THt CCOKOMlfT JUNE ISTH 1991
 tries agreed to set up a research programme
 on the issue.
    Increasingly, countries  specify green
 characteristics for products: cars must have
 catalytic converters, say, or a kind of plastic
 must not be used. As long as such standards,
 whethersetbylaworbyeco-labe!ling,apply
 to all producers equally, they do not in-
 fringe GATTrules. Indeed, two years ago a
 GATT panel ruled that an American tax on
 certain chemicals, imposed to pay for clean-
 ing up toxic-waste dumps, was legitimate
 because it was levied at thesame rateon do-
 mestic and foreign producers. A second
 American tax, on petroleum products, was
 imposed at a higher rate on foreign produc-
 ers: thepanel ruled against it.

 Playing dirty
Arguably,  environmental product  stan-
dards are no different from others designed
to codify local-market requirements. But
sometimes their effect is discriminatory. A
           Canadian deposit scheme on
           beer bottles has been attacked
           by the United States as protec-
           tionist: the dispute (part of a
           larger row about  Canada's
           state liquor boards) is now be-
           fore a GATT panel. With Ger-
           many's packaging law.import-
           ers complain to the EC that it
           includes a provision, inserted
           at the last minute, to insist that
          only 28% of all beer and soft-
          drinks containers can be "one-
          trip" (ie, disposable). Packag-
  ers suspect that this clause was inserted for
  the benefit of small brewers in politically
  sensitive Bavaria, who will find it easier to
  collect and refill the empties. Packagers also
  dislike the new law's insistence that compa-
  nies collect their used packaging for recy-
  cling. The fact that this will be easier for lo-
  cal manufacturers may prejudice retailers
  in tavourofdomestically produced goods.
    Germany, with its large market and bel-
  jigerent  environmentalists, may increas-
  ingly use standards of this sort to support its
 own manufacturers. For example, the main
 German car  makers  are  now installing
 plants to recycle cars; Ron McLean, of Ar-
 thur D. Little.a firm of management consul-
 tants, expects that Germany wil! soon make
 recycling of car parts compulsory. If so, car
 manufacturers in other countries may find
 themselves having to  build disassembly
 plants of their own in Germany.
    More blatant trade problems arise when
 countries try to ensure that their trading
 partners meet the same environmental con-
 straints as their own producers. If compa-
 nies in one country have to tighten pollu-
 tion standards, they areapt to demand that
 imports should not be allowed to compete
 unless they meet the same rules.Just such an
 issue  is currently  before a  GATT panel.
American legislation bans imports of tuna
 from countries that kill 25% more dolphins
than American fishermen do. Protection of
American tuna fishermen, says Mexico. A
necessary measure of environmental pro-
tection, says America,  cheered on by the
campaigners of Greenpeace, who recently
             (C)  1991, Tlte Economist Newspaper Limited. Reprinted With Permission

-------
 anchored a balloon over Lake Geneva  in-
 scribed "G ATT sJvc the dolphins".
    CATT lias icndcd to oppose attempts by
 any one country 10 impose iis production
 standards on  its trading partners. If one
 country's lows  ban  the employment  of
 women at night, it cannot under CATT rules
 ban the import of foods  produced  by
 women working at night  in other countries.
 That principle is sensible, though it may be
 dismal for dolphins.
    American  environmentalists  fret  that
 the frcc-iradc agreement under negotiation
 between Mexico and the  United Stales will
 encourage dirty American companies  to
 flee south 10  escape American pollution
 controls. In mid-May several large environ-
 mental organisations met President Bush.
They wanted assurances that the free-trade
 agreement  would  not  force  individual
states lo repeal environmental standards
(on, for instance, which pesticides could be
used on fruit) that mich: oihcrwiscconlinuc
to keep put Mexican goods.. They  also
wanted the cr.vi.'onrr.er.bl impacts of the
agreement, especially along the border, to
be closely watched. Mr'Bush said the ad-v
Garbage sara frontieres
ministration would accept both points.
   In fact, as Jeffrey Leonard, an expert on
the effect of pollution controls on invest-
ment decisions, argues, the free-trade area
may  reduce pollution along  the Mexican
 bordcr.Oncc tariffs come down,companies
 will have less reason lo move south for non-
 environmental reasons. And as free trade
 enriches Mexico, so domestic pressure will
 drive up environmental standards.
    Cicarly, governments should choose the
 level of pollution their voters want, but not
 try to inflic! their choice on others. But what
 ifthepollution is inflictcdon others? In that
 case, standards arc not just a matter of na-
 tional interest. The United States (inspired
 by the Mutant Ninja Heroes  of that ilk)
 threatened to restrict imports of other ani-
 mal products from japan, including pearls,
 unless it stopped trade in goods made from
 the shells of the rare Hawksbill turtle, in
 May Japan caved in lo American pressure.
    The most difficult issues will be raised
 by international agreements like the Mon-
 treal Protocol  to phase out ozone-holing
 chlorofluorocarbons (CFCS). The protocol
 allows countries to ban not just imports of
 CFCS, but  products containing them—and
 products  whose   manufacturing  process
 uses them. The justification is that a holed
 ozone layer threatens all countries, whether
 or  not they are phasing out  CFCS: con-
 versely, polluters cannot be  excluded from
 the gains earned by the virtuous.
    But if  trade sanctions can  be  used to
 punish defaulters from such global environ-
 mental agreements, that has alarming im-
 plications for  the  current talks on globol
warminc. As with CFCS, the damage done if
some countries do nothing to curb their out-
 put of greenhouse  gases may affect t'ic cli-
 mate in r/cry country in the world, '.ndccd,
 if the sea  level rises, some countries may
vanish. Even in such cases, coaxing and
"•naming a polluter into action .ire usually
 more likely to  be effective than trade sanc-
tions. Only in the last resort, with careful in-
ternational policing,should countries think ,
of penalising  their  trading partners for
harm ma the world's environment.

-------
      Trade and  the  Environment: Press  Clips
                                   J. Michael McCloskey
      [The following is a collection of quotations taken from a variety of journals and books dealing with trade
 and the environment]
                            1. GATT AND THE ENVIRONMENT:
                  WHAT WAS INTENDED AND WHAT IS HAPPENING

 Regardless of intentions, GAIT leaves environmental programs at its mercy.

 A review of the history of Article XX demonstrates that it was designed to encompass environmental measures. There may
 bo a few issues that do not fit the Article XX framework-the preservation of scenic vistas perhaps. But just about everything
 elserel ates 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 visa 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. (13)

 By applying a mode of analysis so inherently subjective, however, the Panel  leaves environmental regulations vulnerable to
 a broad array of challenges.  (13)                                                          ,

 More to the point, however, is the fact that this provision has never been invoked to justify environmental protection measures,
 nor was it intended for that purpose. Rather the legislative history of this provision makes it clear that it was intended to protect
 "quarantine and other sanitary regulations." Further, it is a fundamental tenet of legal interpretation that the meaning of
 application of an agreement be determined by the intent of parties at the time that it was concluded or amended. Environmental
 protection was simply not a public issue in 1947, when Article XX(b) was drafted, and no effort has been made since then to
 amend the agreement to reflect contemporary priorities. It is simply not plausible to suggest that environmental protection be
 left to a forty-year-old GATT provision that was never intended, or used, for that purpose. (9)
 Insofar as the GATT has stimulated increased production by increasing international trade, it is therefore responsible for the
 concomitant environmental impacts and resources consumption. (20)
182  D  THE GREENING OF WORLD TRADE

-------
Broad environmental effects of the GATT ... A study should be undertaken to check if the provisions of the GATT have
contributed to the progressive decline of commodity prices relative to processed and manufactured goods. The ultimate
objective would be to determine whether these macroeconomic trends have in turn accelerated environmental degradation, or
contributed to unsustainable use of natural .resources.  The study should identify those particular GATT principles and
regulations implicated, and indicate appropriate solutions. (20)
                2.  TRADE PANELS RULE AGAINST THE ENVIRONMENT


In recent years a number of trade panels have ruled against the environment in various ways, and more issues
are arising.

Notwithstanding these findings, the Court went on to find that Denmark had failed to satisfy the onus of having to prove that
its measures were "not disproportionate to achieve a legitimate aim." Acknowledging the fact that no actual restraint of trade
has actually arisen, the Court reasoned that reuse regulations, which required that all marketers of containers establish return
systems, could be more expensive for importers than for domestic producers. (9)

In the GATT arena, environmental and health interests have been defeated in a number of trade disputes, and Ritchie argued
that GATT is assuming a very powerful role in setting policies in these areas. For example, the United States sued Canada and
won over a Canadian requirement of counting salmon harvested in order to keep track of stocks. Also, a recent GATT ruling
disallowed a cigarette import ban in Thailand. In a pending case involving U.S. asbestos import restrictions, Canada is arguing
that there are less trade-inhibiting ways than a ban to achieve protection. (14)
Geneva, August 1991...A panel of three foreign bureaucrats meeting behind closed doors rules that the  Marine Mammal
Protection Act of 1972, which protects dolphins form deadly tuna fishing techniques, violates GATT and must be eliminated
by Congress. Worse yet, the three decreed that nations may never have health or environmental laws which effect beyond their
borders.or distinguish betweenproducts on the basis oftheprocess or conditions of harvest orproduction. Thus, theU.S.cannot
prohibit tuna caught in dolphin deadly ways. The President's own trade experts at USTR admit, the ruling threatens many U.S.
laws, global, environmental agreements on the ozone and endangered species, and other uses of trade sanctions such as against
South Africa and other nations which violate human rights. (16)                        -          .
           3.  GATT:  UNFAIR IN RESOLVING ENVIRONMENTAL DISPUTES


GATT is blind to environmental considerations in dispute settlement, and excludes those who could plead the
environmental case from its processes.

With regard to the U.S.-Canada Free Trade Agreement (FTA), Weiss noted that the parties recognized that environmental,
health, and safety standards could result in unnecessary disruptions in trade, and they agreed to harmonize standards when
possible, or to make their systems equivalent.  Von Moltke asserted that the dispute settlement mechanism in the FT A is
completely inadequate to deal with environmental concerns, arid increasingly issues are not going to dispute because of the
Agreement's poof settlement procedures. (4)

This example illustrates the fact that GATT disputes are settled first on legal technicalities; that establishing conservation as
                                                                                SUPPORTING PAPERS  a  183

-------
the "primary aim" of a trade measure is difficult; and that Dispute Panels may in any case prove to be unreliable judges of this
criterion. In light of this, it is hardly surprising that to date no trade restriction has been formally approved by GATT on the
basis of the protection it lends to exhaustible natural resources. (20).
The mandate of Dispute Panels should be extended to recognize environmental considerations wherever necessary.  Open
consultation should be mandatory wherever a Contracting Party cites environmental or resource conservation as the basis for
exemption from GATT rules. This should prevent spurious use of these exemptions. The consultations should be open to local
communities and NGOs representing groups of people likely to be affected by the settlement. (20).
Dispute resolution:  is a killer on its own, with the old rules flipped so that unless there is consensus to reject a GATT panel
decision, it is  automatically adopted 60 days  from publication.  Under those rules, the tuna-dolphin panel would have
automatically become The Rule months ago. (21)
                4. HARMONIZING AS A STEP TOWARD DEREGULATION


GAIT'S efforts at harmonizing environmental regulations really aim at deregulation.

Grueff pointed out that there is no way for GATT to force a country to change a regulation or policy. The agreement does,
nevertheless, have the objective of facilitating trade and reducing unnecessary health related trade barriers by providing
incentives to move toward international standards.  It does, Grueff admitted, hold out harmonizing in certain areas as a long-
term objective.  (14)
Finally, harmonization turns a wise approach to  environmental policy on its  head.  In the United States, most federal
environmental laws impose minimum standards that all states must meet, but allow states to impose more restrictive standards.
By extension, international standards should define the minimum acceptable level of protection nations should provide to their
citizens and the environment, leaving each nation free to enact more restrictive regulations attuned to the environment of that
nation and the demands of its citizenry. Harmonization entails exactly the opposite approach, however.  It denies the most
restrictive standards that nations may adopt and prevents or discourages nations from adopting more restrictive standards. (7)
While the development of international consensus on environmental standards may be a desirable objective, there are several
reasons to suspect that the intent of harmonization proposals is to undermine progressive environmental standards while
delegating standard-setting processes to institutions that are more amenable to corporate influence and control.  (10)
The objectives of liberalized or free trade are in many ways simply the agenda of deregulation. By the removal of export and
import controls, and the elimination of "non-tariff trade barriers", the goals of economic growth and profit maximization can
be pursued in a largely deregulated global environment. (9)
Efforts to harmonize standards on a global basis represent another way by which trade agreements may undermine efforts to
establish environmental standards that reflect the priorities of the communities that will live with them.  Irked by decisions such
as Europe's ban of the importation of beef fed with growth hormones, the US has included as part of its GATT agenda the global
harmonization of health and safety standards. While the development of international consensus around environmental
standards may be a desirable objective,  there are several reasons to suspect that  the agenda of "free trade" is to lower
environmental standards, while removing standard-setting processes to institutions that are less accountable, to the community
and more amenable to corporate influence and control. (9)
It is unlikely that once the higher consumer or environmental standards of a NAFTA signatory is challenged the burden will
be on the challenged government to prove that the law is not an unfair barrier to trade. This rule means that the "default" position
184  a  THE GREENING OF WORLD TRADE

-------
is always the elimination of a higher standard. This could severely impede the ability of governments to address threats to
consumer health and welfare, particularly where only incomplete or disputed information is available about the threat. (18)
                       5.  GATT:  LOWEST COMMON DENOMINATOR
                            FOR ENVIRONMENTAL REGULATIONS


GATT aims at imposing an  international ceiling on environmental regulations,  which will foreclose
pioneering by advanced nations and inhibit environmental progress.

Christensen maintained that the problem with the GATT negotiations was that they effectively set a maximum limit on how
strictly standards can be set. If nations go higher, they face the bureaucratic'hurdle of having to justify those standards on a
reasonable scientific basis, and they could be taken to a GATT panel for possible litigation. (14)

An inflexible harmonization of environmental  standards could also inhibit innovation of more rigorous environmental
standards.  To date, much of the progress made on tightening environmental  standards has been made when one legal
jurisdiction raises the standard, encouraging others to follow. By requiring all countries to move in "lock step", and then only
when an international scientific consensus exists, progressive environmental regulation will be discouraged. The possibility
therefore remains mat the Codex Alimentarius standards would operate as a ceiling rather than a floor for environmental
regulation. (20)

Any agreement on harmonization of environmental standards must not operate as an inflexible ceiling on these standards, nor
should it operate in such a way as to inhibit the innovation of more effective environmental safeguards. The composition of
any international panel must adequately reflect the interest and concerns of the people and the groups most affected by these
standards must be open and should not in any way undermine national or local democratic and consultative processes. (20)
We believe that this incursion into national and state sovereignty is justified only if nations are required to meet minimum
international environmental standards and remain free to impose more restrictive standards in accordance with the demands
of their citizens. This approach recognizes that countries that allow industries to operate without environmental controls in
effect subsidize those industries. Although the subsidy is in the form of free appropriation of resources such as clean air and
water and health costs that are freely imposed upon a country's population, the subsidy is no less trade distortion and probably
more harmful in real terms than simple economic subsidies. (5)                 ,
Each nation should retain the right to establish environmental and social regulations according to domestically determined
goals. International codes recommending "floors" rather than "ceilings" can promote minimal standards for community health
and welfare that contribute to each nation's domestic debate without preempting domestic authority and democratic decision
making. (11)

As restrictions to the international flow pf capital, goods and services are reduced,  pressures will increase  to reduce
environmental protection costs to the lowest common denominator.  Negotiations of the Canada-US Free Trade Agreement
offered several illustrations of the corporate community applying such pressure.  In the U.S., the National Coal Association
used the pending agreement for the removal of "regulatory disincentives" that stand in the way of new coal-fired plants. In
Canada the Ontario Chamber of Commerce argued that air pollution regulation be "relaxed" to enable business to compete
under free trade. The implications for acid rain and global warming are obvious. "(9)
                                                                                 SUPPORTING PAPERS  a  185

-------
  6.  GATT: HARMONIZATION PREEMPTS STRONGER STATE AND LOCAL LAW


The Uruguay Round includes tougher provisions which, under the rubric of harmonization, would overrule
all stronger state, provincial, and local law to protect the environment (as well as stronger national laws).

Harmonization also implies severe restrictions on the power of the States to regulate food safety independently. It would be
inconsistent with the concept of harmonization to allow states to impose more restrictive regulations than national governments.
Recent harmonization proposals circulated during GATT negotiations have included explicit language limiting the power of
state governments- to regulate hazards in food independently. Such limitations would prevent state legislatures and U.S.
environmentalists from enacting new food safety laws at the state level to reduce health and environmental	  (7)
Similar state laws may also be challenged under the GATT food safety provision. For example, California voters adopted
Propositions 65, which forbids "knowingly and intentionally expose[ing] any individual to a chemical known to the state to
cause cancer or reproductive toxicity without first giving clear and reasonable warning." (Cal. Health and Safety Code  §
25249.6.) This law applies to foods that are carcinogens or reproductive toxins. Industry groups have unsuccessfully sought
federal preemption of this law through administrative actions and legislative efforts. They have also challenged it in court. The
GATT food safety provisions would almost certainly lead to another challenge on the basis that the labeling standards imposed
by Proposition 65 constitute an impermissible non-tariff trade barrier. (3)
The section on preemption is the only one affecting health and safety law not yet finalized. There are currently two versions:
one requires that national governments "shall ensure that local government bodies and non-governmental bodies within their
territories comply with the provisions of Article 2..." [Article 2 is the section which forbids "technical barriers" to hamper
trade.] The other version commits national government "to take such reasonable measures as may be available to them to ensure
that local government bodies and non-governmental bodies within their territories comply with the provisions of Article 2.
.." Both versions commit national governments to preempt state and local environmental and consumer laws—only with what
ferocity is at issue. (15)
On top of all the old bad news, the draft contains outrageous new provisions in the Sanitary and Phytosanitary (S&P) and
Technical Barriers (TBT) Agreements that I have never seen before in any previous draft or proposal - such as requiring
contracting parties take "positive measures" to preempt their subfederal entities into GATT compliance and disallowing the
maintenance of any S&P standards higher than the international standard "against available scientific evidence," thus attacking
both precertification requirements and rules supported by "mixed" science. (21)
GATT signatories agree to discourage any governmental activity within the territory of the national government, for acting in
any manner inconsistent with the overall policies of the GATT.  State and local governments are clearly identified as potential
trouble spots, and the treaty goes to great lengths to eliminate their power to make laws contrary to the GATT objectives. (26)
                    7. GATT IMPOSES MISGUIDED TESTS TO JUSTIFY
                STRONGER NATIONAL ENVIRONMENTAL STANDARDS

GATT puts  the burden on nations  exceeding  international norms, in  their  domestic  environmental
regulations, to justify doing so by tests which are misguided, such as "sound science," "least trade restrictive,"
186  a  THE GREENING OF WORLD TRADE

-------
 "necessary," "primary intent," and "producing benefits proportional to costs." These tests all fail to provide
an adequate basis for justifying and framing environmental laws, and in any event GATT should not bethe
judge of what is needed in the environmental field.

The Term "reasonable scientific justification" offers a misleading sense of objectivity, suggesting that it is the one and only
one scientifically "reasonable" response to food safety hazards.  But food safety laws are not just scientific - they also reflect
the level of risk that society is willing to accept in its food supply. The "reasonable scientific justification" test excludes the
public from critical decisions about the safety of its food supply on the false proposition that decisions can be determined
conclusively by experts on purely scientific grounds. Further, where a government regulates on the basis of uncertain scientific
evidence, as is often the case with food safety hazards, its regulations will be subject to potentially endless attacks by industrial
interests who will claim that the regulation is not scientifically"reasonable," and that more evidence must be accumulated
before the government can act. The cigarette industry has pursued this strategy for years, for example, continually attacking
the enormous body of scientific evidence linking smoking-with health problems. (5)
We are concerned that inclusion of this language in the definition of S&P measures could unduly restrict government action
to protect the environment, consumers and welfare. The "reasonable scientific justification" test, which has become the central
feature of the S&P agreement, could  unduly constrain  these laws where they are based upon moral  and philosophical
considerations as'well as science.  This is particularly true if, as appears to be the case, the "sound scientific basis" test is
intended to focus narrowly upon scientific evidence concerning harm to human, plant, or animal health, rather than upon larger
concerns about ecosystems function and protection of resources such as atmosphere.  (5)

This proviso has been applied in two GATT cases involving the United States and Canada. Li 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 extent 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.  (13)
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. (13)
GATT embraces the idea of 'sound science' as the criteria for acceptable policy. No policy which challenges the free flow of
trade is acceptable if if is contrary to 'available scientific evidence' (L.36). Nations are discouraged from being environmental
leaders because they must accept the standards of other countries, even if they do not meet domestic health and safety standards.
If international standards do not exist, establishing national standards is subject to international review and evaluation by the
GATT Technical Barrier Panel before they can become national law. (26)
Second, a "sound science" test to determine disguised trade barriers must not be used to second-guess policy decisions made
to protect public health or the environment in the face of scientific uncertainty. Administration officials have recently pledged
that "countries are free to maintain standards .... assuming there is some scientific reason or because of the level of risk that
a country considers to be acceptable."
Notwithstanding the Administration's assurances, we have serious concerns over certain "bracketed" text still.pending in the
Uruguay Round. concerning S&P standards.  The proposed  requirement that  countries furnish "reasonable scientific
justification" for standards that exceed the international baseline could lead to protracted, open-ended disputes about whether
                                                                                  SUPPORTING PAPERS  a  187

-------
a particular government's regulatory actions are "reasonable" where such actions have been taken in the absence of scientific
consensus. (23)
At our meeting, we emphasized our concern that, where an S&P measure is challenged, the burden of proof be placed upon
theparty challenging the measure. However, it appears that under Paragraph 10 of the draft agreement, the burden will be placed
upon the government attempting to enact a regulation more restrictive than international standards. We believe that this
language must be changed so that the burden favors of the government attempting to enact strict measures. (22)
             8.  GATT: A FAVORED FORUM FOR UNDEMOCRATIC FORCES


GATT circumvents accountable, democratic, open institutions and provides a favorable forum for causes that
cannot succeed in open, democratic ones.

