House of Commons - Environmental Audit

Select Committee on Environmental Audit Eleventh Report

The World Trade Organisation and the environment

35. The foundations of the international trade regime date back to 1947 when the General Agreement on Tariffs and Trade (GATT) was established in order to promote and manage global economic development. Possibly the most important principle of the GATT (and since 1995 the WTO) is non-discrimination between trading partners or between domestic and foreign producers which should thus lead to freer trade. There are certain exceptions to this principle.[30] In 1994, the GATT Uruguay Round established the WTO to administer the GATT and other trade agreements. It also created a more effective dispute settlement process.[31]

36. There are over 140 Members of the WTO, with 30 countries in the process of accession to the organisation. The organisation is run by its Members. China is a significant newcomer to the WTO, having joined in December 2001.[32] The UK adopts a common position with the EU, and, like all other EU countries, is represented at the WTO by the European Commission.

37. The Preamble to the Marrakech Agreement Establishing the World Trade Organisation included a strong statement on the need for the international trading system to be compatible with, and supportive of, sustainable development objectives. Indeed, Pascal Lamy, Director-General of the WTO, has asserted that Members should remember that 'sustainable development is itself the end-goal of this institution. It is enshrined in page 1, paragraph 1, of the Agreement that establishes the WTO': [33]

Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development,[34]

38. The consideration of sustainable development and the environment is therefore qualified and operates under a number of principles including that:

The WTO is not an environmental protection agency, although there is the acceptance that trade and environmental policies can be made complementary. The WTO's focus is to continue to liberalise trade and to ensure that environmental policies do not obstruct trade, and that trade rules do not prevent adequate domestic environmental protection.
WTO rules already enable countries to enact national environmental protection policies where they do not discriminate between imported or domestic goods or between like products imported from different trading partners.
There should be coordination between trade and environment officials at a national level to ensure that environment-trade conflicts are minimised at the international level. There should also be multilateral coordination on environmental issues through multilateral environment agreements (MEA).[35]

39. A 1994 Uruguay Round Ministerial Decision established a Committee on Trade and Environment (CTE). The broad mandate of the CTE included the consideration of the relationship between trade and the environment in order to promote sustainable development, and to make appropriate recommendations as to modification of the multilateral trading system should such be required.[36] The latest round of negotiations also contains a specific mandate for the CTE further to consider the links between trade and environment.[37]

40. Although sustainable development was prominently included in the Agreement which established the organisation, and subsequently in the Doha Development Agenda[38], the WTO has been extensively criticised for not taking adequate account of the impact of trade on the environment, nor doing enough to mitigate any negative impacts. Pascal Lamy has asserted that for the benefits of liberalisation to show, WTO members must now become aware that policies to offset environmental and social damage can no longer be considered to be the responsibility of other organisations.[39]

The Committee on Trade and Environment

41. Although the CTE was established to improve coordination between environment and trade objectives, the body has received vociferous criticism from a range of NGOs. This is primarily due to a perceived lack of progress on the issues which it was established to consider.

42. Chatham House stated that the CTE has 'not lived up to its promise' by failing to reach consensus on 'any major policy recommendations'.[40] Chatham House argues that this is a function of a lack of political will to address environment-trade issues.[41] Friends of the Earth argued that negotiations in the CTE have been too focused on the debate about environmental goods and services, neglecting to consider the wider implications of the negotiations. [42]

43. These criticisms are sobering considering the additional scrutinising role the CTE and the Committee on Trade and Development (CTD) were given in Paragraph 51 of the Doha Development Agenda (DDA). This called on the CTE and CTD to act as fora to identify and debate the environmental and developmental aspects of all the negotiations 'in order to help achieve the objective of having sustainable development appropriately reflected'.[43] Pascal Lamy, Director-General of the WTO argued that this mandate:

…has come to reshape our thinking. In Paragraph 51, Ministers instructed us to change our frame of mind. In other words, to no longer compartmentalize our work; discussing environmental and developmental issues in isolation of the rest of what we do. These are issues that permeate all areas of the WTO. In fact, it is through the lens of Paragraph 51 that we must now begin to look at the rest of the WTO.[44]

44. Chatham House pointed out that the CTE's original mandate, prior even to the DDA, was very wide in that it was to make recommendations on potential reform of the multilateral trading system.[45] It has failed to do this.

45. The Government believes that the CTE has been making 'steady progress' and is 'clearly pushing forward on all fronts'.[46] It acknowledges that work within the CTE is a function of wider negotiations which have focused on agriculture and non-agricultural market access (NAMA) and thus there has been less of an emphasis on the environment. The Government stressed that its focus was balanced across all the negotiations.

46. It is paramount that the CTE fulfils its mandate in scrutinising the interface between the environment and trade. As the WTO's primary body with this function it is essential, not only for the environment, but also for development objectives, the CTE is not sidelined in addressing a wide range of environment-trade issues. We are concerned that the Government seems to believe that the CTE is fulfilling its role when we have seen evidence to the contrary. If the Government is truly committed to a sustainable international trade system it must, with the EU, be a strong advocate for a serious and urgent debate on these issues in the CTE.

MEA OBSERVER STATUS AND INVOLVEMENT IN CTE NEGOTIATIONS

47. In addition to there being a lack of political will to reach agreement on environmental issues in the CTE, Chatham House pointed out that the way in which the CTE operates hinders effective decision making, by failing to involve fully multilateral environmental agreement (MEA) secretariats:

I think it is an imperfect mechanism because it is not as transparent and as participatory as it ought to be considering the issues that it is dealing with