Trade negotiations and agreements may  also adversely affect environmental  conservation and protection policies by
undermining the democratic and consultative processes that have grown up to allow full and public debate about important
issues. The failure to identify the environmental significance or trade matters serves the interests of those who would rather
pursue their agendas without having to account for the environmental consequences. Thus objectives can be successfully
pursued within the context of trade negotiations that could not be advanced in more public decision-making processes.(9)
By circumventing the accountable and democratic institutions that are increasingly willing to respond to public pressure to
protect the environment and conserve resources,  trade negotiations offer an opportunity  to finesse the  important public
mandate. By characterizing environmental regulation as a non-tariff trader barrier, they can remove the discussion to a less
public and more sympathetic forum. The result is a de facto deregulation of process, which effectively erodes the prerogative
of democratic and accountable institutions  to consider and legislate matters of vital public policy.  (9)
The final way in which the principles of free trade defeat environmental initiatives is by providing a means to circumvent
accountable and democratic public institutions. Trade negotiation and dispute resolution processes are notoriously secretive,
even by the norms of international diplomacy.  Thus by characterizing environmental regulations as a non-tariff trade barrier,
they can be removed to a less public and more sympathetic forum. (10)
An additional cause for concern is the development and application of environmental and health standards, set by international
panels, pre-empts the responsibility of democratically elected national bodies.  In this way, the GATT could undermine
democratic and consultative processes in member countries on issues of environmental protection and human health. (20)
Observer status should be accorded NGOs and other  representatives of groups likely to be affected by Contracting Party
decisions. (20)
Local communities can best assess their own needs and manage the wise use of resources to ensure their own and their children's
welfare. The representation of community  interests in  determining trade, environmental and social policy should be granted
not only at the national level but internationally through democratic decision-making structures. (11)
The GATT proposals go even further by proposing that all countries adopt the same "code of practice" to prepare, adopt and
ensure compliance with such initiatives. Translated from G ATTese, this provision means that the Administrative Procedure
Act, the U.S. code of regulatory rule-making and dispute resolution would be replaced by a GATT code.  (15)
The S&P Draft Text proposes that recognized health and food safety standards of three international scientific organizations
188  n  THE GREENING OF WORLD TRADE

-------
serve as the initial reference point in settling disputes.  An exporting country, under proposed new dispute settlement
procedures, could challenge the scientific basis of national environmental and health regulations that are stricter that these
international standards. Essentially, this proposal would allow these strict national environmental and health regulations to
interfere with imports only if supported with sound science. A panel of experts would consider difficult questions such as what
constitutes "scientific principles" and "available scientific evidence." This approach has been criticized because there is
virtually no opportunity for the public to participate in environmental and health standards setting by international scientific
bodies, and out of concern that harmonization may lead to a "lower common denominator" and lowering environmental and
health quality. (24)
                9. GATT SUBSIDIZES ENVIRONMENTAL DEGRADATION


GATTprevents nations with high environmental standards prom imposing countervailing duties to level the
playing field, thus subsidizing environmental degradation by the irresponsible,

Article HI rules that trade restrictions must not be used to protect domestic industry.  This article was written to prevent
Contracting Parties raising the price of like imported products With an import tariff or levy, or placing quotas or bans on these
imports.  The implication of this is that an importing Contracting Party cannot use such measures to safeguard the
competitiveness of a domestic industry which has internalized more of its environmental costs than the industries of the trading
partners. (20)                                                                      "••'•'.."'••'
The Secretariat could not envisage an exception being made for a country having higher production costs as a result of pollution
control measures, or for any other reason. Import tariffs may not always be the most appropriate method of taking account of
such externalized costs, and function best only as an interim measure prior to full internalization of costs at the production stage.
However, present GATT rules effectively rule out the use of import tariffs for this purpose. (20)
Until an international agreement is reached on a standard for the internalization of such environmental costs, trade instruments
such as import tariffs and export subsidies have an absolutely vital role to play. Trade-restrictive measures are not a long-term
substitute for the "internalizing of costs" process. In the present transitional phase they are however, an indispensable policy
tool for advancing the cost internalization process. (20)
One element of this would be a reinterpretation of the term "like product" in Article I. This should enable discrimination on
the basis of the degree to which environmental costs of production are internalized. Exemptions should be extended to Article
HI to enable countries to "protect" those domestic industries which have already internalized these costs and a relaxation of
tariff binding regulations to allow for such adjustment; and Article XVI to allow the provision of export subsidies on the same
basis. These exemptions could be created by strengthening Article XX. (20)
If a Contracting Party does not comply with the foregoing regulations, GATT empowers other governments to apply trading
countermeasures. Article VI establishes the grounds on which Contracting Parties can relate against another Contracting Party,
and specifies the "anti-dumping" and "countervailing" duties which can be used. These countermeasures are based on a simple
comparison of product costs,  which takes no account of the extent to which associated environmental and resource costs had
been incorporated.  No recognition is given to the fact that permitting polluters freely to appropriate and/or degrade common
resources such as air and water amount and an "environmental subsidy." (20)                              ,
Edith Brown Weiss suggested that there were three categories of intersection between environmental and trade policies. First
                                                                                  SUPPORTING PAPERS  o  189

-------
 is the effects of national and international environmental actions on trade. Environmental objectives may run against trade goals
 of fostering a "level playing field." Such conflicts arise, for example, when product costs are less in one country due to lax
 environmental standards. Arguments may be raised in the future for using trade measures as a remedy.  Weiss posited that
 dumping and subsidies could be redefined, allowing resort to anti-dumping measures or countervailing duties to deal with
 uneven standards.  (14)

 The external environmental and social costs of production should be internalized in prices and the definition of dumping should
 be expanded to include social and ecological dumping.  This means that the costs of cleaning up and avoiding pollution,
 disposing of wastes, paying for wages, maintaining the health and welfare of the producing community, and sustaining the value
 of a nation's natural resource base should be included in market prices and national accounting systems. The sale of exports
 at prices beloW the full cost should be penalized.  Governments should permit compensatory countervailing social and
 ecological tariffs to counteract dumping.  (11)
              10.  GATT IN CONFLICT WITH ENVIRONMENTAL TREATIES


 When GATT conflicts with environmental treaties which take precedence (considering earlier dates, number
 of signatories, etc.), how do nations resolve their conflicting obligations ?

 Until the scope of the exemption allowed under Article XX(b) is clarified, it remains unclear whether the trade provisions of
 the Montreal Protocol are consistent with GATT regulations. This is because such trade restrictions infringe the principle
 GATT requirement of general "Most-Favored-Nation" treatment, embodied in stipulates that a contracting party to the GATT
 must apply any trade restrictions (or advantages) equally to all other contracting parties. Thus, any country signing both the
 GATT and such a conventions will be faced with the choice of using these trade measures and so infringing the GATT, or
 alternatively of failing to meet its obligations under the convention. Clause XX(b) will only provide a sufficient exemption,
 if it is interpreted as having an extraterritorial effect. (20)
 The issue of "extraterritoriality" has yet to be tested in the GATT, in respect of Article XX(b) or XX(g). However, if a future
 interpretation finds that XX(b) does not have extraterritorial effect, this could have potentially major implications for certain
 international environmental agreements. Examples are the recently agreed Montreal Protocol to protect the ozone  layer and
 the Climate Change Convention currently being negotiated. Trade restrictions between signatories, or between signatories and
 non-signatories to these conventions, constitute a crucial enforcement mechanism for these conventions.  As the  Montreal
 Protocol is binding on the signatories, the GATT should not be able to overrule it. However, the conflict of international
 obligations could hinder the negotiation or weaken the implementation of any future international environmental agreements
 backed by trade measures.  (20)
 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 one hundred and tenparties) have precedence over
 the GATT as a more recent treaty.  But aside from these avenues, these do not seem to be any other basis for asserting that
environmental trade restrictions pursuant to an international agreement have the greater GATT blessing that restrictions
conceived and carried out unilaterally.  (13)
190  n  THE GREENING OF WORLD TRADE

-------
              11.  LONG-STANDING WILDLIFE AND FISHERY PROGRAMS
                                VULNERABLE TO GATT ATTACK


Practices under well-established programs to protect fisheries and wildlife are under attack as GATT
violations on various accounts: (1) that they apply extraterritorially; (2) that they retaliate against products
not the object of protection; (3) that trade is being used to enforce international fish and wildlife agreements;
(4) that they target nations not signing the treaties in question; and (5) that they involve processing questions.

Another key question being raised in the tuna-dolphin dispute is whether a trade measure can be used to protect domestic 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 mat 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). (13)

There does not appear to be any ITO preparatory documentation on the question of whether Article'XX(b) or (g) can sustain
a proce'ssing standard, In view of the long history or trade measures that rely on processing standards however, it would seem
difficult to argue that the GATT precluded them. As noted above, there were many environmental treaties and laws pfe-dating
theGATT that conditioned animal imports on whether a product had: (l)received an export license; (2) beenhuntedpelagically;
(3) been taken in season; or (4) been caught with prohibited dragnets or traps. Certainly, the ETO authors were aware of fishery
and wildlife treaties.  (13).
... whether any trade measures taken can be applied to fish products other than those derived from the resource or species which
is protected by the international conservation programme in question.  The embargoes would clearly not be effective unless
'they could be applied to fisheries products which are imported to the U.S. in significant quantities. In the case of enforcing
the IWC, it is clearly necessary for the U.S. to be able to apply embargoes to imports of other fish products, as no whale products
are imported to the U.S. (20)

Unresolved questions over the scope of XX(g) creates the possibility that GATT may in the future provide the basis for a
challenge to the Pelly and Packwopd-Magnuson Amendments to the U.S. Fisherman's Protective Act. These amendments
enable the U.S. government to enforce sanctions  against the fishing industries  of other countries which break the conditions
of internationally agreed marine conservation treaties or conventions.  (20)
The use of trade sanctions and the extraterritorial issue also brings the Convention on the International Trade in Endangered
Species (CITES) into conflict with GATT regulations. CITES has proved to be a crucial international agreement in the area
of species conservation (and thus the protection of biological diversity). More that 100 species are listed under Appendix I of
this convention, which bans trade except in limited cases. It has been suggested that the legitimacy of the agreement would
not be questioned given its broad international endorsement. However the use of trade sanctions allowed in CITES to penalize
non-signatories or even reluctant signatories could provoke a legitimate challenge under present GATT regulations. (20).,
While the GATT working group on Rules and Disciplines rejected the Japanese proposal to characterize log export bans as trade
                                                                                 SUPPORTING PAPERS a   191

-------
discriminatory, the Packwood ban could still be reversed. Assistant U.S. Trade Representative Don Phillips says Japan "is
considering taking this issue to the GATT panel in Geneva to reverse the Packwood actions." (4)

No tuna-dolphin "repairs": Although numerous other GATT articles are interpreted and "shaped," each in free-standing
sections of the text, Article XX and the devastation of the tuna-dolphin case are not touched.  Instead of repair, the text
institutionalizes the panel decision's worst elements. For instance, new language is inserted into the S&P agreement that
specifically limits it to measures "within the territory of the contracting party." (2)
                            12.  GATT DISALLOWS IMPORT LIMITS
                         ON UNSUSTAINABLY PRODUCED TIMBER


GATT apparently will not allow extension of import bans on products made of endangered species to products
derived from endangered habitats.  This is the object of efforts to set up import limits on unsustainable/
produced timber.

The Secretariat Note further states that quantitative restrictions on imports have all the disadvantages associated with import
charges, and more besides. The GATT establishes very strict limits on the user of quantitative restrictions, essentially banning
their use under Article XI of the agreement. None of the exceptions incorporated within the agreement would allow a GATT
contracting party to limit or ban the import of unsustainably produced timber. (20)
Whether in the form of quantitative restrictions, as currently proposed, or tariffs on imports of unsustainably logged timber,
these measures "would cause the greatest conflict with GATT principles".  Unofficial reports indicate that a preliminary
evaluation by the Dutch Ministry or Economic Affairs concluded that the proposed ban is incompatible with Article XI. This
infringement alone would be sufficient to provoke a challenge to the GATT. (20).
The option of raising the price of sustainably produced timber remains open to the exporting countries. However, their exports
would then suffer a price disadvantage against exports of unsustainably produced timber. Discriminating between like products
on the basis of variation in the method of production was identified by the Secretariat as a primary objective of the GATT. As
noted above, a fundamental notion incorporated within the GATT is that production cost differences should not be evened out
by trade tariffs as these differences have an important role to play in promoting international trade. This requirement effectively
rules out the use of trade tariffs to encourage "clean" industrial production processes, or equally sustainable timber production.
(20)
The African countries urged solutions involving stabilization of commodity prices, better terms of trade, and an end to tariff
escalation that restricted higher-valued African exports. They maintained that unilateral measures, as proposed by environ-
mental lobbies in many industrialized countries, to restrict or ban imports of tropical timber because the exporting country was
not pursuing sustainable forest conservation would be inconsistent with the GATT principles  and rules."
The Community said  that in examining the issue, GATT should take full into account the legitimate interests of developing
countries.  (2)
192  a  THE GREENING OF WORLD TRADE

-------
             13. DOMESTIC TIMBER PROCESSING REQUIREMENT LAWS
                                   VULNERABLE UNDER GATT


Environmentalists often support requiring domestic processing of timber prior to export, to provide more jobs
while otherwise limiting the drain on forests.  GATT apparently would disallow such laws.

Restricting imports of raw or processed materials from unsustainable'sources can also make important contributions to resource
conservation. However, this too falls under the general elimination written into Article XL An additional consideration is
"extraterritoriality", which relates to whether or not Contracting Parties can take measures to conserve resources outside their
sovereign control. As the mechanisms and contexts at issue differ, the use of import and export restrictions within GATT rule
will be discussed separately. (20)
A number of developing countries which export tropical timber, notably Indonesia and the Philippines, also have instituted bans
or quotas on exports of unprocessed logs. The specific aim of these measures was to stimulate the growth of their own timber-
processing industries. It has not been possible to establish whether these measures have reduced logging rates and contributed
to forest conservation.  In any case, the clear protectionist intent of these measures puts them directly in contravention of the
GATT. Consultations on the issue have been initiated at the request of the European Community, which may lead to a formal
GATT challenge to the Indonesian ban. If such challenge were successful, Indonesia would have to recommence exports of
unprocessed timber increasing the rate of deforestation. (20)
This is well illustrated by the case of forests in the Pacific Northwest of the U.S.  The U.S. has imposed restrictions on
unprocessed log exports from these forests as part of a strategy to reduce the harvesting rates to protect the habitat of thenorthern
spotted owl.  The export restrictions were put in place to secure supplies for the local industry and to maintain current
employment levels in this region of the U.S. This  clearly infringes GATT regulations and resulted in an immediate claim to
this effect from the Japanese government. Thus the GATT may be employed to challenge the trade measures necessary to make
the limitation of the timber cut politically and economically viable in this part of the U.S. (20)
Most notably, Japan has used GATT to attack national bans on the export of unprocessed timber. Indonesia, Malaysia, Brazil,
Thailand and the United States have enacted bans on the export of unprocessed timber from within their borders. (4)
             14.  GATT WOULD WEAKEN U.S. FOOD SAFETY STANDARDS

The U.S. would have to justify, under skewed rules, having stronger food safety and labeling requirements
than those specified internationally by CODEX, an industry dominated group..

Kramer emphasized that Codex needs to be more open and accessible and increase representation in its decisionmaking
processes. Similarly, von Moltke expresses his concern that the chemical producers are overrepresehted on Codex's board;
and a review of membership is needed to reflect a broader range of interests if Codex is to become a credible arbiter of standards.
(14)
Some Codex standards allow residues of pesticides that have been banned in the United States, such as DDT. Others allow
pesticide residues onfoods that are as much as 50 times higher that those permitted by existing EPA and FDA regulations. Thus,
                                                                               SUPPORTING PAPERS  a  193

-------
the Codex standards allow higher pesticide residues on food for such pesticides as heptachlor, aldrin, diazinon, lindane,
permethrin, and benomyl. Li all, Codex has standards for less than one third of the pesticides for which the EPA currently has
standards, which means there is no international limit on a large number of pesticide residues. (Ritchie, GATT, Agriculture
and the Environment: The U.S. Double Zero Plan, 20 The Ecologist 214,216 (Nov./Dec. 1990).)"

The GATT food safety provisions may alsojeopardizefood labeling requirements in the United States. For example, Congress
has required, and the FDA has proposed mandatory nutritional labeling in foods, which go further than the Codex guidelines
on voluntary nutrition labelling. (55 Fed. Reg. 29,479,29,487,29,517 (July 19,1990); Crane, Behlen, Yetley, Vanderveen,
"Nutrition Labeling of Foods: A Global Perspective," Nutrition Today (July ./Aug. 1990).)"

Big business - especially the agriculture and chemical industries - has been closely involved in the current round of GATT talks,
launched in Punta del Este, Uruguay, in 1986 and dubbed the Uruguay Round. Daniel Amstutz, former senior vice president
of Cargill Inc., the largest privately owned corporation in the world and also the largest grain company, and a former officer
of the U.S. Department of Agriculture (U.S.D. A.), drafted the original U.S. proposal to GATT. Among Amstutz's ideas, most
of which favor agribusiness and large food processors, is the proposal that Codex Alimentarius step from its once peripheral,
advisory role as a subsidiary of the United Nations Food and Agriculture Organization into the limelight as the final arbiter of
"sound science" in the 100 nations that are GATT members. In this rule, Codex would arbitrate trade disputes involving
agriculture. (1)
                     15.  GATT: REDUCED AGRICULTURAL SUBSIDIES
                      MAY NOT BE AN ENVIRONMENTAL BLESSING


The environmental effects of changing world agricultural patterns in the wake of lowered subsidies are
unpredictable, with the exception that nations exporting more will put more pressure on their environment;
elsewhere, problems could arise, too, because of pressures to cut corners on environmental protection.

However, such analysis ignores the potentially diverse range of responses from agricultural industry to major subsidy cuts.
These responses, and the associated environmental effects, would in turn depend critically on the agricultural, economic, and
social circumstances of individual farmers. Such cuts would have complex and wide-ranging effects on the structure of national
farming industries. The same subsidy cuts could result in some farmers reducing their use of environmental damaging inputs,
while others respond by increasing their use. In many cases (e.g. on marginal lands) subsidy cuts could trigger further
amalgamation and specialization of farms and short term increases in the intensity of production, all of which imply further
environmental damage. (20)
For exporting countries the effect depends on the degree to which they gained improved access to developed country markets.
Farmers here will also benefitfrom the resultant increase in world market prices, but the pressure on the environment and natural
resources of these countries will generally increase. Further destruction of natural habitats and increased use of damaging inputs
will result as farmers clear more land and intensify production to take advantage of the price increases.  Short-term economic
gain will be realized only at the cost of long-term sustainability. (20)
At the same time as these trade policies were leading to the destruction of tropical rain forests they were also having a devastating
impact on agricultural lands in the U.S.  Depressed commodity prices exert similar pressures on U.S. fanners to increase
production whatever the long-term ecological costs. Thus production is intensified and expanded by increasing the use of
194  a  THE GREENING OF WORLD TRADE

-------
pesticides and fertilizers and by ploughing highly erodable and marginal land. The result has been an unprecedented loss of
agricultural land to erosion. In fact estimates are that American farmers are losing six tonnes of topsoil for every tonne of grain
they grow. (2)                    .

If, as the trade liberalizers argue, production in the developed world must shrink, the wisest course of action is to shrink it by
reducing resource consumption, especially fertilizers, chemicals, and pharmaceuticals, and intensify management of the land.
This accomplishes a more rational use of resources, preserves the environment, and enhances the role and reward of farmers.
(17)                                                                                         .   .         "
Sustainable fanning systems are not incompatible with trade, but they run against the grain of its underlying assumptions,
redefining and weakening comparative advantage. (17)                             -     •  .        .
EconomicdumpingislhepreiCticeof selling exports at prices below thereal cost of production. Although the economic dumping
of agricultural products is illegal under GATT Article VI, there are many ways in which dumping can occur. In the U.S., for
example, farmers absorb losses that enable exporters to dump their produce overseas.  The dumping of agricultural products
overseas eliminates the ability of local farmers to compete, forcing them to extend their operations onto less fertile or forested
land. (11)

Some agriculture proposals in the Uruguay Round of GATT negotiations would reduce and/or eliminate agricultural price
supports and export subsidies. The elimination of farm support programs would affect the environment by  shaping the
incentives for farming operations.  To the extent that such supports have  driven over-specification,  intensive farming
operations, and poor land use, their reduction or elimination may benefit the environment.  Alternatively, it is possible that
farming operations that rely more heavily on chemicals and land use practices that are detrimental to the environment may be
the most competitive types of farming operations in the absence of farm support programs! In addition, the elimination of farm
support programs that protect the environment, for example, by supporting conservation programs, reforestation measures, and
organic farming operations, would adversely affect the environment. (3)
       16. GATT: EXPORT LIMITS NEEDED FOR CONSERVATION PURPOSES


Nations should be allowed to restrict exports of natural resources in pursuit of objectives of sustainability.

The existing exemption under Article XI enabling countries to limit agricultural exports at times of critical food shortage should
be extended for the purposes of conserving the agricultural resource base and achieving long-term food security. Contracting
Parties should be empowered to restrict exports over the longer term where this can be shown to serve a bona fide conservation
purpose.  (20)

Domestically determined quantitative restrictions on natural resource exports should be permitted as effective conservation
measures. GATT Article XX should exempt conservation and other environmental protection measures from the definition
of trade-distorting non-tariff barriers; the burden of proof for demonstrating injury as. a result of trade distortion due to
environmental measures should rest with the complainant. (11)
                                                                                  SUPPORTING PAPERS  a  195

-------
                       17.  URUGUAY ROUND: DUNKEL TEXT POSES
                    VARIOUS PROBLEMS FOR ENVIRONMENTALISTS


The Durikel text released in late December poses a threat to zero tolerance regulations (e.g., the Delaney clause
on carcinogens), to environmental subsidies, and to regulations differentiated by risk (as "inconsistent" for
similar products); and it institutionalizes the Tuna/Dolphin decision (disallowing unilateral and process-
oriented regulations), forces preemption of stronger state and local laws, and railroads through adoption of
panel decisions (unless rejected within 60 days by a 2/3 vote of the GATT Council).

We are deeply concerned because several Administration officials have recently suggested that zero tolerances, such as those
contained in the Delaney Clause, would have to be removed from U.S. law in order to comply with the S&P agreement. For
instance, the Administrator of USDA's Food Safety and Inspection Service recently stated:
        [I]f you are taken to task on it in the GATT what would happen is that we would explain the Delaney Clause
        and the offended country would explain its own standard. We might very well ask GATT to mediate; we
        may lose on the Delaney Clause.  We might have GATT with Codex advice saying the Delaney Clause is
        a non-tariff trade barrier. If that's the case, then we have a choice.  We can pay monetary penalties or we
        can consider taking that as evidence to change the law or something like that.
These conclusions have apparently arisen from Paragraph 19 of the draft S&P agreement, which calls'for "consistency in the
application" of S&P measures. Inourmeeting, wepointed out the extreme political sensitivity of these statements, particularly
among Congressmen who are ideologically predisposed to favor free trade but who are deeply troubled by the possible effects
of GATT on environmental regulation.
You assured us, however, that EPA, FDA,  USD A, and USTR all participated in drafting Paragraph 19 with zero tolerance in
mind and that the existing language in Paragraph 19 provides sufficient latitude for the U.S. Government to retain zero
tolerances such as those called for under the Delaney Clause. This latitude is provided for particularly in the last clause of
Paragraph 19, which limits application of the paragraph to situations where "distinctions [in the level of protection under
different standards] result in discrimination or a disguised restriction on international trade."
We must emphasize that we remain very concerned about the potential effect of Paragraph 19 on the Delaney Clause and other
U.S. laws that call for zero tolerances. We urge you to resist any S&P language that could undermine the Delaney Clause or
similar legislation.  (22)
The GATT defines almost all governmental redistributional activity as a subsidy (Article I). By doing so it places all national
policy which redistributes public funds to targeted industry or public sectors under the jurisdiction of GATT Panel decisions.
The GATT then prohibits all subsidies which can be shown to create favorable conditions for domestically produced goods
(1.2.3). This threatens any policy which provides 'unfair advantage' to producers which benefit from the policy. For example,
if an industry is given a tax break for responsibly disposing of hazardous materials, the policy can be challenged by other Parties
if the absence of revenues paid to the government (in the form of taxes) gives that producer an unfair advantage (in terms of
cost) not provided to producers from other countries. Of if farmers are given incentives to use environmentally safe fertilizers,
this policy can be challenged by foreign farm growers who are trying to sell their products on  U.S. markets.  (26)
GATT establishes a dispute mechanism based upon the premise that, in the absence of clearly defined international standards,
the first objective of the Panel is to remove the unwanted legislative regulation as a trade barrier (S .3.1.7). The Panel is charged
with gathering information on disputed cases, taking great pains to interpret any "...  a breach on the rules .. or lack of
 196  a  THE GREENING OF WORLD TRADE

-------
cooperation... (as having and adverse impact on other contracting parties...." (S.3 1.8). Panel decisions must.be adopted
within 60 days of publication, unless the entire GATT Council decides not to adopt the policy (S.12 14). (26)
New GATT SPS rules require nations to take affirmative action to bring the laws of their subfederal governments into
compliance with GATT SPS rules.  Because the text creates an affirmative duty on federal governments, it appears the
Administration would have to ask Congress in GATT implementing legislation to amend all existing U.S. laws which set
standards covered by GATT SPS rules which delegate authority to the state. Such delegation would have to be replaced with
preemptive federal standards in every case, thus undoing years of preemption victories in one fast tracked vote.
Further, this strong preemption language would ensure that state governments could never be "ahead" of federal environmental
and health policy, thus effectively stopping the more progressive, populist state legislatures that have cut the path for progress
in federal policy for decades. California's "Proposition 65" is an example of a progressive state environmental law that could
be eliminated by GATT preemption provisions. (27)
The SPS text specifically limits nations' rights to enforce SPS measures that affect trade to within their geographic territories.
This SPS rule institutionalizes one of the most environmentally damaging aspects of the tuna-dolphin panel ruling which held
that the U.S. may not limit import of tuna fish caught using techniques that kill large numbers of dolphins in order to protect
species — dolphins — outside of U.S. territory. (27)
The SPS text requires nations to use internationally-set risk assessment standards which mandate balancing of commercial and
health objectives. Some U.S. laws, such as the zero risk standard of the Delaney Clause (which are based on health-only tests)
would be exposed to  challenge under the proposed GATT SPS rules.  Additionally, nations are required to  maintain
"consistency in the application of the concept of the appropriate level of sanitary and phytosanitary protection."  Such
requirements expose U.S. laws, such as pesticide regulations which are health-only for processed foods in which pesticides
concentrate and based on a balancing test for raw foods, to challenge as unfair trade barriers. Differences in risk standards as
between different types of issues—for instance food safety, hazardous waste and radioactivity—could also become the basis
for challenging strong  U.S. environmental and health laws.  (27).
           18.  GATT: URUGUAY ROUND EXCLUDES NATIVE KNOWLEDGE
         OF GENE STOCKS FROM INTELLECTUAL PROPERTY PROTECTION

The concept of protectable intellectual property should be extended to include the knowledge of the uses of
native gene stocks.  The Uruguay Round failed to do this.

James  discussed a second initiative involving the passage of a resolution expressing the sense of Congress that GATT
negotiations in the area of intellectual property relating to biological and genetic resources should be suspended until Other
factors could be further considered. Congress found that the intellectual .property negotiations were moving very quickly to
a close without considering conservation and scientific access needs, or the contribution of indigenous communities in tropical
countries regarding knowledge and use of plants that goes back centuries. In addition, the current negotiations for a biodiversity
convention, which may be ready for the 1992 U.N. Conference on Environment and Development, would become irrelevant
if the GATT codes on intellectual property were in place. (14)
Multinationals hope to gather information from the  genetically rich Third World, manipulate it with rapidly  evolving
biotechnology expertise and then patent the new seeds, pharmaceuticals or other products.  The Third World will receive
                                                                                 SUPPORTING PAPERS  a  197

-------
nothing in the bargain, because under the proposed regulations naturally occurring organisms would not be patentable, though
genetically altered ones would be. The genetic resources that are the components of the "new" products are not considered the:
province of the nation in which they occur (unlike minerals, for example) because Northern scientists have classified them as
a universal common heritage. (8)
These factors must be assigned a financial worth in the valuation of any intellectual property derived from these resources, and
trade rules pertaining to this property should ensure that the equivalent revenues are channelled back to the respective source
areas and human communities.  (20)
  19.  REMEDIES:  GENERAL EXCEPTIONS FOR ENVIRONMENTAL PROGRAMS

If G ATT rules are to work in harmony with these objectives, the priority of environmental protection and resource conservation
must be made explicit and set out clearly in the GATT agreement. One way to accomplish this would be an amendment to the
general agreement, adding  the article set forth in figure one.  (9)
Proposed article for inclusion in the General Agreement on Tariffs and TradeEnvironmental protection
Nothing in this agreement shall be construed to prevent any party from taking any action which it may deem necessary to protect
the environment, including establishment of import or export restrictions and the use of subsidies to:
        • prevent or remedy adverse environmental effects and/or
        • conserve natural resources
For greater certainty, "actions necessary to protect the environment"  shall include national and  international initiatives,
including, but not restricted to:
        • approval processes relating to environmental impact assessment of projects or programmes that may have significant
        environmental consequences, including the determination of whether approval for such projects or programmes shall
        be granted
        • measures intended to encourage public participation and standing in the decision-making processes that may affect
        the environment and
        • access to information on matters relating to the environment."
For the purpose of resolving or adjudicating any dispute that may arise under this agreement with respect to any action taken
to protect the environment, the onus shall be upon the complainant to prove that:
        • the action or measure was not taken in good faith and is unreasonable. (9)
Provisions should be made for a general waiver from GATT  regulations for all international agreements, protocols, or
conventions incorporating agreements, protocols, or conventions incorporating trade measures which are GATT-inconsistent.
The provision could be made by expending the waiver facility afforded to signatories of commodity agreements under Article
XX(h). WWF  further  recommends that waivers be formalized as soon as possible in the case of existing international
environmental agreements.  (20)
Therefore, we believe that a new subparagraph should be included in Article XX that specifically protects trade-related
measures designed to protect the environment, global resources, and animal welfare. This subparagraph should use language
that broadly protects the flexibility of governments to address these problems. For instance, it could exempt laws "imposed
198  a   THE GREENING OF WORLD TRADE

-------
for the welfare", which parallels the language of Article XX(f). Such an amendment would not open the door to disguised trade
barriers because of Article XX's requirement that the laws it exempts "are not applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination between countries	or a disguised restriction on international trade. (5)
                                     20.  REMEDIES FOR GATT


Countervailing duties for environmental purposes, legalizing extraterritoriality, protection of state powers,
environmental assessment, and predominance of environmental treaties.

Amend GATT regulations to enable internationalization of resource and environmental costs. The simplest and possibly most
effective, way of doing this would be to amend Article VI in such a way as to recognize "externalized" environmental and
resource costs as an inadmissable subsidy.  This is the concept of "Ecological Dumping", which would enable Contracting
Parties with industries internalizing these costs to levy an import tariff, or provide a subsidy equal to that cost.  In effect, the
GATT would then establish full intemalization of these costs as the international objective. Once this standard is met it should
ensure that trade liberalization can be pursued in the certainty that it would contribute to environmental protection, efficient
use of natural resources, and sustainable development. (20)
Exemptions should be created under Articles HI and XI to enable Contracting Parties to apply import restrictions where these
would conserve "Common Resources".  This exemption would also apply where pollution or degradation of natural resources
causes transboundary impacts. This exemption could be secured by giving Article XX(g) amended as above, extraterritorial
effect. (20)
... an institutional capacity must be linked to or created within the GATT to assess the environmental consequences of existing
and proposed trade regulations, and to balance trade and environmental priorities in specific instances.  (20)
Ensure that environmental and development treaties do supersede trade treaties. Otherwise, efforts to subordinate environmen-
tal and development policy to trade objectives would perpetrate the emphasis on exports to increase corporate revenues and
pay debt through the exploitation of natural resources. (11)
Ensure that sustainable trade policies as the local and national level are not superseded by international law. (11)
State powers: We believe that state powers to enact regulations more restrictive than federal regulations must be retained. To
attain this goal, the existing language contained in GATT Article XXIV, Paragraph 12 should govern state powers in the area
of S&P regulation. We understand that the U.S. government shares this view, and that you will place high priority on retaining
state powers in any upcoming negotiations  on the  S&P agreement. (5)
... demand EIS 's on any trade policy and that environmental standards on goods produced for trade should be mandated. Every
country should have the right to protect itself against border pollution. Transnational corporations should be prohibited
exporting pesticides that are banned in corporation's host country. Finally, all environmental costs in the production pf goods _
should be internalized, so that the true costs of those goods are reflected in the prices."
                            MISCELLANEOUS PROPOSED REMEDIES
           &                                                                                               *
It should be understood that harmonization does not refer merely to harmonization product standards but to-a broad range of


                                                                                 SUPPORTING PAPERS a   199

-------
 procedures and other requirements which taken together result in the regulatory systems which protect environment, safety and
 health. At the first level there would be harmonization related to tests. This includes harmonization of the tests themselves,
 harmonization of testing protocols (i.e., how the tests are carried out), and harmonization of the general test laboratory practices
 and procedures. True harmonization at the first level would have to include all three components. For example, in the OECD
 program on chemicals, there are approved Test Guidelines, which combine (although not in every detail) elements of both the
 tests themselves and the protocols.  In addition, the OECD agreement on Good Laboratory Practices (GLP) provides broad
 guidance on overall laboratory procedures. •

 At the second level, countries would address harmonization of the risk assessment steps, that is, what to do with the data which
 comes out of a harmonized process at the first level. At this level, countries would consider the process by which specific
 assessments are made, whether additional testing might be required and under what circumstances, and so forth.

 At the third level, countries would consider whether there was any possibility of harmonization with regard to the actual
 measures taken to avoid risks to the environment, safety or health, that is, with regard to risk management. As noted earlier,
 this is the most difficult area in which to achieve harmonization because of the differences between countries hi then- relative
 perceptions of risks and benefits.  For example, in the United States pesticide tolerance levels are established based on
 "aggregaterisk," that is, the risk that arises from the average exposure to all pesticides based on average U.S. diet and observed
 pesticide residues from all sources.  Since diets and exposures will be different in other countries, it would be difficult to
 harmonize on this basis. Nevertheless, some opportunities may still be possible with regard to pesticide tolerance levels in
 certain specific areas, as reflected in the work of the G ATT already mentioned on sanitary and phy tosanitary standards.  Others
 must be left to national standards, within an overall international harmonized framework.  What might emerge as an
 international  standard might be a least common denominator approach, which must allow for higher, scientifically based
 standards for individual countries. (26)
 Reaffirming that GATT Article XX(b) includes all measures necessary to protect human, animal or plant life or health,
 regardless of whether those measures are considered "sanitary" measures and regardless of whether the humans, plants or
 animals protected by the measure live within or outside the jurisdiction of the importing, party;

 Desiring to elaborate rules for the  application of the General Agreement to sanitary and phytosanitary  measures, and, in
 particular, to elaborate rules for the application of Article XX(b) to sanitary and phytosanitary measures, which can be
 considered a subset of the measures covered by Article XX(b). (22)
                            REMEDIES PROPOSED FOR GATT BY WWF

ISSUES FOR CONSIDERATION BY THE WORKING GROUP
— Amending GATT regulations to enable intemalization of resources and environmental costs
        • amend Article VI in such a way as to recognize "externalized" environmental costs as an inadmissible subsidy.
        • re-interpret the term "like product" in Article I to enable discrimination on basis of degree to which environmental
         costs of production are internalized
        • modify Article IE to enable countries to "protect" those domestic industries which have already internalized these
         costs
        • relax tariff binding regulations to allow for such adjustment
        • modify Article XVI to allow provision of export subsidies on same basis
200  a  THE GREENING OF WORLD TRADE

-------
       • strengthen Article XX to achieve necessary exemptions or amendments


— Amending GATT regulations to facilitate Sustainable Management of Natural Resources
       • allow Contracting Parties to take any trade measures which genuinely contribute to sustainable management of natural
        resources within their jurisdiction.
       • amend exemption already incorporated as Article XX(g) to read: "measures relating to the conservation of exhaustible
        natural resources if such measures constitute an integral part of a sustainable management plan".
       • confirm extraterritorial effect for Article XX(g) amended as above, and consider whether Articles in and XI prevent
        Contracting Parties from taking measures to conserve "Common Resources"


— Expanding exceptions allowed under Article XX                                     •
       • incorporate word "environment" in Article XX(b), and provide it with extraterritorial effect, or
       • add new clause to this Article: "(k) designed, whether by way of precaution or remedial measures, to encourage or
        ensure protection of environment and to promote sustainable development."
        • create a  general waiver from GATT  regulations for all international environmental agreements, protocols or
         conventions incorporating trade measures by extending waiver  facility afforded to signatories of commodity
         agreements under Article XX(h).


— Dispute Settlement
        • ensure that mandate of Dispute Panels  covers environmental implications of GATT disputes
        • secure transparency and open consultation in dispute settlement process, especially as this would help prevent use
         of exemptions on spurious environmental grounds
        • open consultations to local communities and NGOs representing groups of people to be affected by dispute settlement


 — Broad environmental effects of the GATT
        •undertake or commission a study to examine whether structure and principles of GATT reinforce South to North
         resource flows, thus enhancing environmental degradation and unsustainable use of natural resources


 — Conservation Issues Raised by the Uruguay Round Negotiations
        • consider possible environmental impacts of a Uruguay Round agreement, and the need to incorporate a review clause
         making implementation of the Final  Agreement conditional on a comprehensive Environmental and Natural
         Resource Impact Assessment. (20)
                                                                                   SUPPORTING PAPERS  a  201

-------
                                          SOURCES CITED

 1. Daphne Wysham, "Big Business Hijacks GATT," The Nation (December 17,1990, p. 770).
 2. unsigned, 'Trade-Environment Debate Narrows Down Differences," Focus: GATT Newsletter (July 1991, p.l).
 3. Public Citizen, "Background Paper: Some Potential Health, Safety and Environmental Impacts of Uruguay Round of
 GATT and North American Free Agreement," (August 1,1991).
 4. Emily Schwartz, "Ravaging Resources: GATT and the World's Forests," Multinational Monitor (November 1990, p. 24).
 5. Eric Christensen, letter to James D. Grueff, DO A, dated May 23,1991 on behalf of the Community Nutrition Institute
 and others.
 6. Rod Leonard, undated memorandum, summer 1991, for the Community of Nutrition Institute
 7. Eric Christensen, "Food Fight: How GATT Undermines Food Safety Regulations," Multinational Monitor (November
 1990, p. 12).
 8. Robert Weissman, "Prelude to a New Colonialism," The Nation (March 18,1991, p. 336).
 9. Steven Shrybman, "International Trade and the Environment," Alternatives (Vol. 17, No. 2,1990, p. 20).
 10. "Selling the Environment Short," Earth Island Institute (Spring 1991, p. 31).
 11. Kristin Dawkins, Balancing: Policies for Just and Sustainable Trade (August 1991, Institute for Agriculture and Trade
 Policy, Minneapolis Minnesota).
 12. Robin Broad, John Cavanagh, Walden Bello, "Development: The Market Is Not Enough," Foreign Policy (Winter 1990-
 91, p. 37).
 13. Steve Charnovitz, "Exporting the Environmental Exceptions in GATT Article XX," Journal of World Trade  (October
 1991, p. 37).
 14. Conference report: "Environmental Challenges to International Trade Policy" (conference was on February 6,1991)
 published by the Overseas Development Council and the World Wildlife Fund.
 15. Lori Wallach and Tom Hilliard, The Consumer and Environmental Cases Against Fast Track (May 1991, Public Citizen's
 Congress Watch).
 16. Flyer form Congress Watch: "Demand Trade Agreements That Benefit Americans," November 1991.
 17. Marty Strange, Annette Higby, Gene Severens, Patricia Funk, The Great Trade Debate (1989, Center for Rural America).
 18. The Development Gap, Look Before You Leap: What You Should Know About a North American Free Trade Agreement
 (1991).
 19. Commission of European Communities, Report on United States Trade Barriers and Unfair Trade Practices  (1991).
 20. Charles Arden Clarke, The General Agreement on Tariffs and Trade, Environmental Protection and Sustainable Development,
 (World Wildlife Fund, 1991).
 21. Lori Wallach, Memorandum: "The Dunkel Gatt Text" (December 20,1991, Public Citizen).
 22. Letter from Eric Christensen on behalf of the Community Nutrition Institute to James D.  Grueff, U.S.D.A., dated
 December 13,1991 on GATT negotiations with respect to Sanitary and Phytosanitary measures.
 23. Justin R. Ward and Glenn T. Prickett, Testimony for NRDC before the Senate Finance Committee on "Environmental
 Reform of the World Trading System," October 25,1991.
202  a  THE GREENING OF WORLD TRADE

-------
24. C. Foster Knight, 'The Effects of National Environmental Regulation on International Trade and Investment —
Selected Issues," February 26-28,1991. Presentation to the ABA University of Hong Kong Conference.
25. R.A. Reinstein, 'Trade and Environment," undated draft.       .
26. John Audley, undated memorandum (Dec. 1991) on the Dunkel draft.
27. Lori Wallach, memorandum on the December 20,1991 Uruguay Final Act Text for Public Citizen (December 26,1991).
                                       About the Author

   J. Michael McCloskey has served as the Chairman of the Sierra Club since 1985. He also is an Adjunct
Professor of Public Policy at the University Of Michigan's School of Nature Resources. Under Mr. McCloskey's
leadership the Sierra Club has grown from 70,000 to 350,000 and its net worth has grown five-fold.  Mr.
McCloskey has held many volunteer positions including Chairman of the Advocacy Forum, Vice Chairman
of the Natural Resources Council of America, Vice Chairman of the American Committee on International
Conservation, and Secretary/Treasurer of the Mineral Policy Center.  Mr. McCloskey also was a key
draftsman of the U.N. Charter for Nature.                        ,
                                                                        SUPPORTING PAPERS a  203

-------
               A Matchmaker's Challenge:
 Marrying International  Law and American
                      Environmental Law
                                David A. Wirth
                              I.   INTRODUCTION1

    It is now axiomatic that environmental law is among the most rapidly growing, innovative areas of the
international legal system. Recent compendia identify hundreds of international agreements dealing,
directly or indirectly, with environmental concerns.2 Multilateral negotiations addressing depletion of the
stratospheric ozone layer,3 international trade in toxic wastes,4 and the integrity of the global climate5 have
attracted enormous attention from governments and the public in the United States and abroad. Resulting
legal instruments, such as the 1987 Montreal Protocol on Substances That Deplete the Ozone Layer6 and the
1989 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their
Disposal,7 have generated considerable optimism about the potential for international law effectively to
mitigate global environmental risks.
    Multilateral discussions now often supplant national statutory and regulatory schemes crafted in the
late 1970s and early 1980s as the preferred fora for federal policy-making on such environmental hazards as
stratospheric ozone depletion8 and exports of hazardous wastes.9 Tackling international environmental
problems like ozone destruction and overseas shipment of wastes in a global context has obvious benefits.
A multilateral setting provides a unique opportunity to design effective and efficient international legal
structures that advance critical environmental goals while simultaneously reflecting the needs and expecta-
tions of all countries.
    This trend toward multilateral resolution of international environmental questions has generally been
lauded.10 Less well appreciated is the potential for tension and even clashes between the procedure and
substance of international and domestic legal  frameworks. Considerable differences exist between the
204  n THE GREENING OF WORLD TRADE

-------
international and national legal orders. Many bedrock principles of domestic environmental and adminis-
trative law—including notice to the public, an opportunity to be heard, and judicial review to assure reasoned
decision-making—are reflected poorly, if at all, in the international legal system. Indeed, the notion that any
of these components might be essential to the integrity of international legal processes, including interna-
tional environmental decision-making, borders on heresy. In extreme cases, decisions that could directly
affect the health and well-being of people within the United States could be lifted out of domestic decision-
making processes and placed in a legal context that barely acknowledges the existence of individuals. In other
circumstances, the power of an individual state to take measures to preserve natural resources within its own
jurisdiction or shared resources of the global commons may be constrained.
     The relationship between the international and domestic law of the environment, moreover, is a
microcosm for exploring considerably larger questions of separation of powers, the role of foreign relations
indomesticlaw,theaccountabilityofpublicprocesses,andtheroleofthepublicinestablishinggovernmental
policy on the national and international levels. Indeed, the potential legal costs accompanying these shifts
from the national to the international  arena in environmental law-making cut to the very core of the
constitutional structure of our government and the nature of our representative democracy.
     In exploring this relatively uncharted area of the law, this Article evaluates the relationship between
international agreements and domestic public law in the context of environmental decision-making. First,
relevant procedural and substantive doctrines of international and domestic law are examined to clarify the
nature of the interactions between the two legal systems. Then, several case studies of serious discontinuities
between international developments and domestic public law are analyzed. Finally, after the examination
of these generic doctrines and concrete examples, recommendations are made for narrowing these diver-
gences and encouraging smoother relationships between the international and national legal regimes.
                        II.  Two LARGELY INDEPENDENT LEGAL SYSTEMS

     The simultaneous treatment of issues on the international and domestic levels, and the necessity for
 domestic implementation of commitments assumed on the international level, engages both legal systems.
 While the juncture between the two can be smooth, interactions on occasion are uneasy. Instances in which
 one legal system does not fully reflect developments in the other can create significant discontinuities in both
 procedure and substance.


                        A.  Trends in International Environmental Law

     Legal obligations in  the international environmental field arise principally through  international
 agreements," among which the "legislative" instruments of binding multilateral agreements have assumed
 principal importance.12 The development of customary international law through the accretion of wide-
 spread practice by states, a second mechanism resulting in obligatory duties on the international level, has
 been considerably less important in defining international environmental law.13
                                                                       SUPPORTING PAPERS a  205

-------
      Multilateral agreements in the environmental area increasingly articulate specific and often complex
  regulatory schemes with measurable, crisp procedural and substantive requirements for implementation by
  individual states.  These multilateral instruments are analogous in many ways to domestic regulatory
  structures in their precision. For example, The 1985 Helsinki Protocol on Reduction of Sulfur Emissions or
  Their Transboundary Fluxes by at Least Thirty Per Cent,14 requires each state party to accomplish a uniform
  percentage cutback in pollution, measured from an agreed base year, by a firm deadline. The 1988 Sofia
  Protocol Concerning the Control of Emissions of Nitrogen Oxides or Their Transboundary Fluxes15 sets out
  highly specific technology-based standards for pollution control. The 1989 Basel Convention on the Control
  of Transboundary Movements of Hazardous Wastes and Their Disposal16 mandates detailed procedures
  governing the export of municipal trash and toxic detritus. The subjects of these agreements, such as acid
  rain17 and international traffic in hazardous wastes,18 often overlap with domestic statutory requirements.
      Although the products of these multilateral  undertakings may bear considerable resemblance to
  domestic environmental statutes or regulations, the processes by which these multilateral instruments are
  formulated do not. Because until relatively recently only states were considered subjects of international
  law,19 multilateral bodies are primarily organizations of states represented by their governments.20 Presum-
  ably because they are principally, if not exclusively, fora for intergovernmental negotiations, many multilat-
  eral processes typically lack the openness and public accountability accepted as a matter of course in domestic
  legislative and administrative processes of the United States.21 Public scrutiny of and access to international
 processes  may be difficult  or even non-existent.   Although some  scientists, businesspeople, and non-
 governmental organizations have managed to carve out niches for themselves as observers or advisers to
 multilateral institutions, policy and practice among international organizations regarding public participa-
 tion remains very uneven and has not been standardized.22 Although some documents may circulate
 informally, distribution of proposals for, and drafts of, multilateral agreements and  other important
 instruments may also be confined to governments.23
     Measures taken to arrest the depletion of the stratospheric ozone layer24 illustrate the major differences
 between the international legal order and the domestic law of the environment. The Clean Air Act25 formerly
 directed the Environmental Protection Agency (EPA) to respond by regulation if there was reason to believe
 that human activities damaging the ozone layer might endanger health and environment. Acting pursuant
 to this mandate and in response to considerable public concern, in 1978 EPA, through a notice-and-comment
 rulemaking proceeding,26 prohibited  nonessential uses of ozone-destroying chlorofluorocarbons (CFCs)
 such as spray aerosol propellants.27
     In the mid-1980s itbecame apparent that this limited ban on a small number of CFC uses was insufficient
 to address grave threats to the integrity of the stratospheric ozone layer, which by then was seriously
 disrupted by a continent-sized "hole" over Antarctica.28 After being prodded with a lawsuit,29 the Executive
 Branch took up the issue again, but this time in a multilateral arena, the United Nations Environment Program
 (UNEP).30 The resulting Montreal Protocol on Substances That Deplete the Ozone Layer,31 which sets out a
 precise numerical reduction schedule for chemicals that may deplete the ozone layer with firm deadlines, is
 now widely regarded as an effective, potentially global solution to the problem of ozone depletion.

    Substantialdifferencesinprocessaccompanied this transition to aninternational forum for craftinglegal
 requirements for reductions  in emissions of ozone-depleting chemicals. EPA implemented the Protocol
206  a THE GREENING OF WORLD TRADE

-------
through a domestic rulemaking,32 much as it had the 1978 spray propellant ban.  The new regulatory
proceeding, however, was significantly different from, and much more constrained than, the earlier one. This
time many important issues in the rulemaking had already been decided in the multilateral negotiations
sponsored by UNEP. As the principal mechanism for domestic policy-making, that international process did
not afford the same procedural guarantees as a domestic rulemaking.33 As a substantive matter, moreover,
EPA interpreted the Montreal Protocol as both a floor and a ceiling. The international commitments in the
Protocol precluded weaker regulation of the eight enumerated ozone-depleting chemicals, and strategic and
prudential considerations inherent in international bargaining counseled against more stringent controls.34


                          B. The Domestic Law of Foreign Relations

     An international agreement, including an environmental pact, is both binding under international law35
and, like a statute, "the supreme Law of the Land."36  Customary international law is likewise "part of our
law."37 Although the responsibilities of the United States remain intact on the international plane, a number
of doctrines may nonetheless vitiate the force of international legal requirements within the United States.
Congress may enact legislation that supersedes commitments in an international agreement or that violates
customary  international law.38 The courts may  invalidate  international agreements on domestic legal
grounds.39 As a matter of domestic law, the Executive Branch  may take actions inconsistent with customary
international legal standards.40
     At least one supplementary principle operates to ameliorate discontinuities that might otherwise be
created by these doctrines. When it is possible  to reconcile a statute and international law, whether
originating in agreement or custom, domestic law is construed so as not to conflict with the international
duty.41  Congress is thus presumed to act consistently with  international law and the international legal
responsibilities of the United States.42
     Although an international agreement and Congressional legislation are of equal legal authority, the
formulation of international commitments differs considerably from domestic statutory enactments. The
President, as the "sole organ of the nation in its external relations,"43 has the exclusive power to  "make
Treaties"44—in effect, simultaneously to define both the national law and international legal obligations of the
United States.  The Constitution requires the advice and consent of the Senate, by a two-thirds majority, to
ratification of concluded international agreements.45 The President negotiates the treaty for the United States
and then presents it as a concluded agreement to the Senate for its post hoc advice and consent to subsequent
ratification.46 Besides determining the content of the agreement in the first instance, the President's agreement
to a prohibition on reservations in the agreement may further dilute Congressional input into the ratification
of a multilateral treaty.47 Even  if the Senate can attach reservations, those qualifications may not have much
effect in the context of a multilateral treaty if other treaty partners object to them.48
     The Executive Branch also enters into a distinct and very  large category of "executive agreements"49 on
behalf of the United States that, unlike treaties concluded under article II, section 2 of the Constitution, do not
require subsequent Congressional endorsement.50 A subset of executive agreements, so-called  "sole"
agreements undertaken by the President in reliance on his own constitutional authority,51 do not require
                                                                      SUPPORTING PAPERS  a  207

-------
 legislative participation either as a precondition to negotiation or subsequent to conclusion. As a matter of
 practice, the Executive Branch also enters into some executive agreements that rely on existing statutory
 authority but are neither expressly authorized by statute nor approved by the Congress after the fact.52 In
 contrast to a treaty in the Constitutional sense, which has the same legal force as a statute, the domestic legal
 effect of an executive agreement not expressly authorized by statute or treaty and concluded without
 Congressional participation can be somewhat cloudy.53
     The implementation of international obligations can also differ from domestic law-making activities.
 Treaties that are not "self-executing" may require, in addition to Senate advice and consent to ratification, the
 adoption of implementing legislation to effectuate their purposes as a matter of domestic law.54 International
 negotiations or the implementation of actions taken on the international level, such as the stratospheric ozone
 example, may also involve subjects governed by domestic administrative law. In these cases, section 4(a)(l)
 of the Administrative Procedure Act (APA), which exempts "a military or foreign affairs function of the
 United States" from notice-and-comment rulemaking, may apply.55
     Lastly, questions of justiciability may mean that some legal issues evade adjudication or judicial
 enforcement. The "political question" doctrine, which precludes judicial  review of certain actions of the
 political branches, has particular vitality in the area of foreign relations.56 In practice, given the preeminence
 of the President in matters of foreign relations,57 application of the doctrine often implies deference to the
 Executive Branch.
      III.  DISCONTINUITIES BETWEEN THE INTERNATIONAL AND DOMESTIC LEGAL SYSTEMS

     The international legal system, like national law, is constantly changing. International responsibilities
of the United States may be affected by orders and judgments of the International Court of Justice,58 decisions
of international arbitral tribunals, binding international agreements, the evolution of customary standards
and norms, and other multilateral instruments.59 Difficulties can nevertheless arise at the interface between
international and national law.  These interstices in the legal framework fall into at least two generic
categories. First, developments on the international level may diverge from existing domestic legislative and
regulatory schemes. Second, the implementation of international duties at the national level may encounter
legal complications. This section examines case studies of each type of discontinuity.


            A. Executive Agreements Affecting Domestic Environmental Regimes

     The principle that an international agreement and a statute should be reconciled whenever possible60
finds its most frequent application where there is an apparent conflict between an earlier international
agreement and a later statute. However, two recent cases—both of which interpret environmental statutory.
schemes—suggest that courts may construe the requirements of existing domestic law in light of a subsequent
international agreement.  This approach can, on occasion, disrupt existing legislative and  regulatory
structures in unpredictable and arguably unintended ways when, as in each of these cases, international
208  n THE GREENING OF WORLD TRADE

-------
obligations are contained in an executive agreement entered into based on the Executive Branch's unilateral
interpretation of a statute and without Congressional approval or participation.
    In Japan Whaling Association v. American Cetacean Society? the Supreme Court construed the Packwood
Amendment to the Magnuson Fishery Conservation and Management Act62 and the Felly Amendment to the
Fishermen's Protective Act of 196763 in light of a subsequent executive agreement64 with Japan. The existence
of that agreement was decisive in the Court's rejection of arguments that a federal official had violated a
statutory directive.
    Shortly after World War II, more than forty nations entered into a multilateral agreement known as the
International Convention for the Regulation of Whaling55 that created the International Whaling Commission
(IWC).  The IWC has the power  to set limits on the harvesting of various whale species.  An "opt-out"
procedure allows each nation party to the Whaling Convention unilaterally to reject these quotas, rendering
them legally ineffective with respect to that country. Although the quotas are binding on member nations
that do not opt out, the IWC nevertheless has no power to impose sanctions for violations.
     The Felly and Packwood Amendments attempt to reinforce the Whaling Convention on the domestic
level by requiring the Secretary of Commerce to monitor the whaling activities of foreign nationals and to
investigate potential violations of the Whaling Convention.  Upon completion of this investigation, the
Secretary must promptly decide whether to  certify conduct  by  foreign nationals that "diminishes the
effectiveness" of the Whaling Convention. After certification by the Secretary, the Packwood Amendment
directs the Secretary of State to reduce the offending nation's fishing allocation within the United States'
fishery conservation zone by at least fifty per cent.
     In 1981, the IWC established a zero quota for harvests of sperm whales.  During the  next year, the
Commission ordered a five-year moratorium on commercial whaling to begin in the 1985-86 season and to
continue until 1990.  Japan filed timely objections that effectively relieved it, as an international legal matter,
from compliance with the sperm  whale quotas for 1982 through 1984. Nonetheless, the potential  sanction
under the Pelly and Packwood Amendments by the United States threatened Japanese whaling for the 1984-
85 season. After extensive negotiations, the United States and Japan concluded an executive agreement in
which Japan agreed to catch no more than 400 sperm whales in each of the 1984 and 1985 seasons. Japan also
agreed to cease commercial whaling by 1988, three years after the date specified by the IWC. In return, the
United States agreed not to certify Japan under the Pelly and Packwood Amendments.
     Suit was brought by several environmental organizations to compel the Secretary of Commerce  to certify
Japan. The Supreme Court, reversing both the District Court and the Court of Appeals, decided that the
Secretary had no mandatory duty to certify in response to IWC quota violations. Although the bulk of the
opinion deals with the construction of the Pelly and Packwood Amendments, it is clear that the chosen
interpretation was strongly influenced by the existence of the agreement with Japan as an acceptable, if
alternative, means of achieving the statutory goal.66
     The international agreement in dispute was an executive agreement, entered into on behalf of the United
States by the President without consent or input from the Congress. Neither of the applicable legislative
enactments authorized the negotiation of the agreement, nor was the particular agreement with Japan
endorsed by the Congress either before or after its conclusion.67 Although the question remains the subject
                                                                       SUPPORTING PAPERS n  209

-------
 of considerable debate,68 some authority suggests that such an agreement must be consistent with existing
 legislation.69 The Court avoided this problem by interpreting the conflict out of existence, but simultaneously
 contorted the statutory framework.70
     Greenpeace USA v. Stone71 is among the most recent cases addressing environmental effects outside the
 United States under the National Environmental Policy Act of 1969 (NEPA).72 The court in that case made
 clear that its conclusion that NEPA did not apply was strongly influenced by an agreement that the court
 found had been made between President Bush and Chancellor Kohl of Germany.
     This case concerned a plan of the United States Army and the Department of Defense, together with the
 German Army,-to remove obsolete chemical weapons from a storage site in Clausen, Germany. The weapons
 were to be transported by rail and ship to Johnston Atoll, a United States Territory in the Pacific Ocean,
 pursuant to a Congressional mandate directing the destruction of the entire United States chemical weapons
 inventory by 1997. Environmental Impact Statements (EISs) required by NEPA had been prepared for the
 federal actions on Johnston Atoll. Plaintiffs challenged the Government's failure to prepare a comprehensive
 EIS covering all aspects of  the transportation and disposal  of the European stockpile, including transit
 through Germany and transport over the ocean.
     Relying on the political question doctrine, the court denied plaintiffs' motion for a temporary restraining
 order enjoining the removal of the stockpile from Germany.73 In both that decision and an opinion denying
 plaintiffs' further motion for a preliminary injunction,74 the District Court gave substantial weight to foreign
 policy concerns. In particular, the court emphasized the significance of what it characterized as an agreement
 between President Bush, through Secretary of State Baker, and Chancellor Kohl, according to which the
 United States pledged to remove the stockpile by December 1990. The court explicitly articulated the crucial
 importance of this purported agreement to its reasoning.75
     Like the agreement in Japan Whaling, the Bush-Kohl arrangement in the Greenpeace case was concluded
 without Congressional participation. Indeed, by comparison with the instrument in Japan Whaling, this
 "agreement" was never reduced to a single written instrument and was closer to a unilateral statement of
 purpose.76 If so, that undertaking would not even rise to the level of an international agreement in the legal
 sense.77
     NEPA is the "basic national charter for protection of the environment."78  A cornerstone of NEPA law
 is the  necessity to provide opportunities for public input, including  notice of a  proposed action, an
 opportunity to comment on a draft EIS, and the necessity for Executive Branch agencies preparing EISs to
 respond to public comments.79  As a general matter, these  requirements apply as  well to international
 agreements.80 Accordingly, if the Bush-Kohl arrangement is an international agreement, as the court seemed
 to accept in its opinion, that agreement might well have been subject to NEPA and its implementing
 regulations, including provisions for full disclosure and public participation. The court did not discuss
 whether NEPA applied to the creation of the Bush-Kohl arrangement instead of its implementation,81 thereby
 excluding the statute's application at both stages. If, on the other hand, that arrangement did not rise to the
 level of an international  agreement, the  implications are even more profound.  Then the court's opinion
 strongly suggests that the routine, day-to-day conduct of foreign relations by the Executive Branch—often
210  n THE GREENING OF WORLD TRADE

-------
undertaken in secrecy without notice to, input from, or scrutiny by the Congress or the public82—may
frustrate or attenuate otherwise dispositive statutory directives.
    The United Nations Economic Commission for Europe (ECE),83 has been working for more than a decade
on questions of air pollution, especially acid rain as a regional problem in Europe.  After negotiations
sponsored under the ECE's auspices, a Convention on Long-Range Transboundary Air Pollution (LRTAP),84
was concluded in 1979. An ancillary Protocol Concerning the Control of Emissions of Nitrogen Oxides or
Their Transboundary Fluxes, designed to address one of the principal precursors of acid rain, was signed in
Sofia in 1988.85 Another Protocol Concerning  the Control of Emissions of Volatile Organic Compounds
(VOCs) or Their Transboundary Fluxes, intended to address one of the principal causes of photochemical
smog pollution, was signed in Geneva late last year.86 After articulating a nebulous commitment to "limit and,
as far as possible, gradually reduce and prevent air pollution," the LRTAP Convention sets out a general
framework for cooperation, consultation, and exchange of information on air pollution. By contrast, the NOx
Protocol states an overall obligation to level off emissions at 1987 levels by 1994 and enumerates precise
engineering requirements for mobile and stationary sources of nitrogen oxide pollutants. Likewise, the VOC
Protocol contains overall emissions targets and timetables, supplemented by detailed technological require-
ments.
     In structure and level of detail, the LRTAP Convention and the NOx and VOC Protocols are very much
analogues in the field of acid rain and tropospheric air pollution to the Vienna Convention87 and Montreal
Protocol88 on stratospheric ozone depletion. The United States, as a domestic legal matter, entered into both
the Vienna Convention and the Montreal Protocol as treaties within the meaning of the Constitution after
Senate advice and consent to ratification. The LRTAP Convention and the NOx and VOC Protocols, however,
were undertaken as executive agreements without Congressional participation. Likewise, after the enact-
ment of the acid rain provisions of the Clean Air Act Amendments of 1990,89 the United States concluded a
new pact with Canada on acid rain as an executive agreement.90   However, unlike its practice in the
preparations leading to the Montreal Protocol,91 the Executive Branch gave no public notice in the Federal
Register of, and did not solicit comment on, any of these agreements. Despite the lack of formal notice, the
Executive Branch has informally consulted with interested members of Congress and the public with respect
to these air pollution pacts concluded as executive agreements.
     These agreements may nonetheless have serious domestic legal implications, notwithstanding the prior
existence of statutory and regulatory mechanisms for compliance.  The Executive Branch appears to have
chosen the instrument of an executive agreement instead of an article II, section 2 treaty in each case because
the implementing authority, both statutory and regulatory, necessary to fulfill the obligations  in the
agreement was already in place as a matter of domestic law.92 The Clean Air Act does not expressly authorize
or anticipate international agreements on air pollution issues such as those covered by these bilateral and
regional agreements addressing acid rain, nitrogen oxides, and volatile organic compounds. Anomalously,
the two stratospheric ozone agreements, which, in contrast to the ECE air pollution agreements and the acid
rain pact with Canada, were expressly authorized by statute,93 were concluded as article II, section 2 treaties,94
notwithstanding that no new implementing legislation was required.95
     "Locking in" the status quo at the international level through unilateral action by the Executive Branch
may constrain future legislative or administrative action in a manner arguably inconsistent with Congres-
                                                                       SUPPORTING PAPERS a  211

-------
 sional intent.  Both statutory96 and constitutional97 avenues for petitioning the Executive for regulatory
 modifications may be compromised. The lack of formal notice may deprive the public of an opportunity to
 comment on a policy-making juncture at least as important as many administrative regulations.


                                B. Recent Trade Developments

     A number of recent examples of significant discontinuities have arisen between international trade
 regimes and national environmental legal requirements. Indeed, an unexpected and vociferous public debate
 has erupted over the amplification of existing international trade agreements to environmental matters and
 the contents of proposed trade pacts.98 While it is too early to identify all of the nuances that may arise, the
 examples discussed in this section suggest that the interface between international trade law and the domestic
 law of the environment will continue to generate significant legal questions.
     The General Agreement on Tariffs and Trade (GATT),99 the principal multilateral instrument governing
 international trade relations among states, explicitly exempts from its coverage measures "necessary to
 protect human, animal or plant life or health."100 Partially as a result of a bitter dispute between the United
 States and the European  Community (EC) over the use of hormones to promote growth in cattle,101 the
 ongoing revisions to GATT known as the Uruguay Round of Trade Negotiations102 explicitly treat certain
 measures to protect public health, such as limitations on pesticide residues in food, as potential trade barriers.
 Under the rubric of "harmonization" of "sanitary and phytosanitary measures," the Uruguay Round would
 explicitly  subordinate this category of regulatory activity to the GATT international trade  regime.103
 Moreover, domestic regulatory activity on issues like pesticide residues would be subject to international
 scrutiny through adjudicatory or "dispute settlement" mechanisms under GATT.104
     As the current United States statutory scheme for controlling contaminants in food does not anticipate
 an international review procedure, it is far from clear what effect this new development will have on domestic
 law and regulation in this area.105
     The Mexican-Tuna dispute in GATT initially arose over the killing of dolphin incidental to fishing for
 yellow-fin tuna with "purse-seine" nets. The Marine Mammal Protection Act (MMP A)106 directs the Secretary
 of the Treasury to ban the importation of yellow-fin tuna caught by foreign nations unless the Secretary of
 Commerce makes a finding that the incidental take of marine mammals is comparable to that of United States
 vessels. Ruling on a motion for a preliminary injunction made by a number of environmental organizations,
 the federal District Court for the Northern District of California in August 1990 enjoined Executive Branch
 officials from permitting further tuna imports into the United States because  the required finding had not
 been made.107 The Ninth Circuit affirmed the District Court's order, which affected tuna imports from Mexico
 and several other countries.108
     Mexico then requested the  GATT Council to establish a dispute settlement panel to adjudicate the
 validity under the  GATT of the MMPA ban.  The  three-member dispute  settlement panel noted that
 discrimination by importing states based on the methods by which foreign goods are produced, as opposed
 to characteristics of the foreign goods themselves, is not warranted by GATT. Consequently, the GATT
 requires competitive treatment of imported products as such without regard to the environmental policies
212  a THE GREENING OF WORLD TRADE

-------
of the country of export.109 Further, the exceptions in the GATT for trade measures directed at the protection
of animal life or health or the conservation of natural resources110 must be narrowly construed. In light of that
interpretation, the drafting history of the agreement, and the broader implications for international trade, the
panel concluded that trade measures to protect resources outside the jurisdiction of a contracting party are
not permissible.111  Further, the United States had failed to demonstrate that the import restriction was
primarily aimed at conservation, or that measures less  burdensome to international trade as such were
unavailable.112 Despite the decision in its favor, Mexico has postponed presentation to the GATT Council of
the panel opinion.113 The result in this case has significant implications for national environmental measures
that affect international trade taken by individual states or groups of states,114 and particularly those aimed
at protecting resources of the global commons.115
     In contrast to the opportunities for public input into the legislative, administrative, and judicial fora in
which this dispute was treated on the domestic level, but consistent with standard GATT procedures,116 the
documents and oral proceedings in the case were not accessible to the public. Dispute settlement in GATT
does not allow for participation by private parties as intervenors or amid.™  However, in the Mexican case,
ten other GATT parties and the European Economic Community made written submissions to the panel,118
all of which were critical of the MMPA ban and most of which argued that that action is inconsistent with the
GATT.
     In the mid-1980s EPA, acting on evidence that the fumigant ethylene dibromide (EDB) causes cancer,
genetic mutations, and adverse reproductive effects in  human beings, banned EDB for use on domestic
produce."9 By contrast, in response to assertions from the Department of State that the ban would damage
the economies of friendly exporting countries, EPA promulgated a tolerance permitting that continued to
allow residues of thirty parts per billion (ppb) of EDB in imported mangoes.120 The District of Columbia
Circuit, concluding that EP A's reliance solely on concerns of foreign affairs in the establishment of a pesticide
residue limitation was arbitrary and capricious, granted a petition for review of the mango tolerance.121 On
remand, EPA justified the continued tolerance for imported mangoes as justified by ongoing cooperative
efforts with food-exportingnations to assure that fruit and vegetables enter the United States free of pests such
as the Mediterranean fruitfly, diseases, and unsafe levels of pesticides. Moreover/mango-producing nations
were channelling export revenues into the search for alternatives for EDB.  Accordingly, EPA concluded that
revoking the EDB tolerance would pose greater  risks to the food supply than continuing that requirement.
After EPA provided assurances with respect to the limited term of the standard for imported mangoes, the
court approved the tolerance.122
     Another recent case raises similar questions as to the propriety of considering international trade factors
in the context of regulatory regimes designed to protect health and the environment. In February 1990, after
the development of testing methods that could detect them for the first time, residues of the fungicide N-(3,5-
dichlorophenyl)-l,2-dimethylcyclopropane-l,2-dicarboximide,  marketed under the trade  name
 "prdcymidone," were  discovered in wines imported from Europe.  Procymidone, manufactured by the
Japanese chemical corporation Sumitomo and classified by EPA as a "probable human carcinogen," is widely
used in wine-producing regions of Europe to control the grape disease botrytis. Because that disease is not
found in America, the pesticide procymidone was neither registered for use in the United States nor was a
residue limitation established for the  chemical.123  Accordingly, products containing any residues of
                                                                       SUPPORTING PAPERS  a 213

-------
 procymidone were prohibited from entering interstate commerce in the United States. Because of the
 potentially serious and unprecedented trade disruption,124 EPA expedited the tolerance-setting proceeding
 and relied on less extensive data than it ordinarily would. Although EPA asserted that the tolerance it set was
 fully protective of public health, "EPA ... candidly acknowledged that the potential trade implications posed
 by the procymidone situation were considered by EPA in evaluating Sumitomo's petition. EPA took into
 account potential impacts on both foreign and U.S. economies and the public health of U.S. consumers."125
     Relying on the Toxic Substance Control Act (TSCA),126 EPA in July 1989 published a final rule banning
 the manufacture,  importation, processing, and distribution in commerce of most asbestos-containing
 products.127 The regulation was subsequently successfully challenged on domestic statutory grounds.128 A
 Canadian mining company and a number of Canadian trade unions were among the petitioners contesting
 the validity of the regulation.129 The Government of Canada took the further extraordinary step of filing an
 amicus brief130 in this proceeding asserting that, because it was not supported by sufficient scientific evidence,
 the EPA rule was an import prohibition in violation of the GAIT31 and the United States-Canada Free Trade
 Agreement132 and  an unnecessary obstacle to trade within the meaning of the Agreement on Technical
 Barriers to Trade concluded during the Tokyo Round of Trade Negotiations in GATT.133 Although Canada's
 brief did not address the question of remedy as a domestic legal matter, that document strongly implied that
 the asserted violation of international law was relevant to, if not dispositive of, the regulation's validity under
 TSCA's statutory scheme.
     The Fifth Circuit concluded that the Canadian private party petitioners lacked standing because of the
 statute's primarily domestic focus.134 To the extent the Government of Canada relied on arguments raised by
 those petitioners or identified new issues, the court disregarded the Canadian Government's brief.135  The
 court further noted that the GATT and the United States-Canada Free Trade Agreement were alternative fora
 for resolving trade disputes arising out of obligations in international agreements.136  However, the fact that
 the Government of Canada  would itself raise the domestic legal implications of an international trade
 agreement in a domestic legal dispute in a United States court, together with the Fifth Circuit's equivocal
 resolution of the issue, suggests that similar arguments will be asserted in the future.


        IV.  STRENGTHENING THE NEXUS BETWEEN INTERNATIONAL AND DOMESTIC LAW

     This uneasy interface between international and national law has potentially far-reaching, but as yet
 largely unappreciated, implications. Consider an example that illustrates some possible ramifications.
 Assume that the contracting parties to GATT have accepted the current text on sanitary and phytosanitary
 standards from the Uruguay Round of Trade Negotiations.137 Assume further that, in response to new
 scientific evidence of the high risk of cancer associated with this product, the pesticide Zap-Em is removed
 from the market pursuant to the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).138 EPA cancels
Zap-Em's registration139 and bans its residues on domestic and imported foodstuffs by revoking the existing
 tolerance for the product.140 Ruritania, also a party to GATT, initiates a dispute settlement proceeding in that
body, alleging that the prohibition on residues of Zap-Em in Ruritanian food exported to the United States
is stricter  than relevant international standards  and, to the extent the ban is more stringent than those
214  a  THE GREENING OF WORLD TRADE

-------
requirements, is scientifically unjustified and, therefore, a violation of the GATT. A panel established in
accordance with the G ATT's dispute settlement provisions finds that EPA's ban onZap-Em constitutes a non-
tariff barrier to trade in violation of that agreement.141
    The Executive Branch is now presented with .the unfortunate choice between lifting the ban or
continuing to violate international law. If the former is chosen, the resulting tolerance-setting proceeding
could raise unique questions because of its unusual impact on foreign policy.  In a subsequent lawsuit
challenging the new tolerance,142 the Executive Branch might assert application of the political question
doctrine, as it does in many cases touching on foreign affairs, to preclude judicial review.143 Even if the case
were held to be justiciable, the foreign affairs context of the rulemaking might counsel particular deference
to the Executive Branch.144
    Solely due to the foreign affairs context of the later rulemaking, the procedural guarantees accompany-
ing this second tolerance-setting proceeding are entirely different from the process that established the
tolerance for Zap-Em  in effect before  the ban.  Although perhaps a particularly virulent example, this
hypothetical scenario illustrates the profound discontinuities that can arise when issues ordinarily governed
by domestic statutory structures emerge in an international context. At least two initiatives would tend to
minimize  these divergences between the international and national  legal systems while preserving the
integrity of  the international obligations of the United States:  (1) encouraging greater Congressional
participation in international agreements not expressly authorized by statute; and (2) regularizing public
participation in international regulatory processes at the national and international levels.


                 A.  Congressional Participation in International Agreements
                           Not Expressly  Contemplated by Statute

    The Japan Whaling and Greenpeace cases demonstrate the disruptive effect international agreements can
have on domestic legislative regimes. Existing statutory and regulatory schemes can mesh smoothly with
treaties and executive agreements authorized by the Congress through legislative participation in defining
the terms of those international instruments. Moreover, Congressionally-sanctioned international agree-
ments have the imprimatur of the legislative branch as the law of the land. By contrast, executive agreements
not expressly contemplated by statute, even if not strictly inconsistent with existing law,145 can nonetheless
substantially modify or even frustrate the operation of existing legislation and regulation without the
participation of the legislative branch.
    That an "agreement can be given effect without the enactment of subsequent legislation  by the
Congress," as set out in State Department policy,146 is not by itself necessarily sufficient evidence of
consistency with Congressional intent as expressed in an existing legislative scheme. Nor does that test
provide adequate legal justification as a matter of course in the absence of express prior statutory authoriza-
tion for the choice of an executive agreement instead of either an article II, section 2 treaty or a Congressional-
Executive mechanism requiring the participation of the legislature. The mere existence of statutory authority
in a particular area does not consequently imply that an executive agreement that has domestic legal effect
and that purports to rely on that authority is consistent with the underlying Congressional purpose. Further,
                                                                        SUPPORTING PAPERS  a  215

-------
 reliance on an executive agreement not expressly contemplated by statute could be questionable when
 implementation is intended to be accomplished by new regulations or rulemakings pursuant to existing
 statutes. In such a case, the international agreement could compromise the regulatory process, thereby
 undermining important principles of administrative law like those in the APA. Finally, even when both
 statutory and regulatory authorities are in place, the choice of an executive agreement would be inappropriate
 because of its tendency through international processes to constrain future legislative and administrative
 choices.
     However, as State Department policy also recognizes,'47 resolution of the historically delicate question
 of "choice of instrument" is quite sensitive to context. In such situations, silence, indifference, or acquiescence
 by the Congress can carry legal significance.148 To overcome potentially difficult questions concerning the
 necessary threshold level of Congressional interest and thorny interbranch disputes that can arise on a case-
 by-case basis,149 Congress ought to consider enacting legislation that would articulate the requisite legislative
 concern for each executive agreement not previously authorized by statute that is intended to have domestic
 effect. Legislative participation in formulating and giving domestic legal effect to international agreements
 within realms of statutory concern will almost by definition tend to assure greater consistency with overall
 statutory purposes. For instance, the legislation might require the Execu tive Branch to transmit interim drafts
 of this sub-category of executive agreements to relevant Congressional committees and establish a process
 for regularized consultation with those Committees.150 The Congress could also enact legislation  with
 instructions to the judiciary that executive agreements on matters within the enumerated powers of Congress
 must be explicitly authorized by statute to have effect as domestic law.151 Alternatively, the Executive could
 itself decide to alter its practice in this with respect to this sub-category of executive agreements.
     For this  same sub-category of agreements, there should also be an explicit instruction to the courts to
 decide questions of statutory interpretation notwithstanding the political question doctrine and foreign
 affairs implications.152  Further, the legislation should address the current overly broad discretion of the
 courts, short of a conclusion of nonjusticiability through application of the political question doctrine,
 haphazardly  to take broad account of foreign relations concerns in judicial decisions with few apparent
 standards. Instead, Congress ought to substitute principles governing the judicial calculus to clarify the legal
 force of an Executive  Branch action taken in an international context, within the enumerated powers of
 Congress, intended to have domestic legal effect, and not expressly authorized or participated  in by the
 Congress.153
         B. Regularized Public Participation on the National and International Levels

     Perhaps the most obvious divergences between international and national law involve considerations
of process. For example, if the Uruguay Round proposals on harmonization of sanitary and phytosanitary
standards are adopted, GAIT dispute settlement mechanisms will become a forum in which United States
regulations on pesticide residues could be challenged as a matter of international law.  However, unlike
domestic legislative, administrative, and judicial processes, those mechanisms are secret and inaccessible to
the public.154  In Mexican Tuna case, the Executive Branch—in secret and with no formal opportunity for
Congressional or public input—was responsible for vigorously defending a policy it reluctantly adopted only
after flouting three statutory directives and resisting a court order.1SS Such "cognitive dissonance" may be an

216  a THE GREENING OF WORLD TRADE

-------
endemic artifact of pur domestic constitutional structure of separation of powers, in which the President both
carries out the law and serves as the "sole organ of the nation in its external relations."156 The posture of the
Mexican Tuna case and the, Uruguay Round, which would give foreign governments the authority to
challenge U.S. pesticide residue limitations, nevertheless throws the closed  nature of GATT dispute
settlement into sharp relief and pointedly demonstrates the failure of that procedure to insure even a
modicum of accountability to the public.
     As more environmental threats that are governed by or overlap with domestic regulatory structures are
addressed in the international arena, there is a commensurately increasing need for improved processes for
public participation on the international  level.  To ameliorate the effects of resulting discontinuities,
multilateral fora like GATT might adopt rules of procedure that regularize and greatly expand public access
to, and public accountability of, their law-making, law-enforcing,  and adjudicating processes. Without
question, improved access and public participation at the international level is the most desirable way to
reconcile these disparities, while simultaneously furthering the larger public policy goals of improving the
legitimacy and accountability of the international legal system.157 However, much can also be done at the
purely national level in the absence of progress on the international level or until multilaterally agreed-upon
measures are implemented.                                                        .
     First, the APA's foreign affairs exception158 should be reevaluated. The underlying justification for that
provision is no longer warranted, if it ever was. The foreign affairs exception is a crude and unsophisticated
mechanism governing a sphere of the law that has become increasingly nuanced and complex. Environment,
like foreign trade, clearly falls within the enumerated powers of the Congress. The national legislature has
reacted to both issues with complex webs of statutory and regulatory directives. For that reason, both areas
are fundamentally different from traditional security and foreign affairs concerns like the conduct of war and
the recognition of foreign governments entrusted by  the Constitution  to the President.159  Likewise,
international undertakings on both environmental and foreign trade matters governed by statute are well
within the reach of Congressional law-making authority.  Accordingly,  the unusual deference to  the
Executive Branch contained in the APA exception merely because of the international context for decision-
making is not warranted.
     Second, Congress should replace the sweeping APA exemption with comprehensive new legislation
that articulates how basic principles of American public law will be applied in a foreign affairs context. At
a minimum, this legislation should establish standards for distinguishing between those domains—such as
war and recognition of foreign governments—that are appropriate for an exemption like that currently in the
APA and those—like environment—that  are not.  For the latter category, outcome-neutral procedures
analogous to notice-and-comment rulemaking160 and judicial review161 under the APA should be established,
with processes tailored to meet the needs of governmental decision-making in national,  bilateral, and
multilateral contexts.  For instance, the legislation might require publication of interim drafts of international
agreements in the Federal Register, with a subsequent opportunity for formal public comment to United
States negotiators, unless the President provides compelling reasons, such as overriding national security
concerns, to justify a waiver.
                                                                       SUPPORTING PAPERS a  217

-------
                                       V.  CONCLUSION

     Employing international processes to address international environmental risks is obviously sensible,
desirable, and in some cases necessary. Improving the efficacy and accountability of multilateral mechanisms
to make them responsive to serious global threats, like stratospheric ozone depletion and greenhouse
warming, should be a top priority from both legal and policy perspectives. At least for now, however, there
is also a risk that critical principles of separation of powers, public participation, and democratic decision-
making will be compromised merely because an environmental issue has been removed to an international
forum. These fundamentals, which are essential to the integrity of our governmental structure, are by no
means confined to environmental law. Although the international environment is probably the best example
of the discontinuities between international and domestic law, virtually any area of Congressional power and
action can engage these crucial questions.
     International initiatives can be effective, efficient, and in some cases indispensable vehicles for further-
ing environmental and other national and international goals. But that is not a sufficient justification for
subverting our democratic principles and fundamental governmental structure by shielding unilateral, often
secret action by the Executive Branch (where only one  official, the President, is directly accountable to the
public) from Congressional, public, and judicial review.  Legal processes for otherwise desirable international
environmental undertakings should be altered to ensure that Executive Branch activities on the international
level are accountable to the Congress and to the public at large, as measured against the same basic principles
that apply to legislative or administrative actions.
     Through its own inattention, by Executive Branch design, or both, the Congress has been marginalized
in the negotiation and implementation of many international environmental agreements. Areas within the
enumerated powers of Congress, of which environment is clearly one, should no t be usurped by the Executive
Branch merely because they arise in an international context. Those matters, like environment, governed by
domestic statutes are clearly distinguishable from those within the Executive's plenary  powers.  Our
constitutional system of separation of powers anticipates and can accommodate a larger role for the
legislature in the category of international concerns that simultaneously fall within the plenary powers of the
Congress. Moreover, greater involvement of the legislature will tend to produce significant incidental
benefits.  As a legal and practical matter, greater opportunities for Congressional input will ameliorate or
eliminate discontinuities between the international and domestic legal systems. Over time, a higher level of
legislative participation might even encourage greater public accountability of international processes
generally.
                                            NOTES


1 This work was supported by grants from the Creswell Foundation and the Frances Lewis Law Center of Washington
and Lee University.  The author gratefully acknowledges the helpful comments on earlier drafts provided by Eric
Christensen, David A. Colson, William J. Davey, Kristin Dawkins, Daniel Esty, Thomas M. Franck, J. William Futrell,
218  a THE GREENING OF WORLD TRADE

-------
Michael J. Glennori, Patti A. Goldman, Mark H. Grunewald, Louise A. Halper, Stewart]. Hudson, Frederic L. Kirgis, Jr.,
.Ernest A. Landy, Barry Mawhinney, Jan Me Alpine, Michael McCloskey, Konrad von Moltke, Brian C. Murchison, Amelia
Forges, Glenn T. Prickett, S. Jacob Scherr, Francine Schulberg, Joan M. Shaughnessy, Louis B. Sohn, Chris Tracy, Edith
Brown Weiss, and Mary Beth West. Mary M. Brandt, Kelly L. Faglioni, and Kevin C. Wells provided additional advice
and assistance.  The responsibility for all views expressed in this Article, however, is the author's own.
2  See, e.g, Register of International Treaties and Other Agreements in the Field of the Environment, U.N. Doc. UNEP/
GC.16/Inf .4 (1991) (identifying 152 multilateral agreements); United States International Trade Commission, International
Agreements to Protect the Environment and Wildlife (1991) (report to Committee on Finance of United States Senate
pursuantto section 332ofTariffActof 1930) (identifying 170 multilateral and bilateral agreements affecting environmental
issues).
3  See, e.g., Cass Peterson, Administration Ozone Policy May Favor Sunglasses, Hats, Washington Post, May 29,1987, at
Al.
4  See, e.g., Tom Dickson, Prospects for Toxic Waste Treaty Hang in Balance, Fin. Times, Feb. 7,1989, at 2.
5  See e.g., Michael Weisskopf, Global Warming Rift Threatens Treaty: U.N. Talks Close With Industrialized Nations,
Third World At Odds, Wash. Post, Feb. 28,1992, at A3.
6  Sept. 16,1987, S. Treaty Doc. No. 10,100th Cong.,  1st Sess. (1987),  reprinted in 52 Fed. Reg. 47,515 (Dec. 14,1987); 17
Envtl. Pol'y & L. 256 (1987); 261.L.M. 1550 (1987), amended and adjusted, Senate Treaty Doc. No. 4,102d Cong., 1 st Sess.
(1991), reprinted in 1 Y.B. Int'l Envtl. L. 612 (1990); Int'l Env't Rep. (BNA) 21:3151; 30 I.L.M. 539 (1991) [hereinafter
Montreal Protocol]. See infra note 30 (discussing contents and negotiating history of Montreal Protocol).
7  March 22,1989, S. Treaty Doc. No. 5,102d Cong., 1st Sess. (1991), reprinted in 19 Envtl. Pol'y & L. 68 (1989); Int'l Env't
Rep. (BNA) 21:3101; 28 I.L.M. 657 (1989) (not in force) [hereinafter Basel Convention].  See infra note 15 (discussing
contents of Basel Convention). The Basel Convention will enter into force on May 5,1992.
8 See Clean Air Act § 157,42 U.S.C. § 7457 (repealed 1990) (directing Environmental Protection Agency (EPA) to respond
by regulation if there is reason to believe that health and environment are endangered by human activities that deplete
stratospheric ozone); 40C.F.R.pt. 762 (1978 implementingregulationscurtailingnon-essentialusesofchlorofluorocarbons).
Section 157 was repealed and replaced with a new provision tracking the Montreal Protocol's structure and substance.
Clean Air Act §§ 601-618, 42 U.S.C. §§ 7671-7671q.
9  See Resource Conservation and Recovery Act of 1976, § 3017,42 U.S.C. § 6938 [hereinafter RCRA]; 40 C.F.R. §§ 262.50-
.57 (implementing regulations requiring consent of government of country of import prior to foreign shipment of
hazardous wastes). See also 40 C.F.R. parts 262 & 263 (repealed 1986) (previous regulations requiring notice only). The
Basel Convention was recently submitted to the Senate for its advice and consent to ratification. See supra note 6.
Accompanying implementing legislation, which would supersede the RCRA statutory scheme, tracks the structure and
substance of the Basel Convention.
10 See, e.g., P. Sand, Lessons Learned In Global Environmental Governance (1990).
11  For the sake of  precision, the generic term "international agreement" as used in this Article encompasses all
instruments binding under international law. The term "treaty" is limited to those international agreements for which
the Senate's adviceand consent to ratification is necessary or has been given under U.S. Const, art. II, § 2. See 1 Restatement
(Third)  of the Foreign Relations Law of the United States §§301 & 303 comment a (1987) [hereinafter Restatement]. Cf.
infra note 48 (identifying and contrasting executive agreements).
12 See generally Sand, supra note 9; Developments in the Law—International Environmental Law, 104 Harv. L. Rev. 1484,
1521-50 (1991) [hereinafter Developments in the Law].  See generally Kirgis, The Promulgation of International Norms
                                                                               SUPPORTING PAPERS  a  219

-------
 in the UN System by Nontraditional Methods, in The United Nations in the International Legal Order (O. Schachter &
 C. Joyner eds. 1992) (in press) (discussing international "legislative" mechanisms other than multilateral treaty
 negotiations).
 13 See, e.g., Developments in the Law, supra note 11, at 1521. The development of customary norms is generally slower
 than multilateral "legislative" mechanisms, the resulting standards are not necessarily precisely crafted to respond to the
 underlyingproblem, and customary legal principles ordinarily respond sluggishly if at all to new scientific evidence. For
 example, in the famous Trail Smelter case between the United States and Canada, an international arbitral, tribunal
 articulated the following rule of customary international law:

 [UJnder principles of international law... no state has the right to use or permit the use of its territory in such a manner
 as to cause injury by fumes in or to the territory of another or the properties or persons therein, when the case is of serious
 consequence and the injury is established by clear and convincing evidence.

 Trail Smelter Case (U.S. v. Canada), 3 R.I.A.A. 1905,1965 (1938-1941). This principle has also been increasingly widely
 accepted as a statement of customary international law generally applicable to case of pollution, including media other
 than air.  See, e.g., 2 Restatement, supra note 10, § 601 reporters' note 1; International Law Association, Report of the
 Sixtieth Conference Held at Montreal 161,165 (1983) (resolution concerning legal 'aspects of the conservation of the
 environment); Gunther Handl, International Liability of States for Marine Pollution, 21 Can. Y.B. Int'l L. 85,90 n.25 (1983).
 However, given the posture of the international arbitration, the legal force of this principle is not entirely without
 question. See, e.g., Kirgis, Technological Challenge to the Shared Environment: United States Practice, 66 Am. J. Int'l L.
 290,293 (1972) (noting that "Canada did not actively contest its responsibility for the conduct of the smelter"). Moreover,
 despite its extensive endorsement and the lip service paid to it, this standard is probably more often honored  in the breach
 than in the observance, particularly in the area of air pollution. Otherwise, all that would be necessary to breathe clean
 air would be to walk to a national border.
 14  July 8,1985, [1991] Int'l Ern^t Rep. (BNA) 21:3021; 271.L.M. 698 (1988).
 15 Oct. 31,1988,18 Envtl. Pol'y & L. 228 (1988); 11991 ] Int'l Env't Rep. (BNA) 21:3041; 281.L.M. 212 (1989) [hereinafter NOX
 Protocol].
 16  See supra note 6.  The Basel Convention prohibits exports and imports of hazardous and other wastes  by parties to
 the Convention to and from nonparty states. Second, the Convention bans shipments of hazardous and other wastes to
 parties that have prohibited imports. Third, the Convention establishes a prior informed consent procedure for parties
 that have not prohibited waste imports. In advance of shipment, the country of export notifies the receiving state, which
 then has an opportunity to reject the shipment simply by declining to receive it. Fourth, the Basel Convention requires
 that states of export prohibit shipments of hazardous and other wastes if there is reason to believe that the wastes will
 not be managed in an environmentally sound manner in the country of import. Last, the Convention articulates an
 obligation for states  of export to ensure that international shipments of wastes are accepted for re-import if those
 shipments do not conform to the terms of export.
 17 See Clean Air Act §§ 401-416,42 U.S.C. §§ 7651-7651o (acid rain provisions added by Clean Air Act Amendments of
 1990).
 18 See RCRA § 3017,42 U.S.C. § 6938; 40 C.F.R. §§ 262.50-.57 (implementing regulations requiring consent of government
 of country of import prior to foreign shipments of hazardous wastes).
 19 See, e.g., Phillippe J. Sands, The Environment, Community, and International Law, 30 Harv. Int'l LJ. 393,396-401 (1989)
 (arguing for a greater role for non-state actors in international law). See generally T. Subramanya, Rights and Status of
 the Individual in International Law (1984).
220  a  THE GREENING OF WORLD TRADE

-------
20  See generally D. W. Bowett, The Law of International Institutions (4th ed. 1982).  One notable exception is the
International Labor Organization (ILO), in  which members of the public—in that case workers' and employers'
organizations—are voting delegates to the annual' International Labor Conference. The ILO's "tripartite" structure
assures that nongovernmental representatives at the Conference, which is the ILO's plenary body that adopts binding
multilateral conventions, are equal to governmental delegates in total numbers. See Constitution of the International
Labor Organization, arts. 3 & 4,62 Stat. 3485, T.I. A.S. No. 1868,15 U.N.T.S., amended, June 25,1953,7 U.S.T. 245, T.I. A.S.
No. 3500,191 U.N.T.S. 143, amended, June 22,1962,14 U.S.T. 1039, TJ A.S. No. 5401,466 U.N.T.S. 323, amended, June 22,
1972,25 U.S.T. 3253, T.I. A.S. No. 7987. Even in the ILO, however, rights of participation by nongovernmental parties are
collective, not individual.
21 See, e.g., Administrative Procedure Act, 5 U.S.C. §§ 551-559,701 -706 [hereinafter APA]; Freedom of Information Act,
5 U.S.C. § 552 [hereinafter FOIA]; Government in the Sunshine Act, 5 U.S.C. § 552b; Federal Advisory Committee Act, 5
U.S.C. app. I. Cf. Directive on the Freedom of Access to Information on the Environment, 33 O.J. Eur, Comm. (No. L158)
56 (1990), Int'l Env't Rep. (BNA) 131:7001 (establishing guidelines for free access to publicly held information relating to
the environment).
22 The United Nations (UN) Charter explicitly addresses participation by private entities, including so-called "non-
governmental organizations" (NGOs), as observers in the work of the Organization. U.N. Charter art. 71 ("The Economic
and Social Council may make suitable arrangements for consultation with non-governmental organizations which are
concerned with matters within its competence."). The UN's Economic and Social Council (ECOSOC) has established a
formal system for interacting with NGOs awarded consultative status with that body. See E.S.C. Res. 1296, 44 U.N.
ESCOR Supp. (No.l) at 21, U.N. Doc. E/4548 (1968).
  Category I organizations             ...
  are concerned with most of the activities of the Council and can demonstrate to the satisfaction of the Council that they
have marked and sustained contributions to make to the achievement of the objectives of the United Nations (with respect
to international economic, social, cultural, educational, health, scientific,  technological and related matters and to
questions of human rights),  and are closely involved with the economic and social life of the peoples of the areas they
represent and whose membership, which should be considerable, is broadly representative of major segments of the
population in a large number of countries.
Id. 116.
Category II organizations also operate on the international level, but have special competence in competence or interest
in only some of ECOSOC's activities. ECOSOC also maintains a "Register" or "Roster" of "other organizations which can
make occasional and useful contributions to the work of the Council or in subsidiary bodies or other United Nations
bodies within their competence." As of early 1992, forty-one and 352 NGOs had been granted Category I and Category
II consultative status, respectively, and an additional 223 were included on the "Register" or "Roster." Depending on their
classification, NGOs with consultative status may be entitled to send representatives  to meetings, to submit written
statements to the Council, to make oral statements at meetings of the Council and its subsidiary bodies, and to request
inclusion of items on the Council's provisional agenda. Specialized agencies and other organs in the UN system also have
their own approaches to participation by non-governmental observers. For example, the United Nations Environment
Program (UNEP) has routinely accredited non-governmental observers to multilateral negotiations.  See, e.g., Sand,
Protecting the Ozone Layer: the Vienna Convention is Adopted, 27 Env't, June 1985, at 19,42 (exhortation to NGOs by
Chief of Environmental Law Unit and Deputy Director of Environmental Management Service of UNEP to participate
in drafting and enforcement processes for framework convention on protection of stratospheric ozone layer).  The
Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES), Mar. 3,1973, art. XI(7), 27
                                                                               SUPPORTING PAPERS  Q  221

-------
 U.S.T. 1087, T.I.A.S. No. 8249, 993 U.N.T.S. 243, reprinted in Int'l Env't Rep. (BNA) 21:2101;12 I.L.M. 1035 (1973),
 specifically provides for participation by non-voting observers in meetings of the parties to that agreement.
     By contrast, industry and trade unions have institutionalized advisory roles in the Organization for Economic
 Cooperation and Development (OECD), but there is no similar formal opportunity for involvement of representatives of
 public interest environmental organizations in their own right. NGOs are not customarily admitted as observers to
 meetings held under the auspices of the General Agreement on Tariffs and Trade (GATT). See Rules of Procedure for
 Sessions of the Contracting Parties, rules 8 & 9, reprinted in General Agreement on Tariffs and Trade, Basic Instruments
 and Selected Documents 10 (12th Supp. 1964) [hereinafter BISD] (limiting observers to governments and intergovernmental
 organizations). Substantive international lawin particular areasmay also createentry points to assure some accountability
 to the public.  For fnstance, the widely accepted methodology of environmental impact assessment—the international
 analog of the National Environmental Policy Act of 1969, 42 U.S.C. §§ 4321-4370—includes public participation as a
 component of a larger framework designed to assure the soundness of decision-making processes that may have adverse
 environmental impacts. See generally David A. Wirth, International Technology Transfer and Environmental Impact
 Assessment, in Transferring Hazardous Technologies and Substances: The International Legal Challenge 83 (G. Handl
 & R. Lutz ed. 1989). Private sector representatives may be included on official United States delegations to multilateral
 conferences, in which case, however, they are representatives of the government and may be bound by governmental
 instructions. See generally John McDonald, How to Be a Delegate (1984). Other formal and informal channels for input
 at the national level may also exist. See, e.g., Trade Act of 1974 § 135,19 U.S.C. § 2155 (1988)(directing trade negotiators
 to consult with private sector representatives and establishing Advisory Committee for Trade Policy and Negotiations).
 23 See, e.g., World Bank, Directive on Disclosure of Information (1989) (establishing exclusive list of releasable documents
 and categorically excluding key documents, such as president's reports and memoranda, supervision reports, and project
 completion reports, from release regardless of information contained therein). John H.Jackson, World Trade and the Law
 of GATT 901-12(1969) (reviewing documentation policies of GATT and noting that "[m]uch of the documentation, when
 issued, is 'restricted' to government officials"). For example, the Draft Final Act Embodying the Results of the Uruguay
 Round of Multilateral Trade Negotiations in GATT is classified as "restricted." See G.A.T.T. Doc. MTN.TNC/W/FA
 (Dec. 20,1991) [hereinafter Draft Final Act]. See infra notes 101 & 102 (discussing Uruguay Round).
 24 For a discussion of the causes and effects of stratospheric ozone depletion, see generally National Research Council,
 Ozone Depletion, Greenhouse Gases,  and Climate Change (1989); United States Environmental Protection Agency &
 United Nations Environment Programme, Effects of Changes in Stratospheric Ozone and Global Climate Change (1986);
 United States National Aeronautics and Space Administration, Ozone Trends Panel Report (1988)(consensus findings of
 panel of more than 100 scientists).
 25  Clean Air Act  § 157, 42 U.S.C. § 7457 (repealed 1990).  Section 157 was repealed and replaced with a new and
 considerably more detailed statutory directive tracking the Montreal Protocol. Clean Air Act §§ 601-618,42 U.S.C. §§ 7671-
 7671q.
 26 See Clean Air Act § 307(d), 42 U.S.C. § 7607(d) (rulemaking). Cf. Administrative Procedure Act § 4,5 U.S.C. §553 (notice
 and comment rulemaking).
27 40 C.F.R. part 762. A number of other countries, including Canada and the Nordic nations, enacted similar controls
 on nonessential aerosol uses of CFCs. By contrast, the European Community (EC) established a limit, considerably above
 then-existing levels, on total CFC production. See Thomas Stoel, Alan S. Miller & Breck Milroy, Fluorocarbon Regulation:
 An International Comparison (1980).
28 See, e.g., J.C. Farman, B.C. Gardiner & J.D. Shanklin, Large Losses of Total Ozone in Antarctica Reveal Season CIO /
222  a  THE GREENING OF WORLD TRADE

-------
NOX Interaction, 315 Nature 207 (1985)(report of British Antarctic Survey Team). Cf. 45 Fed. Reg. 66,726 (Oct. 7,1980)
(advance notice of proposed rulemaking discussing possibility of production controls beyond 1978 aerosol ban).
291 -Natural Resources Defense Council, Inc. v. Thomas, Civ. No. 84-3587 (D.D.C. May 17, 1986) (consent decree
establishing schedule for regulatory action on CFCs).
30 Negotiations had been proceeding since the early 1980s on a "framework" multilateral convention establishing an
institutional basis for global cooperation and an ancillary agreement, known as a "protocol," containing regulatory
measures for CFCs. When negotiations on the CFC protocol broke down, the framework agreement alone was adopted.
Vienna Convention for the Protection of the Ozone Layer, March 22,1985, T.I. A.S. No. 11,097, reprinted in 14 Envtl. Pol'y
& L. 72 (1985); [1991] Int'l Env't Rep. (BNA) 213101; 261.L.M. 1516 (1987) [hereinafter Vienna Convention]. See 132Cong.
Rec. S9165 (Jul. 24,1986) (resolution of advice and consent to ratification).  The Vienna Convention itself contains no
substantive requirements for controlling emissions of ozone-depleting chemicals. Instead, it embodies only a vague
exhortation to protect the stratospheric ozone layer through the implementation of "appropriate measures." Id. art. 2(1).
Negotiations on the protocol, which resumed in 1986 after a scheduled one-year "cooling off" period, coincided with an
upsurge in public concern about the Antarctic ozone hole, which broke the deadlock and  facilitated adoption of the
Montreal Protocol in September 1987. See infra note 30. For the history, structure, and functioning of the United Nations
Environment Program (UNEP), see generally Lynton K. Cald well, International Environmental Policy 71-83 (2d ed. 1990);
Mark A. Gray, The United Nations Environment Programme: An Assessment/20 Envtl. L.  291 (1990).
31 See supra note 5. The Montreal Protocol, adopted in September 1987, requires an incremental fifty per cent reduction
in the consumption of five ozone-depleting CFCs by the end of this century. Through 1991, the Montreal Protocol was
in force for seventy countries, including the United States. The Senate gave its advice and consent to ratification on March
14,1988, see 134 Cong. Rec. S2109 (1988), and the United States ratified the Protocol on April 21,1988. Revisions to the
Protocol, which are not yet in force, require a total phase-out by industrialized countries in consumption of CFCs and
other related compounds, including a class of chemicals known as halons, before the end of the century. For a history
of the negotiations leading to the Montreal Protocol and its 1990 revisions, see generally Richard E. Benedick, Ozone
Diplomacy: New Directions in Safeguarding the Planet (1991); Sharon Roan, Ozone Crisis:  The 15-Year Evolution of a
Sudden Global Emergency (1989); Barratt-Brown, Building a Monitoring and Compliance Regime Under the Montreal
Protocol, 16 Yale J. Int'l L. 519 (1991); Jamison Koehler & Scott A; Hajost, The Montreal Protocol: A Dynamic Agreement
for Protecting the  Ozone Layer, 19 Arnbio  82 (1990); Peter M. Morrisette, The Evolution of Policy Responses to
Stratospheric Ozone  Depletion, 29 Nat. Resources J. 793 (1989); Dale S.  Bryk, The Montreal  Protocol and Recent
Developments to Protect the Ozone Layer, 15 Harv. Envtl. L. Rev. 275 (1991); Note, The Future's So Bright, I Gotta Wear
Shades: Future Impacts of the Montreal Protocol on Substances That Deplete the Ozone Layer, 29 Va. J. Int'l L. 211 (1988);
H. Christian Sorensen, Recent Developments, 29 Harv. Int'l L.J. 185 (1988).
32 40C.F.R.pt82.
33 EPA announced the status of the negotiations through narrative descriptions and provided an opportunity for public
comment on certain issues. See, e.g., 52 Fed. Reg. 29,110 (1987) (notice concerning preparation of environmental impact
statement and other issues); 51 Fed. Reg. 40,510 (1986) (notice of availability of risk assessment); 51 Fed. Reg. 21,576 (1986)
(notice of workshop and conference); 51 Fed.Reg.5091 (1986) (same); 51 Fed.Reg. 1257 (1986)(announcement of program
plan). Interim drafts of the Protocol also circulated informally. EPA did not, however, formally publish these interim
drafts of the Montreal Protocol. The text of Montreal Protocol appeared in the Federal Register for the first time only in
final form in EPA's notice of proposed rulemaking to implement the international instrument domestically. 52 Fed. Reg.
47,489,47,515(1987).
                                                                               SUPPORTING PAPERS  a  223

-------
 34 In responding to the argument of some commentators that the Clean Air Act contained more demanding requirements
 for the regulation of ozone-depleting chemicals than the Montreal Protocol, the Agency made the following assertion:

     EPA... believes that in deciding whether and how to regulate under section 157(b) it may consider other countries'
 effect on stratospheric ozone and the effect of United States action on other countries' willingness to take regulatory
 action. There is no dispute that the cause and effects of ozone depletion are global in nature. Ozone-depleting emissions
 from all nations mix in the atmosphere and threaten the stratosphere above every nation. Thus, in order to assess the risk
 of ozone depletion and the need for regulatory action, EPA must consider other nations' actions affecting the stratosphere.
 A logical next step in this analysis is what effect United States action could have on other nations' actions now and in the
 future....

     ... EPA judged that the obvious need for broad international adherence to the Protocol counseled against the United
. States' deviating from the Protocol, because any significant deviation could lessen other countries'  motivation to
 participate. To the extent the Protocol's  existing control requirements were later found more or less  stringent than
 necessary to protect stratospheric ozone,  EPA noted that  key provisions in the agreement afford the Parties the
 opportunity to review and revise those requirements— Industry commenters also generally agreed with EPA's concern
 that deviating from the Protocol risked undermining it. They recognized that implementation of less stringent controls
 than the Protocol required would be unacceptable, and shared EPA's concern that implementation of more stringent
 controls would yield little, if any, additional stratospheric protection, while possibly reducing other countries' incentive
 to join the Protocol.

 53 Fed. Reg. 30,566, 30,569, 30,573-74 (1988)(final regulation implementing  Montreal Protocol). This position of the
 Executive Branch has now been reversed by the Congress, which has enacted legislation regulating ozone-depleting
 chemicals more stringently than the Montreal Protocol by requiring the following: (1) a larger number of intermediate
 reduction steps; (2) a phase-out in some alternatives to substances controlled in the Montreal Protocol; (3) the introduction
 of a recycling program; and (4) an additional requirement, not found in the Montreal Protocol, specifying that substitutes
 for substances controlled by the Montreal Protocol must be environmentally benign. Clean Air Act §§ 601-618,42 U.S.C.
 §§7671-7671q.
35  See Restatement, supra note 10, § 301; 22 C.F.R. part 181 (State Department regulations establishing standards for
identifying international agreement); 11 F.A.M.  pt 700, reprinted in 1  Michael J. Glennon & Thomas M. Franck, United
States Foreign Relations Law: Documents and Sources 203  (1980) (same) [hereinafter Glennon & Franck]; 76 State 1394
(Mar. 9, 1976), reprinted in 1 Glennon & Franck, supra, at 14 (same); Memorandum of American Law Division,
Congressional Research Service, Library of Congress (Mar. 17,1978), reprinted  in 1 Glennon & Franck, supra,  at 6
(defining international agreement).
36 U.S. Const, art. VI, § 2. See Whitney v. Robertson, 124 U.S. 190,194 (1888) ("By the Constitution a treaty is placed on
the same footing, and made of like obligation, with an act of legislation.");  Restatement, supra note 10, § 111; Louis
Henkin, Foreign Affairs and the Constitution 163-64 (1972).
37 The PaqueteHabana, 175 U.S. 677,700 (1900). See  Restatement, supra note 10, §111; Henkin, supra note 35, at 221-
24. Cf. supra note 12 (discussing customary international law of environment).
38 See Restatement, supra note 10, § 115(2) & cmt c & reporters' note 1; Henkin, supra note 35, at 163-64.
39 See, e.g., United States v. Guy W. Capps, Inc., 204 F.2d 655 (4th Cir. 1953), aff'd on other grounds, 348 U.S. 296 (1955)
(invalidating executive agreement as inconsistent with statute); Swearingen v. United States, 565 F. Supp. 1019 (D. Colo.
1983) (same); Restatement, supra note 10,  § 115 reporters' note 5; Henkin, supra note 35, at 184-87. Although possible
as a matter of principle, the number of instances in which courts have invalidated international agreements is very small.
224  a  THE GREENING OF WORLD TRADE

-------
40 See, e.g., Garcia-Mir v. Meese, 788 F.2d 1446 (llth Cir. 1986), cert, denied sub nom Ferrer-Mazorra v. Meese, 479 U.S.
889 (1986) (upholding action of Attorney General authorizing detention of aliens in violation of international law);
Fernandez-Roque v. Smith, 622 F. Supp. 887 (N.D. Ga. 1985)(same). But see Rodriguez-Fernandez v. Wilkinson, 654 F.2d
1382 (10th Cir. 1981)(affirming grant of petition of habeas corpus for detention of alien in violation of international law).
See generally Henkin, supra note 35, at 221 -22; Louis Henkin, The Constitution and United States Sovereignty: A Century
of Chinese Exclusion and Its Progeny, 100 Harv. L. Rev. 853,864 (1987)(noting that dictum in Garcia-Mir could be read
to support an "assertion that... the President and lesser executive officials may disregard a treaty or a rule of international
law"); Frederic L. Kirgis, Jr., May the President Violate Customary International Law? (Cont'd), 81 Am. J. Inf 1 L. 371
(1987); Jonathan I. Charnay, May the President Violate Customary International Law? 80 Am. J. Int'l L. 913 (1986).
41 See Murray v. The Schooner Charming Betsy, 6 U.S. (2 Cranch) 64,118 (1804) ("an Act of Congress ought never to be
construed to violate the law of nations if any other possible construction remains"); Chew Heong v. United States, 112
U.S. 536,539-40 (1884) (interpreting statute to avoid conflict with earlier treaty); United States v. Palestine Liberation
Organization, 695 F. Supp. 1456,1468-71  (S.D.N.Y. 1988) (same); 1 Restatement, supra note 10, § 114 & reporters' note 1
(citing additional cases construing statutes to avoid conflict with earlier treaty provisions); Henkin, supra note 35, at 163-
64.
42 Additionaly, the rule probably also reflects the courts' deference to the political branches in  foreign affairs. See
generally Jonathan I. Charney, Judicial Deference in Foreign Relations, in Foreign Affairs and the U.S. Constitution 98
(Louis Henkin, Michael J. Glennon & William D. Rogers ed. 1990); Thomas M. Franck, Courts and Foreign Policy, Foreign
Pol'y, Sum.1991, at 66.
43 United States v. Curtiss-Wright Export Corp., 299 U.S. 304,319 (1936).  See Henkin, supra note 35, at 45-50.
44 U.S. Const, art. II, §-2. See generally Henkin, supra note 35, at 130-36.
45 U.S. Const, art. II, § 2. For article II, section 2 treaties, the President enters into international commitments provisionally,
conditional upon subsequent ratification after Senate advice and consent. See 1 Restatement, supra note 10, § 303
comment d; Henkin, supra note 35, at 133-36.
46  There may nonetheless be a great deal of interaction between the legislature and the Executive Branch during
negotiations.  For instance,  in  the stratospheric ozone example, there were a number of Congressional hearings,
resolutions, and bills introduced designed to influence the progress of the negotiations. See generally Benedick, supra
note 30; Roan, supra note 30.                                                                              '
47 See, e.g., Montreal Protocol, supra note 5, art. 18 (no reservations permitted); Basel Convention, supra note 6, art. 26
(same).                                 .   -                                                           .    ,
48 The Senate ordinarily has wide discretion to give or withhold its consent to ratification  subject to conditions or
reservations. See 1 Restatement, supra note 10, § 303 cmt d; Henkin supra note 35, at 133-36. For the effect of reservations
to a multilateral agreement as a matter of international law, see Vienna Convention on the Law of Treaties, May 22,1969,
arts. 19-23, & Exec. Doc. L, 92d Cong., 1st Sess. (1971), reprinted in 63 Am. J. Int'l L. 875 (1969), 81.L.M. 679 (1969). This
instrument, although not in  force for United States, has been accepted by the Executive Branch  as a codification of
customary international law regarding international agreements. See S. Exec. Doc. L, supra, at 1; Restatement, supra note
10, part III, introductory note.
49 See supra note 10. So-called "executive agreements," entered into by the President without the necessity for Senate
advice and consent, may have as their authority one or more of the following: (1) Congressional legislation; (2) an article
II, section 2 treaty; or (3) the President's own Constitutional powers. See Restatement, supra note 10, § 303 (1987); 11
F.A.M. § 721.2; Henkin, supra note 35, at 173-87. See, e.g., Resource Conservation and Recovery Act of 1976, § 3017(f), 42
U.S.C. § 6938(f) (authorizing bilateral executive agreements on export of hazardous wastes waiving otherwise applicable
                                                                                SUPPORTING PAPERS  a  225

-------
                                                          'I
 statutory provisions for notice and prior consent to government of country of export); Agreement Concerning the
 Transboundary Movement of Hazardous Waste, Oct. 28,1986, United States-Canada, T.I.A.S. No. 11,099, reprinted in 26
 I.L.M. 593 (1987) (waiving necessity for notice and prior consent).
 50  Between 1949 and 1990, 683 international agreements were concluded as treaties in the constitutional sense. By
 contrast, during the same period 12,122 executive agreements—nearly eighteen times as many instruments—were
 entered into. Treaty Affairs Staff, Office of the Legal Adviser, U.S. Dep't of State, Treaties and Other International
 Agreements Concluded During the Year (1991).
 51 See Restatement,supranotelO, § 303(4) cmtg;Henkin, supra note 35, at 176-84. Among the President's plenary powers
 that may support a "sole" executive agreement are his role as commander-in-chief, U.S. Const, art II, § 2, cl. 1, his
 prerogative to appoint ambassadors, id. art. II, § 2, cl. 2, his mandate to receive ambassadors, id. art. II, § 3, his
 responsibility to "take Care that the Laws be faithfully executed," id., and the vesting of the executive power in him  id,
 artIL§2,d.l.
 52 See, e.g., infra notes 82-94 and accompanying text (discussing multilateral executive agreements on air pollution).
 According to State Department policy, a choice between concluding an international agreement as, on the one hand, a
 treaty in the Constitutional sense and, on the other, an executive agreement is determined by consideration of the
 following eight factors:

 (1) the extent to which the agreement involves commitments or risks affecting the nation as a whole; (2) whether the
 agreement is intended to affect State laws; (3) whether the agreement can be given effect without the enactment of
 subsequent legislation by the Congress; (4) past United States practice as to similar agreements; (5) the preference of the
 Congress as to a particular type of agreement; (6) the degree of formality desired for an agreement; (7) the proposed
 duration of the agreement, the need for prompt conclusion of an agreement, and the desirability of concluding a routine
 or short-term agreement; and (8) the general international practice as to similar agreements.

 11 F.A.M. § 721.3, reprinted in 1 Glennon & Franck, supra note 34, at 205. State Department policy also counsels "the
 utmost care... to avoid any invasion or compromise of the constitutional powers of the Senate, the Congress as a whole,
 or the President." Id., Cf., Case-Zablocki Act, 1 U.S.C. § 112b (instructing Secretary of State to "transmit to the Congress
 the text of any international agreement..., other than a treaty, to which the United States is a party" after conclusion).
 53  See supra note 38.
 54  See, e.g., Foster v. Neilson, 27 U.S. (2 Pet.) 253,314 (1828); Comm. of United States Citizens in Nicaragua v. Reagan,
 859 F.2d 929,937-38 (D.C. Cir. 1988); United States v. Postal, 589 F.2d 862 (5th Cir. 1979), cert, denied, 444 U.S. 832 (1979);
 Restatement, supra note 10, § 111, cmt h & reporters' note 5; Henkin, supra note 35, at 156-62. In these instances, the
 implementing legislation, and not the treaty, is given effect as domestic law. Whether an international agreement creates
 a cause of action for private parties is a related but distinct question. See Restatement, supra note 10, § 111 cmt h. This
 issue is analogous to the existence of express or implied private rights of action under a regulatory statute. See generally
 Timbers & Wirth, Private Rights of Action and Judicial Review in Federal Environmental Law, 70 Cornell L. Rev. 403
 (1985).
 55 See supra note 38.
 56 The leading case on the political question doctrine is Baker v. Carr, 369 U.S. 186 (1962), in which the Court stated
    Not only does resolution of [questions touching foreign relations] frequently turn on standards that defy judicial
 application, or involve the exercise of a discretion demonstrably committed to the executive or legislature; but many such
 questions uniquely demand single-voiced statement of the Government's views. Yet it is error to suppose that every case
 or controversy which touches foreign relations lies beyond judicial cognizance.
226  a  THE GREENING OF WORLD TRADE

-------
Id.at 211-212. Cf. Gold water v. Carter, 444 U.S. 996,998 (1979) (Powell,J., concurring) (emphasizing that political question
doctrine "incorporates three inquiries:  (i) Does the issue involve resolution of questions committed by the text of the
Constitution to a coordinate branch of Government? (ii) Would resolution of the question demand that a court move
beyond areas of judicial expertise? (iii) Do prudential considerations counsel against judicial intervention?").  But see
Japan Whaling Ass'nv. Am. Cetacean Soc'y, 478 U.S.221 (1986) (declining to apply political question doctrine to questions
of statutory interpretation involving foreign relations concerns). See infra notes 60-69 and accompanying text (discussing
of Japan Whaling). There has been widespread  concern over uneven application of the doctrine.  See generally Henkin,
supra note 35, at 210-16; Martin H. Redish, The Federal Courts in the Political Order: Judicial Jurisdiction and American
Political Theory (1991); Linda Champlin & Alan Schwarz, Political Question Doctrine and Allocation of the Foreign
Affairs Power, 13 Hofstra L. Rev. 215 (1985); Michael J. Glennon, Foreign Affairs and the Political Question Doctrine, 83
Am. J. Int'l L. 814 (1989); Michael J. Glennon, Foreign Affairs and the Political Question Doctrine, in Foreign Affairs and
the U.S. Constitution, supra note 41, at 107; Henkin, Is There a "Political Question" Doctrine?, 85 Yale LJ. 597 (1976);
Harold Hongju Koh, Why the President (Almost) Always Wins in Foreign Affairs: Lessons of the Iran-Contra Affair, 97
Yale LJ. 1255,1305-17 (1988); Martin H. Redish, Judicial Review and the "Political Question," 79 Nw. U.L. Rev. 1031,1059-
60 (1985).
57 See supra note 42 and accompanying text.
58 See, e.g., Statute of the International Court of Justice, June 26,1945,59 Stat. 1055, T.S. No. 993; Case Concerning Military
and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States), 19861.C.J. 14,149 (order and judgment
concluding that support of military actions by Nicaraguan "contras" violated international obligations of United States
arising from both customary law and international agreement).
59 A significant number of multilateral undertakings in the environmental area have resulted in non-binding, hortatory,
"soft" instruments. E.g., London Guidelines for the Exchange of Information on Chemicals in International Trade, U.N.
Doc UNEP/ WG.155/L.1 Annex I (1987), adopted G.C. Dec. 14/27,42 U.N. G AOR Supp. (No. 25) at 79, U.N. Doc. A/42/
25 (1987), amended, U.N. Doc. UNEP/PIC/WG.2/4 app. (1989), adopted as amended G.C. Dec. 15/30,44 U.N. GAOR
Supp. (No. 25) at 156, U.N. Doc. A/44/25 (1989), reprinted in 19 Envtl. Pol'y & L. 125 (1989); Goals and Principles of
Environmental Impact Assessment, U.N. Doc. UNEP/WG.152/4 Annex (1987), adopted G.C. Dec. 14/25 (1987), 42 U.N.
GAOR Supp. (No. 25) at 77, U.N. Doc. A/42/25 (1987), reprinted in 17 Envtl. Pol'y & L. 36 (1987); Montreal Guidelines
for the Protection of the Marine Environment Against Pollution from Land-Based Sources, U.N. Doc. UNEP/WG.120/
3 Annex (1985), noted, G.C. Dec. 13/18,40 U.N. GAOR Supp. (No. 25) at 51, U.N. Doc. A/40/25 (1985), reprinted in 14
Envtl. Pol'y & L. 77 (1985); Recommendation on  Implementation  of a Regime of Equal Right of Access and Non-
Discrimination in Relation to Transfrontier Pollution, O.E.C.D. Doc. C(77)28, reprinted in Organisation for Economic Co-
operation and Development, OECD and the Environment 150 (1986) [hereinafter OECD and the Environment]; 4 Envtl.
Pol'y & L. 53 (1978); 161.L.M. 977 (1977); Recommendation on Equal Right of Access in Relation to Transfrontier Pollution,
O.E.C.D. Doc. C(76)55, reprinted in OECD and the  Environment, supra, at 148; 2 Envtl. Pol'y & L. 104 (1976); 151.L.M.
1218 (1976); Recommendation on Principles Concerning Transfrontier Pollution, O.E.C.D. Doc. C(74)224, reprinted in
OECD and the Environment, supra, at 142; 1 Envtl. Pol'y & L. 44 (1975); 141.L.M. 242 (1975). While not creating formal
international legal obligations, these precatory instruments nonetheless establish widely accepted standards for desirable
or sound state practice. See, e.g., Pierre-Marie Dupuy, Soft Law and the International Law of the Environment, 12 Mich.
J. Int'l L. 420 (1991); Pierre-Marie Dupuy, Remarks, 82 Proc. Am. Soc'y Int'l L. 383 (1988). A number of these "soft"
undertakings have nevertheless matured, through  widespread acceptance, into binding customary law." For example,
Principle 21 of the 1972 Declaration of the United Nations Conference on the Human Environment, following the maxim
sic utere tuo ut alienum non laedas, sets out the basic principle that
    States have, in accordance with the Charter of the United Nations  and the .principles of international law, the
                                                                              SUPPORTING PAPERS  a  227

-------
sovereign right to exploit their own resources pursuant to their own environmental policies, and the responsibility to
ensure that activities within their jurisdiction or control do not cause damage to the environment of other states or of areas
beyond the limits of national jurisdiction.

U.N. Doc. A/CONF.48/14 (1972), reprinted in 11 I.L.M. 1416 (1972).  See generally Louis B. Sohn, The Stockholm
Declaration on the Human Environment, 14 Harv. Int'l L.J. 423 (1973).  Although originally framed as a non-binding
exhortation, Principle 21 over time has tended to acquire the status of a substantive rule of international law.  See, e.g.,
Restatement, supra note 10, § 601 reporters' note 1 (1987); International Law Association, supra note 12, at 165 (resolution
concerning legal aspects of the conservation of the environment); Handl, supra note 12, at 90. Cf. supra note 12 (discussing
Trail Smelter arbitration as evidence of customary law).
60 See supra note 40 and accompanying text.
61 478 U.S. 221 (1986).
62 16 U.S.C. § 1821(e)(2) [hereinafter Packwood Amendment].
63 22 U.S.C. § 1978 [hereinafter Pelly Amendment].
64 Agreement Concerning Commercial Sperm Whaling in the Western Division Stock of the North Pacific, Nov. 13,1984,
United States-Japan T.I.A.S. No. 11,070.
65 Dec. 2,1946,62 Stat. 1716, T.I.A.S. No. 1849 (entered into force Nov. 10,1948) [hereinafter Whaling Convention]. See
generally J.N. Tonnesen & A.O. Johnsen, A History of Modern Whaling (1982); James E. Scarff, The International
Management of Whales, Dolphins, and Porpoises: An Interdisciplinary Assessment, 6 Ecology L.Q. 323 (1977); Gare
Smith, The International Whaling Commission: An Analysis of the Past and Reflections on the Future, 16 Nat'l Res.  Law
543 (1984).
66 In enacting these Amendments, Congress' primary goal
    was to protect and conserve whales and other endangered species. The Secretary furthered this objective by entering
into the agreement with Japan, calling for that nation's acceptance of the worldwide moratorium on commercial whaling
and the withdrawal of its objection to the IWC zero sperm whale quota, in exchange for a transition period of limited
additional whaling	
      We conclude, therefore, that the Secretary's decision to
  secure the certainty of Japan's future compliance with the I WC's program through the 1984 executive agreement, rather
than rely on the possibility that certification and imposition of economic sanctions would produce the same or better
result, is a reasonable construction of the Pelly and Packwood Amendments.
Japan Whaling, 478 U.S. at 241.
67 Indeed, in July 1984 Senator Packwood explicitly requested the assurances of the Secretary of Commerce that "any
nation which continues whaling after the moratorium takes effect will be certified under" the statutory enactment bearing
the Senator's name. Letter from Senator Bob Packwood to Malcolm Baldrige, Secretary of Commerce (June 28,1984),
quoted in Brief for Respondents at 17-18, Japan Whaling Ass'n v. Am. Cetacean Soc'y, 478 U.S. 221 (1986) (Nos. 85-954
& 85-955).
68 See, e.g., Restatement, supra note 10, § 115 reporters' note 5; Henkin, supra note 35, at 186,432-33 n.42.
69 See supra note 38 (citing cases of judicial invalidation of executive agreements inconsistent with statute). The House
of Representatives explicitly and forcefully raised this issue, arguing that the foreign affairs context of the case should not
affect the Court's construction of the statutory directives to the Executive Branch at issue in Japan Whaling. See Brief of
Amici Curiae Speaker and Bipartisan Leadership Group of the House of Representatives, Japan Whaling Ass'n v.  Am.
228  a  THE GREENING OF WORLD TRADE

-------
Cetacean Soc'y, 478 U.S. 221 (1986) (Nos. 85-954 & 85-955). See generally Note, Narrow Grounds for a Complex Decision:
The Supreme Court's Review of an Agency's Statutory Construction in Japan Whaling Association v. American Cetacean
Society, 14 Ecology L.Q. 509 (1987) (criticizing Supreme Court opinion in Japan Whaling for unjustified deference to
Executive Branch interpretation of statutory directive and excessive sensitivity to foreign affairs overtones).
70 Significantly, the Court rejected arguments that the domestic legal effect of the executive agreement with Japan was
a nonjusticiable "political question," that plaintiffs were not entitled to relief because of the absence of a private right of
action, and that the challenged governmental action was unreviewable under the Administrative Procedure Act, 5 U.S.C.
§§ 551-559,701-706. Japan Whaling, 478 U.S. 221,229-30 n.4 (1986). See supra notes 54 & 55 (discussing private rights of
action and political question doctrine). Accordingly, the Court based its conclusion that the executive agreement was an
acceptable alternative to the statutory procedure as an adjudication on the merits of the legal relationship between the
statute and the agreement.
71 748F.Supp. 749 (D.Hawaii 1990), appeal dismissed as moot, 924 F.2d 175 (9th Cir. 1991).
72 42 U.S.C. §§ 4321-4370. See, e.g., Natural Resources Defense Council, Inc. v. Nuclear Regulatory Comm'n, 647 F.2d
1345,1366 (D.C. Cir. 1981) (EIS analyzing effects abroad not required for issuance of nuclear export license, but not
deciding whether NEPA applies to other major federal actions with extraterritorial effects); Environmental Defense Fund
v. Massey, 772 F. Supp. 1296 (D.D.C. 1991) (dismissing complaint alleging application of NEPA to activities of United
States government in Antarctica because statute not intended to apply to extraterritorial impacts). See also Nat'l Org. for
the Reform of Marijuana Laws v. United States Dep't of State, 452 F. Supp. 1226 (D.D.C. 1978) (applicability of NEPA to
pesticide spraying in Mexico to destroy marijuana plants assumed without deciding); Gemeinschaft zum Schutz des
Berliner Baumbestandes v. Marienthal, 9 Envtl. L. Rep (Envtl. L. Inst.) 20,011 (D.D.C. 1978) (construction of apartment
complex in West Berlin not a federal project); Sierra Club v. Coleman, 405 F. Supp. 53,421 F. Supp. 63 (D.D.C. 1975,1976)
(assuming applicability of NEPA to highway through Panama and Colombia), vacated sub nom Sierra Club v. Adams,
578 F.2d 389,391 n.14 (D.C. Cir. 1978) (declining to decide issue in view of impacts in United States); Environmental
Defense Fund, Inc. v. United States Agency for Int'l Dev., 6 Envtl. L. Rep. (Envtl. L. Inst.) 20,121 (D.D.C. 1975) (stipulation
requiring Agency for International Development to promulgate regulations on environmental analysis of activities with
effects outside United States); Sierra Club v. Atomic Energy Comm'n, 6 Env't Rep. Cas. (BNA) 1980,4 Envtl. L. Rep (Envtl.
L. Inst.) 20,685 (D.D.C. 1974)(ordering agency to prepare EIS for reactor export  licenses  and uranium enrichment
activities); People of Enewetak v. Laird, 353 F. Supp. 811,816-819 (D. Hawaii 1973) (application to trust territory).  See
generally Gaines, "Environmental Effects Abroad of Major Federal Actions": An Executive Order Ordains a National
Policy, 3 Harv. Envtl. L. Rev. 136 (1979); Therese M. Welsh, Note, Agency Responses to Executive Order 12,114: A
Comparison and Implications, 14 Cornell Int'l L.J. 481 (1981); Note, Executive Order on Extraterritorial Environmental
Impacts, 13 J. Int'l L. & Econ. 455 (1979); Francis M. Allegra, Note,  Executive Order 12,114 — Environmental Effects
Abroad: Does It Really Further the Purpose of NEPA?, 29 Clev. St. L. Rev. 109 (1980); John C. Pierce, Note, Exports and
Environmental Responsibility: Applying NEPA to the Export-Import Bank,  12 Cornell Int'l L.J. 247 (1979); Sue D.
Sheridan, Note, The Extraterritorial Application of NEPA under Executive Order 12,114,13 Vand. J. Transnat'l L. 173
(1980); Note, The Extraterritorial Scope of NEPA's Environmental Impact Statement Requirement, 74 Mich. L. Rev. 349
(1976);  J.D. Head, Comment, Federal Agency Responsibility to Assess Extraterritorial Environmental Impacts, 14 Tex.
Int'l L.J. 425 (1979); Christopher G. Lehmann, Note, The International Application of the National Environmental Policy
Act of 1969: A New Strategy, 1979 Wash. U.L.Q. 1063; Glenn Pincus, Note, The "NEPA-Abroad" Controversy: Unresolved
by an Executive Order, 30 Buffalo L. Rev. 611 (1981); Comment, President Orders Environmental Review of International
Actions, 9 Envtl. L. Rep. (Envtl. L. Inst.) 10,011 (1979).
73 Greenpeace, 21 Envtl. L. Rep (Envtl. L. Inst.) 20,378,20,381 (D. Hawaii 1990).
74 Greenpeace, 748 F. Supp. 749 (D. Hawaii 1990), appeal dismissed as moot, 924 F.2d 175 (9th Cir. 1991).
                                                                               SUPPORTING PAPERS  a  229

-------
 75  The existence of this agreement played an important
     part of this court's denial of plaintiffs' application for a temporary restraining order. It is an important consideration
 in determining whether defendants complied with NEPA under the specific facts of this case and therefore, plaintiffs
 strongly contest it.
 Id. at 758 n.7. Other factors that affected the court's conclusion that NEPA did apply to environmental impacts beyond
 the territory of the United States included Congressional intent in enacting the statute and the existence of Exec. Order
 No. 12,114, 44 Fed. Reg. 1957 (1979), 3 C.F.R. 356 (1980), reprinted in 42 U.S.C. § 4321 (1982 & Supp. v 1987), on the
 environmental effects abroad of major federal actions. See 748 F. Supp. at 758-63.
 76 See Affidavitof James F. Dobbins, Jr., Principal Deputy Assistant Secretary of State for European and Canadian Affairs,
 Greenpeace USA v. Stone, 748 F. Supp. 749 (D. Hawaii 1990) (No. 90-588).
 77  See Case-Zablocki Act, 1 U.S.C. § 112b(a) (instructing Secretary of State to "transmit to the Congress the text of any
 international agreement (including the text of any oral international agreement, which agreement shall be reduced to
 writing), other than a treaty, to which the United States is a party as soon as practicable after such agreement has entered
 into force with respect to the United States but in no event later than sixty days thereafter"); 22 C.F.R. § 181.2 (State
 Department regulations establishing criteria for determining whether undertaking intended to be binding and therefore
 international agreement and noting that form of undertaking is relevant but not decisive to determination of intent); 1
 Restatement, supra note 10, § 301 cmt e & reporters' note 2 (non-binding "gentlemen's agreements" are not international
 agreements).
 78  40 C.F.R. § 1500.1  (Council on Environmental Quality implementing regulations).
 79 See,e.g.,40C.F.R.§1500.2(d) (statementof federal policy to "[e]ncourageand facilitate public involvement in decisions
 which affect the quality of the'human environment"); id. § 1501.7 (necessity as part of scoping process to "[ilnvite the
 participation of... interested persons (including those who might not be in accord with the action on environmental
 grounds)"); id. § 1503.1 (necessity, with respect to draft EIS, to "[r]equest comments from the public, affirmatively
 soliciting comments from those persons or organization who may be interested or affected"); id. § 1506.6 (instructions to
 agencies requiring public involvement in NEPA process); Exec. Order No. 11,514,3 C.F.R. 902 (1970) (directing federal
 agencies to "[djevelop procedures to ensure the fullest practicable provision of timely information and understanding
 of Federal plans and programs with environmental impact in order to obtain the views of interested parties"); Colony Fed.
 Sav. & Loan v. Harris, 482 F. Supp. 296,304 (W.D. Pa. 1980) ("Citizen participation is a vital ingredient in the success of
 NEPA.  ... An opportunity for local citizens or other interested parties to participate in the preparation of the
 environmental analysis is mandatory under NEPA.") (emphasis in original); Burkey v. Ellis, 483 F. Supp. 897,916 (N.D.
 Ala. 1979) ("[NEPA]  and the [Council on Environmental Quality] Guidelines promulgated under it are designed to
 encourage public participation in the decision-making process.")
 80  See 22 C.F.R. § 161.5 (State Department regulations implementing NEPA, expressly contemplating application to
 international agreements); 40 C.F.R. § 1508.18(b)(l)(Council on Environmental Quality's definition of "major Federal
 action," including "treaties and international conventions or agreements"). But see Public Citizen v. Office of the United
 States Trade Representative, No. 91-1916,1992 U.S. Dist. Lexis 122 (D.D.C. Jan. 7,1992) (LEXIS, Genfed library, Dist file)
 (dismissing complaint alleging application of NEPA to Uruguay Round of Trade Negotiations in GATT and North
 American Free Trade Agreement on standing and ripeness grounds).
 81  Cf. Consumers Union of the United States, Inc. v. Kissinger, 506 F.2d 136 (1974), cert, denied, 421 U.S. 1001 (1975)
 (suggesting that non-binding international statements of intent need not comply with statute).
 82  See, e.g., FOIA, 5 U.S.C. § 552(b)(l) (exempting from disclosure matters "specifically authorized  under criteria
 established by an Executive order to be kept secret in the interest of... foreign policy"); Exec. Order No. 12,356,47 Fed.
230  a  THE GREENING OF WORLD TRADE

-------
Reg. 14,874 (1982), 3 C.F.R. 166 (1983) reprinted in 50 U.S.CA. 401 (West Supp. 1989)(classification order). Cf. 22 C.F.R.
§ 161.7(b)(l) (categorically excluding from NEPA "[r]outine conduct of [State Department] and overseas political and
economic functions, including .  . .  communicating to host governments United  States Government views [and]
maintaining contact with foreign officials"); 40 C.F.R. § 1508.12 (excluding "the President, including the performance of
staff functions for the President in his Executive Office" from NEPA's coverage).
83  Members of ECE, which was established in 1947, include all European states, the United States, and Canada. See
generally Amasa S. Bishop & Robert D. Munro, The UN Regional Economic Commissions and Environmental Problems,
26 Int'l Organization 348,358-68 (1972); Gunnar Myrdal, Twenty Years of the United Nations Economic Commission for
Europe, 22 Int'l Organization 617  (1968).
84 November 13,1979,T.I.A.S.No.lO/541,reprintedinEnvtl.Pol'y&L.104(1980);Int'lEnv'tRep.(BNA)21:3001;18I.L.M.
1442 (1979) [hereinafter LRTAP Convention]. Through 1991, thirty-two states and European Community (EC) were
parties to the LRTAP Convention, which entered into force in 1983. See generally Amy A. Fraenkel, The Convention on
Long-Range Transboundary Air Pollution: Meeting the Challenge of International Cooperation, 30 Harv. Int'l L.J. 447
(1989).
85 See supra note 14 [hereinafter NOX Protocol]. The NOX Protocol entered into force on February 14,1991. The United
States is not party to an earlier protocol to LRTAP, concluded in 1985 in Helsinki, concerning sulfur emissions. See supra
note 13 and accompanying text.
86  November 19,1991,  [hereinafter VOC Protocol].
87  See supra note 29.
88  See supra note 5.
89 Clean Air Act Amendments of 1990 §§ 401-416, Pub. L. No. 101-549,104 Stat. 2399,2584-2634 (1990), 42 U.S.C. §§ 7651-
7651 o (acid rain program).
90 Agreement on Air Quality, United States-Canada, Mar. 13,1991, Int'l EnVt Rep. (BNA) 31:0701; 301.L.M. 676 (1991).
International environmental agreements on subjects other than air pollution have also been done as executive agreements.
E.g., Agreement on Cooperation for the Protection and  Improvement of the Environment in the Border Area, Aug. 14,
1983, United States-Mexico, T.I.A.S. No. 10,827, reprinted in Int'l Env't Rep. (BNA) 31:1401; 221.L.M. 1025 (1983); Great
Lakes Water Quality Agreement, Nov. 22,1978, United States-Canada, 30 U.S.T. 1383,T.I. A.S. No. 9257,1153 U.N.T.S. 187,
amended, Oct. 16,1983, T.I.A.S. No. 10,798, amended, Nov. 18,1987.
91  See supra note 32.
92 See supra notes 48 & 51. At the time'the United States accepted the NOX Protocool on July 13,1989. The United States
signed the VOC Protocool on November 19,1991.  At the time of these agreements, the technology-based standards for
nitrogen oxides and volatile organic compounds in those agreements had been implemented domestically through
notice-and-comment rulemaking proceedings pursuant to general statutory mandates then contained in the Clean Air
Act, 42 U.S.C. §§ 7401-7642 (1986), administered by EPA. See Clean Air Act § 307(d), 42 U.S.C. § 7607(d)  (rulemaking).
Those requirements were confirmed and augmented in the acid rain  program mandated by  the Clean  Air Act
Amendments of 1990 § 407, Pub, L. No. 101-549,104 Stat. 2399, 2613 (1990), 42 U.S.C. § 7651.
93 Cf. Clean Air Act § 617,42 U.S.C. § 7671 p (directing and authorizing President to enter into international agreements
"to develop standards and resolutions which protect the stratosphere" from ozone depletion); Clean Air Act § 156,  42
U.S.C. 7456 (repealed 1990) (same).
94 See supra notes 5 & 29.
                                                                              SUPPORTING PAPERS  a  231

-------
95 S. Treaty Doc. No. 10,100th Cong., 1st Sess. VIII (1987) (Montreal Protocol); S. Treaty Doc. No. 9,99th Cong., 1st Sess.
vii (1985) (Vienna Convention).
96 See, e.g., Clean Air Act § 126(b), 42 U.S.C. § 7426(b) (authorizing state or political subdivision to petition EPA to abate
interstate air pollution). Cf. Toxic Substances Control Act § 21,15 U.S.C. § 2620 (citizens' petitions) [hereinafter TSCA].
97 C.F. U.S. Const, amend. I ("Congress shall make no law
... abridging... the right of the people... to petition the Government for a redress of grievances.")
98 See, e.g., Arden-Clarke, The General Agreement on Tariffs and Trade, Environmental Protection and Sustainable
Development (WWF Discussion Paper June 1991); Steve Charnovitz, Exploring the Environmental Exceptions in GATT
Article XX, J. World Trade, Oct. 1991, at 37; Kyle McSlarrow, International Trade and the Environment: Building a
Framework for Conflict Resolution, 21 Envtl. L. Rep (Envtl. L. Inst.) 10,589 (1991); Eliza Patterson, International Trade and
the Environment: Institutional Solutions, 21 Envtl. L. Rep (Envtl. L. Inst.) 10,599 (1991); Stuart Auerbach, Raising a Roar
Over a Ruling: Trade Pact Imperils Environmental Laws, Washington Post, Oct. 1,1991, at Dl; Eric Christensen, Pesticide
Regulation and International Trade, Env't, Nov. 1990, at 2; Mark Ritchie, GATT, Agriculture and the Environment: The
U.S. Double Zero Plan, 20 Ecologist, Nov.-Dec. 1990 at 214; Shrybman, International Trade and the Environment: An
Environmental Assessment of the General Agreement on Tariffs and Trade, 20 Ecologist, Jan.-Feb. 1990, at 30; Joan
Claybrook, Fast Track Can be Hazardous to Your Health, Washington Post, May 17,1991, at A25.  See generally Jeanne
J. Grimmett, Environmental Regulation and GATT (Congressional Research Service, 1991); Seymour J. Rubin & Thomas
R. Graham, eds., Managing Trade Relations in the 1980s: Issues Involved in the Gatt Ministerial Meeting of 1982 (1982).
99 General Agreement on Tariffs and Trade, Oct. 30,1947, arts. XI .1 & XX(b), 61 Stat. (5), (6), T.I. A.S. No. 1700,55 U.N.T.S.
194 [hereinafter GATT], reprinted in 4, BISD, supra note 21. The GATT, which was adopted after World  War II to
encourage freer trade, has over a hundred state contracting parties, and others apply the General Agreement on a de facto
basis. See generally Kenneth W. Dam,TheGATT: Lawand International Economic Organization (1969); Robert E. Hudec,
The GATT Legal System and World Trade Diplomacy (1975); Jackson, supra note 22; Edmond McGovern, International
Trade Regulation (2d ed. 1988); Kenneth R. Simmonds & Brian H. W. Hill, Law and Practice Under the GATT (1988). The
United States has entered into trade agreements after the GATT as executive agreements authorized by prior statute. See,
e.g., Trade Act of 1974  § 101,19 U.S.C. § 2111 (authorizing negotiation of trade agreements, including Tokyo Round of
Trade Negotiations in GATT and United States-Canada Free-Trade Agreement); Omnibus Trade and Competitiveness
Act of 1988 § 1102,19 U.S.C. § 2902 (same, including Uruguay Round of Trade Negotiations in GATT and North American
Free Trade Agreement); Restatement, supra note 10, § 303 cmt e & reporters' notes 8 & 9. The implementing legislation
for both the Uruguay  Round of Trade Negotiations in GATT, infra note 101, and the North American Free Trade
Agreement (NAFTA),  infra note 104, are subject to so-called "fast track" procedures that limit Congress's power of
amendment. See 19 U.S.C. § 2191 & 2903; 102 Cong. Rec. S6765-S6829 (May 24,1991) (rejecting resolution pursuant to 19
U.S.C. § 2192 disapproving President's request for extension of fast track negotiating authority with respect to Uruguay
Round and NAFTA); 137 Cong. Rec. H3517-H3589 (May 23,1991) (same). But see H.R. Res. 146,102d Cong., 1st Sess.,
137 Cong. Rec. H3589-H3590 (May 23,1991) (reiterating Congressional prerogative to modify fast track resolution at any
time if Executive Branch ignores environmental objectives in North American Free Trade Agreement negotiations).
100  GATT, supra note 98, art. XX(b) (exception "[s]ubject 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.")  Cf. id. art. XX(g) (exempting measures "relating
to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions
on domestic production or consumption"). A GATT Working Group on Environmental Measures in International Trade,
which was established in 1971,but never met, has nowbeen convened. Theagenda of the Group includes examining trade
232  n  THE GREENING OF WORLD TRADE

-------
provisions contained in existing multilateral environmental agreements such as the Montreal Protocol, the Basel
Convention, and CITES. See GATT Focus, Oct. 1991, at 1. See also GATT, Trade and the Environment, in International
Trade (1990-1991)(1992)(in press). Presumably, the application of the trade measures identified in these environmental
agreements as between contracting parties to GATT that are not also parties to the agreement in question could violate
that GATT. Cf. GATT, supra note 98 art. XXV(5) (authorizing waiver of obligations by two-thirds vote comprising more
than half total numberof contracting parties). Seealso Economic Declaration: Building World Partnership 115, reprinted
in 27 Weekly Comp. Pres. Doc. 968 (July 22,1991) (statement of Group of Seven major industrialized nations asserting
the need for the GATT "to define how trade measures can properly be used for environmental purposes"); BISD, supra
note 21, at402 (36th Supp. 1990) (GATT Council decision establishing the Working Group on the Export of Domesticially
Prohibited Goods and other Hazardous Substances.)
101  This continuing dispute began in December of 1985 when the Council of Ministers of the European Community (EC)
enacted a bah, to be effective January 1,1988, on the use of growth hormones in the breeding of cattle and on the sale of
beef treated with growth hormones. The United States, threatening retaliatory action, strongly objected to the ban as a
non-tariff barrier to trade unsupported by scientific evidence. Despite the Community's postponement of the date of the
ban on sales until January 1,1989, the United States and the EC were unable to resolve the dispute. Shortly after the ban
went into effect at the beginning of 1989, the United States imposed a 100% tariff on a variety of European foodstuffs.
Neither side, however, has requested the establishment of a dispute settlement panel pursuant to the GATT. See generally
Steven J. Rothberg, From Beer to BST:  Circumventing the GATT Standards Code's Prohibition on Unnecessary Obstacles
to Trade, 75 Minn.L. Rev.505 (1990); Michael B. Froman,The United States-European Community Hormone Treated Beef
Conflict, 30 Harv. Int'l LJ. 549 (1989); Adrian Rafael Halpern, The U.S.-EC Beef Controversy and the Standards Code:
Implications for the Application of Health Regulations to Agricultural Trade, 14 N.C.J. Int'l L. & Com. Reg. 135 (1989).
102  See generally The  New  GATT Round  of Multilateral Trade Negotiations:  Legal and Economic Problems (E.
Petersmann & M. Hilf ed. 1988); Seymour J. Rubin & Mark L. Jones, Conflict and Resolution in US-EC Trade Relations
at the Opening of the Uruguay Round (1989).
103 Draft Final Act, supra note 22 § L, Part C (draft including proposed decision by contracting parties on the application
of sanitary and phytosanitary measures).   See generally  Peter Saravic ,& Hans  van Houtte, eds., Legal Issues  in
International Trade 128-44 (1990) (discussing harmonization). For instance, such measures must be "based on scientific
principles and.... not maintained against available scientific evidence." Id. 16. It is, however, axiomatic that many such
actions under United States law are justified despite the fact that they may involve considerable scientific uncertainty and
that scientists may not be in agreement:
Where a statute is precautionary in nature, the evidence difficult to come by, uncertain, or conflicting because it is on the
frontiers of scientific knowledge, the regulations designed to protect the public health, and the decision that of an expert
administrator, we will not demand rigorous step-by-step proof of cause and effect. Such proof may be impossible to
obtain if the precautionary purpose of the statute is to be served.
Ethyl Corp. v. EPA, 541 F.2d 1,28 (D.C. Cir. 1976) (en bane). See also Reserve Mining Co. v. EPA, 514 F.2d 492,528 (8th
Cir. 1975) (en bane) ("In the context of [the Federal Water Pollution Control Act], we believe that Congress used the term
'endangering' in a precautionary or preventive sense, and, therefore, evidence of potential harm as well as actual harm
comes within the purview of that term."). See generally Talbot Page, A generic View of Toxic Chemicals and Similar Risks,
7 Ecology L.Q.207 (1978). Moreover, the multidisciplinary process of choosing regulatory measures—"risk management"—
is distinct from the strictly scientific basis for regulatory action—''risk assessment:"
Risk management, which is carried out by regulatory agencies under various legislative mandates, is an agency decision-
making process that entails consideration of political, social, economic, and engineering information with risk-related
                                                                               SUPPORTING PAPERS n  233

-------
 [scientific] information to develop, analyze, and compare regulatory options and to select the appropriate regulatory
 response to a potential chronic health hazard. The selection process necessarily requires the use of value judgments on
 such issues as the acceptability of risk and the reasonableness of the costs of control.
 National Research Council, Risk Assessment in the Federal Government: Managing the Process 18-19 (1983).  In the
 determination of risk, national standards are to "tak[e] into account risk assessment techniques developed by the relevant
 international organizations."  Draft Final Act, supra note 22, § L, Part C, para. 16. Further, there is a presumption in favor
 of the adoption on the national level of substantive "international standards, guidelines or recommendations." Id. f f 9-
 11. However, a large number of these international standards for issues like pesticide residues in food are less stringent
 than international standards, such as those established in the Codex Alimentarius. Standards set by international bodies,
 like maximum limits for pesticide residues established in the Codex Alimentarius, are not necessarily as stringent as
 domestic regulatory requirements in the United States.  See, e.g., Gen. Accounting Office, International Food Safety:
 Comparison of U.S. and Codex Pesticides Standards 4 (1991) ("Among the pesticides studied that EPA has rated as
 probable carcinogens, the United States has lower MRLs (maximum residue levels) in 55 percent of the cases; the Codex,
 in only 27 percent").  See generally Food and Agriculture Organization of the  United Nations & World  Health
 Organization, Codex Alimentarius Commission: Procedural Manual (7th ed. 1989). Moreover, the Uruguay Round draft
 text would require central governments in federal  states like the  United States  to preempt standards of subsidiary
 governmental units. Draft Final Act, supra note 22, § L, Part C, 145. Cf. id. pt. G (draft agreement on technical barriers
 to trade). An earlier proposal, supported by the United States, would have made any pesticide tolerances stricter than
 the Codex Alimentarius per se a violation of GATT.  See Christensen, supra note 91.  In any event, the GATT has little
 scientific or technical capacity on which to draw to adjudicate violations of these standards in  concrete cases before
 dispute settlement panels.
 104  GATT, supra note 98, art. XXIII (nullification  or impairment);  GATT, Understanding Regarding Notification,
 Consultation, Dispute Settlement and Surveillance, BISD, supra note 21, at 210  (26th Supp. 1980) [hereinafter 1979
 Understanding]; GATT, Ministerial Declaration on Dispute Settlement Procedures, BISD, supra note 21, at 13 (29th Supp.
 1983); GATT, Decision on Improvements to the GATT Dispute Settlement Rules and Procedures, BISD, supra note 21, at
 61 (36th Supp. 1990). GATT's dispute settlement mechanisms first encourage contracting parties to theagreement to settle
 differences through consultation and negotiation.  GATT, supra note 98, art. XXII (consultation). If that mechanism is
 unsuccessful, an aggrieved party may submit a complaint to the GATT Council, which can appoint a panel of experts to
 hear the dispute. The panel's report, which may find that the  agreement has been "nullified or impaired," must be
 accepted by the Council to have legal force. See generally William]. Davey, Dispute Settlement in GATT, 11 Fordham
 Int'l L.J. 51 (1988) (summary of GATT dispute settlement mechanisms) [hereinafter Davey, Dispute Settlement ii. GATT];
 William]. Davey, Remarks, 84 Proc. Am. Soc'y Int'l L. 135 (1990) (describing recent changes in GATT dispute settlement
 procedures) GATT panels may also award compensation and authorize retaliatory countermeasures by injured states.
 GATT, supra note 98, art. XXIII; GATT Understanding Regarding Notification, Consultation, Dispute Settlement and
 Surveillance, BISD, supra note 21, at 210, Annex, 14 (26th Supp. 1980). Retaliation has only once been authorized by a
 GATT dispute settlement panel. Davey, Dispute Settlement in GATT, supra, at 60. Unless adopted by the GATT Council,
 which ordinarily operates by consensus, the report has no legal force. Accordingly, a "losing" state may unilaterally block
 an effective finding of nullification or impairment.  See id. However, further strengthening of the GATT's dispute
 settlement procedures has been a priority in the Uruguay Round. See GATT, Ministerial Declaration on the Uruguay
 Round, BISD, supra note 21, at 19 (26th Supp. 1987).  In particular, the Draft Final Act specifies that panel reports shall
 be adopted by the GATT Council within 60 days of issuance.  See Draft Final Act, supra note 22, § S 1 14.4 (draft
 understanding on rules and procedures governing the settlement of disputes under articles XXII and XXIII of the GATT).
234  a  THE GREENING OF WORLD TRADE

-------
A standing appellate body, whose reports must be adopted by the Council within 30 days of issuance unless rejected by
consensus, is also created. Id. 11 15.1-.14.
105 If anything, the North American Free Trade Agreement, a proposed regional pact with Mexico and Canada, may have
even more profound environmental impacts. See generally, 56 Fed. Reg. 32,454 (1991) (notice of North American Free
Trade Agreement); Office of the United States Trade Representative, Review of U.S.-Mexico Environmental Issues (1992);
Response of the Administration to Issues Raised in Connection with the Negotiation of a North American Free Trade
Agreement (May 1,1991) (transmission of President to Congress); Environmental Protection Agency & Secretaria de
Desarollo Urbano y Ecologia, Integrated Environmental Plan for the Mexico-U.S. Border Area (First Stage, 1992-1994)
(1992). There is a principled theoretical approach that provides a basis for reconciling these clashes between environment
and trade policies. A 1972 OECD recommendation articulates the so-called "Polluter-Pays Principle," intended as an
international minimum standard requiring the internalization of environmental costs for the express purpose of
eliminating trade distortions arising from disparate domestic environmental policies.  Recommendation on Guiding
Principles Concerning International Economic Aspects of Environmental Policies, O.E.C.D. Doc. C(72)128, reprinted in
OECD and the Environment, supra note 58, at 23 [hereinafter 1972 Recommendation]. See also Recommendation on the
Implementation of the Polluter-Pays Principle, O.E.C.D Doc C(74)223, reprinted in OECD and the Environment, supra
note 58, at 26. Accordingly, failure to implement the Polluter-Pays Principle can be characterized as "pollution subsidy"
that creates unfair trade advantages for industries in those states with environmental policies below the international
minimum standard. The GATT for some time has addressed the elimination of subsidies that produce trade distortions.
See, e.g, GATT, supra note 98, arts VI, XVI (subsidies and countervailing duties); GATT, Agreement on the Interpretation
and Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade, BISD, supra note 26, at 56
(26th Supp. 1980XG ATT Subsidies Code). See also Ministerial Declaration on the Uruguay Round, BISD, supra note 21,
at 19 (33rd Supp. 1987)(agricultural subsidies); Draft Final Act, supra note 22, § I (subsidies and countervailing duties).
Nonetheless, although the GATT permits application of the Polluter-Pays Principle as a domestic environmental
measure, the agreement does not authorize the enforcement of that standard with respect to imported goods through at-.
the-border measures like fees to offset the costs to domestic industries of pollution control measures. See GATT, United
States—Taxes on Petroleum and Certain Imported Substances, BISD, supra note 21, at 136 n 5.2.3-7 (34th Supp. 1988),
reprinted in 271.L.M. 1596 (1988). C.F. 1972 Recommendation, Annex f13 ("[effective implementation of the [Polluter-
Pays Principle] will make it unecessary and undesirable to resort to" at-the-border measures). Consequently, because its
jurisdiction is circumscribed by the subject matter of the underlying agreement, the GATT dispute settlement process,
unlike the domestic institution  of judicial review of administrative action, can only result in a  decision that an
environmental measure is either valid or not justified by the agreement.  As the agreement is currently structured, that
process cannot serve as a forum for determining whether a state has failed to take minimum environmental measures.
Cf. APA § 10(e), 5  U.S.C. § 706(1) (directing reviewing court  to "compel agency action unlawfully withheld or
, unreasonably delayed") See generally United States-Canada Free-Trade Agreement: Hearing Before the Sub^Comm. on
Courts, Civil Liberties and the Administration of Justice of the House Comm. on the Judiciary, 100th Cong., 2d Sess. (1998)
(addressing constitutionality of panel dispute mechanism in article 1904 of United States-Canada Free-Trade Agreement);
Exec. Order No. 12,662 § 3,19 U.S.C. § 2112 note (acceptance by President of decisions of binational dispute settlement
panels in antidumping and countervailing duty cases under United States-Canada Free-Trade Agreement). Revision of
the G ATT's approach to subsidies to address the elimination of such "pollution subsidies," while not a panacea, would
go a long way toward resolving conflicts between environmental and {rade policies.  See generally Arden-Clarke, The
General Agreement on Tariffs and Trade, Environmental Protection and Sustainable Development (WWF Discussion
Paper June 1991); Patterson, Supra note 97.  .
 106 16 U.S.C. § 1371 [hereinafter MMPA]. See generally Caroline E. Coulston, Flipper Caught in the Net of Commerce:
                                                                               SUPPORTING PAPERS a  235

-------
 Reauthorizationof the Marine Mammal Protection Act and Its Effect on Dolphin, 11J. Energy, Nat. Resources & Envtl.
 L, 97 (1990).
 107  Earth Island Inst. v. Mosbacher, 746 F. Supp. 964 (N.D. Cal. 1990), aff'd, 929 F.2d 1449 (9th Cir. 1991). This case arose
 after the Executive Branch had failed to respond to three statutory directives mandating a ban on imported fish — the
 original 1972 MMPA and amendments enacted in 1984 and 1988. 746 F. Supp. at 967-68.
 108 Earth Island Inst. v. Mosbacher, 929 F.2d 1449 (9th Cir. 1991). The Ninth Circuit had previously granted a stay pending
 appeal with respect to imports from Mexico. Id. at 1452  n.3. The Court of Appeals then affirmed a second order of the
 District Court, issued after a conclusion that the federal defendants' finding that Mexico satisfied the statutory standard
 of the MMPA was illegal. Id. at 1451-52. The District Court, on plaintiffs' motion, extended the ban to "intermediary
 nations" that purchase yellowfin tuna abroad and export it to the United States. Earth Island Inst. v. Mosbacher, No. C-
 88-1380 (N.D. Cal. 1992).
 109  GATT, Dispute Settlement Panel Report on United States Restrictions on Imports of Tuna 115.11-.15, reprinted in
 301.L.M. 1594 (1991) [hereinafter Mexican Tuna case].
 110  See supra note 99.
 111  Mexican Tuna case, supra note 108,11 S.24-.26 & 5.31-32.
 112 Id. 11 S.27-.28 & 5.33. The panel concluded that the Dolphin Protection Consumer Information Act, 16 U.S.C. § 1385,
 a labelling statute enacted in December 1990 was also challenged by Mexico, did not contravene the GATT because that
 legislation applies equally to imported products from all countries. Id. 115.43-44. Likewise, the panel found that the Pelly
 Amendment to the Fishermen's Protective Act of 1967,22 U.S.C. § 1978, which authorizes the extension of the MMPA ban
 to all fish products from the offending  nations, was not a violation of GATT because of that statute's  discretionary
 character, which had not been exercised in the case before the panel. Id. 11 5.20-21.
 113 See Washington Post, Sept. 27,1991, at A26 (advertisement by Government of Mexico). See also Auerbach, supra note
 97. The GATT Council recently rejected a request by the EC to adopt the Mexican Tuna panel report. See GATT Council
 Refuses EC Request to Adopt Panel Report on U.S. Tuna Embargo, 9 Int'l Trade Rep. (BNA) 353 (1992).
 114 Like the Mexican tuna case, none of the three other dispute settlement panels that have interpreted the exemptions
 in Article XX, paragraphs b and g, concerning health and natural resources have concluded that those provisions justify
 challenged trade measures. See GATT, Thailand—Restrictions on Importation of and Internal Taxes on Cigarettes, BISD,
 supra note 21, at 200 (37th Supp. 1991), reprinted in 301.L.M. 1122 (1991) (import restrictions not justified by Article XX(b)
 in light of disparate treatment of domestic and imported products); GATT, Canada—Measures Affecting Exports of
 Unprocessed Herring and Salmon, BISD, supra note 21, at 98 (35th Supp. 1989), (export restrictions that discriminate with
 respect to foreign markets not primarily aimed at conservation and therefore not justified by Article XX(g)); GATT, United
 States—Prohibition of Imports of Tuna and Tuna Products from Canada, BISD, supra note 21, at 91 (29th Supp. 1983),
 (import restrictions not justified by Article XX(g) in light of disparate treatment of domestic production and consumption).
 See also United States Canada Free Trade Agreement, In the Matter of Canada's Landing Requirement for Pacific Coast
 SalmonandHerring,Panelno.CDA-89-1807-01(Oct.l6,1989(LEXIS,Intlawlibrary,USCFTAfile),(requirementthatfish
 caught in Canadian waters be "landed" in Canada under Article XX(g), incorporated by reference into article 1201 of
 United States-Canada Free Trade Agreement, 27 I.L.M. 281 (1988), not justified in light of available less burdensome
 alternatives as judged by whether measure would have been adopted if all its costs fell on Canadian nationals). EEC
 Commission v. Denmark, 1988 E. Comm. CT. J. Rep. 4607, [1989] 1 Comm. Mkt. L.R. 619, [1989] 2 Common Mkt. Rep.
 (CCH) 167 (quantitative restrictions on imported beverages sold in containers not approved by Danish government for
 reuse inconsistent with Treaty Establishing European Economic Community, 98 U.N.T.S. 11). Cf. GATT, United States-
 Taxes on Petroleum and Certain Imported Substances, BISD, supra note21, at 136 (34th Supp. 1988), reprinted in 27 I.L.M.
236  n  THE GREENING OF WORLD TRADE

-------
1596 (1988) (analyzing tax on imported chemicals under Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, 42 U.S.C. §§ 9601-75, without examining environmental objectives of statute).  See generally
Charnovitz, supra note 97.
115  Besides the MMPA, supra note 105, the ruling in Mexican Tuna could affect the validity under international law of
a number of United States statutes, including the Packwood and Pelly Amendments, supra notes 61 & 62, at issue in Japan
Whaling; the Endangered Species Act of 1973 (prohibiting trade in endangered species); the African Elephant Conservation
Act, 16 U.S.C. § 420 [104 Stat. 714] (prohibiting ivory imports from countries with inadequate elephant conservation
programs); and regulations, 40 C.F.R. pt.,82, promulgated under the Clean Air Act §§ 601-618,42 U.S.C. §§ 7671-7671q
(restricting imports and exports of ozone-depleting chemicals). Cf. supra note 99 (discussing GATT Working Group on
Environmental Measures in International Trade with mandate to address trade measures in existing environmental
agreements, including the Montreal Protocol, the Basel Convention, and CITES).
116  See 1979 Understanding, supra note 103, Annex I 6(iv) ("Written memoranda submitted to the panel have been
considered confidential, but are made available to the parties to the dispute."). See also Draft Final Act, supra note 22,
§ S If 12.1-2 (draft understanding on rules and procedures governing the settlement of disputes under articles XXII and
XXIII of the GATT specifying that "written memoranda submitted to the panel shall be considered confidential").
117  Cf. Free-Trade Agreement, United States-Canada, Dec. 22 & 23,1987, and Jan.2,1988, art. 1904,271.L.M. 281 (1988)
(providing that the two governments shall initiate dispute settlement proceedings in antidumping and countervailing
duty cases upon request of private litigants, which have the right to appear and be represented by counsel before panel).
118 See 1979 Understanding, supra note 103,115 ("Any contracting party having a substantial interest in the matter before
a panel, and having notified this to the Council, should have an opportunity to be heard by the panel.").
119  See Federal Insecticide, Fungicide, and Rodenticide Act §§ 2,6(b) & (c), 7 U.S.C. §§ 136a, 136d(b)  & (c) (registration
and cancellation and suspension of registration) [hereinafter FIFRA].
120  51 Fed. Reg. 5682 (1986). This interim tolerance, which initially was to have expired  on September 30,1986, was
subsequently extended through September 30,1987. 51 Fed. Reg. 34,369 (1986). EPA had earlier promulgated an interim
tolerance that expired on September 1,1985. 50 Fed. Reg. 2547 (1985). From that date until the revived tolerance of
February 1986 took effect, imported mangoes with any residue of EDB were prohibited from entering interstate commerce
in the United States. See Federal Food, Drug, and Cosmetic Act §§ 408 & 409,21 U.S.C. §§ 346a & 348 (establishment of
pesticide tolerances for agricultural raw commodities and  processed foods) [hereinafter FFDCA]. EPA must  set
tolerances, or allowable residue limits, at the same time it registers a pesticide under FIFRA § 2, 7 U.S.C. § 136a. See
generally National Research Council, Regulating Pesticides in Food: The Delaney Paradox 27 (1987) [hereinafter National
Research Council]. Pursuant to procedures in the FFDCA, EPA publishes a proposed tolerance in the Federal  Register,
invites public  comments on  the proposal, and publishes a notice announcing a final tolerance that responds to  the
comments. See FFDCA §§ 408(d),(e) & 409(b),(c),(d), 21 U.S.C. §§ 346a(d),(e) & 348(b),(c),(d); National  Research Council,
supra,'at27. Cf.APA§ 4,5 U.S.C. §553 (notice and comment rulemaking).
121  Nat'l Coalition Against the Misuse of Pesticides v. Thomas, 809 F.2d 875,883 (D.C. Cir. 1987).
122  Nat'l Coalition Against the Misuse of Pesticides v.Thomas, 815 F.2d 1579 (D.C. Cir. 1987).
123  See supra note 119 (pesticide registration and tolerance-setting).
124  The United States imports approximately $1 billion worth of wine per year, with EC nations that use procymidohe
on wine grapes accounting for over 95% of this value. See 55 Fed. Reg. 39,171 (1990) (proposed Sept. 25,1990) (advance
notice of proposed rulemaking concerning tolerance for procymidone citing "overwhelming trade issues").
                                                                               SUPPORTING PAPERS  a  237

-------
 125 56 Fed. Reg. 19,518,19,519 (1991) (final rule establishing tolerance for procymidone on wine grapes). At an earlier stage
 of the proceeding, EPA warned that it would
     have to take into consideration whether international reaction to import detentions potentially could result in other
 trade disruptions which have wider impacts on the adequacy and af fordability of the food supply. EPA will also have
 to consider whether the United States foreign policy efforts to obtain compliance by other countries with [United States
 statutory] requirements applicable to foods imported to the United States will be undermined if EPA fails to take
 extraordinary action in this instance.
 55 Fed. Reg. at 39,177 (1990) (advance notice of proposed rulemaking). Moreover, notwithstanding an acknowledgment
 that the standards of the Codex Alimentarius are less protective of public health than EPA's, the Agency proposed to rely
 "in appropriate circumstances" on maximum residue limitations established in the Codex Alimentarius on an interim
 basis until a final tolerance was established. Id. at 39,178. See supra note 102 (discussing Codex).
 126  TSCA § 6,25 U.S.C. § 2605.
 127  54 Fed. Reg. 29,460 (1989). According to that notice,
     It is well-recognized that asbestos is a human carcinogen and is one of the most hazardous substances to which
 humans are exposed in both occupational and non-occupational settings. As OSHA [the Occupational Safety and Health
 Administration] stated ..., "OSHA is aware of no instance in which exposure to a toxic substance has more clearly
 demonstrated detrimental health effects on humans than has asbestos exposure." There is wide agreement that all types
 of asbestos fibers are associated with pulmonary f ibrosis (asbestosis), lung cancer, and mesothelioma. Gastrointestinal
 cancer and other cancers at extrathoracic sites, as well as other lung disorders and diseases, have also been associated with
 asbestos exposure, although the consistency and magnitude of the excess risks of these diseases are not as great as for lung
 cancer and mesothelioma.  All of these asbestos-related diseases are life-threatening or disabling and cause substantial
 pain and suffering.
 Id. at 29,468-69.
'128 Corrosion Proof Fittings v. Envtl. Protection Agency, 947 F.2d 1201 (5th Cir. 1991). See TSCA § 19,15 U.S.C. § 2618
 (judicial review).
 129  947F.2datl208n.3.
 130  Brief for Amicus Curiae Government of Canada at 16-19, Corrosion Proof Fittings v. Envtl. Protection Agency, 947
 FJ2d 1201 (5th Cir. 1991). The Province of Quebec also submitted an amicus brief. See 947 F.2d at 1208. Canada did not
 initiatea dispute settlement proceeding under GATT or the Free Trade Agreement. See supra notes 97 & 103 (describing
 GATT dispute settlement mechanism).
 131  GATT, supra note 98, art. XI(1).
 132  Free Trade Agreement, United States-Canada, Jan. 2,1988, art. 603, reprinted in 271.L.M. 281 (1988).
 133 Agreement on Technical Barriers to Trade, Apr. 12,1979, art. 2(1), 31 U.S.T. 405, T.I.A.S. No. 9616, reprinted in BISD,
 supra note 21, at 8 (26th Supp. 1980).
 134  947 F.2d at 1209-1211.
 135 Id. at 1208.
 136 Id. at 1211 n. 8.
 137  See supra note 96.
 138  see supra note 118, §§ 136-136y.
 139  See supra note 118, §136d(b).
238  n  THE GREENING OF WORLD TRADE

-------
140 PFDC A §§ 408 & 409,21 U.S.C. §§ 346a & 348 (establishment of pesticide tolerances for agricultural raw commodities
and processed foods).
141 See supra notes 97 &103. ".
142 FFDCA §§ 408(i) & 409(g), 21 U.S.C. §§ 346a(i) & 348(g) (petitions for review). The statute also provides for agency-
level proceedings in the form of formal objections to a final tolerance and a subsequent administrative hearing. FFDCA
§§ 408(d)(5) & 409(f), 21 U.S.C. §§ 346a(d)(5) & 348(f); National Research Council, supra note 119, at 27-29. Cf. APA § 10,
5 U.S.C. §§ 701-706 (judicial review).
143 See supra note 55.
144 See supra note 42 & 56 and accompanying text.
145 Cf. Restatement, supra note 10, § 115 reporters' note 5 (sole executive agreement inconsistent with state or federal law).
See also Trade Agreements Act of 1979 § 3(a), 19 U.S.C. § 2504(a) (specifying that "[n]o provision of any trade agreement
approved by Congress..., nor the application of any such provision to any person or circumstance, which is in conflict
with any statute of the United States shall be given effect under the laws of the United States"); United States-Canada Free-
Trade Agreement Implementation Act of 1988 § 102(a), 19 U.S.C. § 2112 note (same); United States-Israel Free Trade Area
Implementation Act of 1985, § 5/19 U.S.C. § 2112 note (same).
146 See supra nbte 51.
«7 Id.    '.''.''  ','     .    "'  	''.          '.         ,             •           .
148 See, e.g., Dames & Moore v. Regan, 453 U.S. 654, 663,669 (1981) (describing "only one more episode in the never-
ending tension between the President exercising the executive authority in a world that presents each day some new
challenge with which he must deal and the Constitution, under which we all live and which no one disputes embodies
some sort of system of checks and  balances" and noting that "when the President acts in the absence of congressional
authorization he may enter 'a zone of twilight in which he and Congress may have concurrent authority, or in which its
distribution is uncertain'") (quoting Jackson, J. concurring in Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579,637
(1952)).
149 See, e.g., Senate Foreign Relations Committee: Memorandum of Law on Choice of Instruments for Sinai Accords,
reprinted in 1 Glennon & Franck, supra note 34, at 273 (arguing that portions of executive agreements concluded by
President with Israel  should be treated as article II, section 2 treaties). See generally Arthur W. Rovine, Separation of
Powers and International Executive Agreements, 52 Ind. L.J. 397 (1977);Treaties and Executive Agreements, 71 Proc. Am.
Soc'ylht'lL. 235 (1978).  "                          '                '
150 Cf. Omnibus Trade and Competitiveness Act of 1988 §1102(c), 19 U.S.C. § 2902 (d)(consultations with Congress before
conclusion of trade agreements); Trade Act of 1974 § 102(c), 19 U.S.C. § 2112(c) (same).
151 By enacting subsequent legislation that supersedes as a matter of domestic law an earlier executive agreement on
subject matter within  its enumerated powers, Congress can go considerably farther than this proposal. See Restatement,
supra note 10, § 115(l)(a). Of course, this situation is distinct from a "sole" executive agreement concluded entirely within
the President's plenary powers connected with foreign relations, such as the recognition of foreign governments.  See
supra note 50.  Despite some superficial similarities, this  suggestion is entirely distinct from the so-called "Bricker
Amendment" dispute in the early 1950s. See generally DuaneTannabaum, The Bricker Amendment Controversy: A Test
of Eisenhower's Political Leadership (1988). Senator Bricker proposed a constitutional amendment, and the various forms
of the Bricker Amendment generally applied to all international agreements, including article II, section 2 treaties. This
suggestion, by contrast, calls for a statute that would regulate the domestic legal effect of only those executive agreements
falling within the realm of the Congress's constitutionally enumerated powers. Those executive agreements purely
                                                                               SUPPORTING PAPERS a  239

-------
within the President's exclusive plenary powers concerning foreign relations, and  in particular "sole" executive
agreements on matters like the recognition of foreign governments, would not be covered. See, e.g., United States v. Pink,
315 U.S. 203 (1942) (domestic legal effect of executive agreement recognizing government of Soviet Union); United States
v. Belmont, 301 U.S. 324 (1937) (same).
152 See Japan Whaling Ass'n v. Am. Cetacean Soc'y, 478 U.S. 221 (1986) (declining to apply political question doctrine
to questions of statutory interpretation involving foreign relations concerns).
153 FOIA, by prescribing standards for Executive Branch action arguably within the President's own plenary powers,
goes considerably farther than this proposal.  The statute authorizes withholding documents that are specifically
authorized to be classified pursuant to executive order and are "in fact properly classified pursuant to such Executive
order." 5 U.S.C. § 552b(e)(l)(B). Executive orders establishing the classification system, the asserted legal authority for
which are the President's own constitutional powers, predate FOIA. The legislation is nevertheless a constitutional
exercise of legislative power, and the courts will order the release of information improperly classified. See, e.g., Donovan
v. Fed. Bureau of Investigation, 806 F.2d 55 (2d Cir. 1986); Ray v. Turner, 587 F.2d 1187 (D.C. Cir. 1978).
154 gee supra notes 115 & 116 and accompanying text.
I55 See supra notes 106 & 107.
156 See supra note 42 and accompanying text.
157  See, e.g., Sands, supra note 18 (arguing for creation and regularization of mechanisms for public participation
international law-making and enforcement); David A. Wirth, Legitimacy, Accountability, and Partnership: A Model for
Advocacy on Third World Environmental Issues, 100 Yale L.J. 2645 (1991) (same).
158  See supra note 55. The Administrative Conference of the United States has recommended eliminating the foreign
affairs exception and replacing it with narrower exemptions. 1 C.F.R. § 305.73-5. See also Arthur Earl Bonfield, Military
and Foreign Affairs Function Rule-Making Under the APA, 71 Mich. L. Rev. 221 (1972) (advocating repeal of exception);
Franck, Public Participation in the Foreign Policy Process, in The Constitution and the Conduct of Foreign Policy 66,75
(F. Wilcox & R. Frank ed. 1976) ('Total exemption of foreign affairs functions from administrative process is not justified.
Many aspects of these functions are analogous to domestic  issues now subject to process; the fact that they take on an
international dimension does not necessarily or even probably mean that all forms of administrative process should be
excluded."); Araiza, supra note 54 (advocating statutorily mandated notice-and-comment rulemaking in international
trade context).
159 But cf. Jessica Tuchman Mathews, Redefining Security, Foreign Aff., Spring 1989, at 162 (identifying environment as
security concern).
l60  APA§4,5U.S.C.§553.
lfil  APA §10,5 U.S.C.§§ 701-706.

                                          About the Author

   David A. Wirth is Assistant Professor of Law at Washington and Lee University, Lexington, Virginia,
where he teaches environmental, administrative, public international and foreign relations law. Previously
he was Senior Attorney and Co-Director of the International Program at  the Washington, D.C., office of the
Natural Resources Defense Council.  Mr. Wirth has also been Attorney —Adviser for Oceans and Interna-
tional Environmental and Scientific Affairs in the Office of the Legal Adviser of the U.S. Department of State,
where he had principal responsibility for all international environmental issues, including  exports of
hazardous substances and technologies, acid rain, and stratospheric ozone depletion.
240  D  THE GREENING OF WORLD TRADE
                                                                        *U.S.' G.P.O.: 1993-353-434:80474

-------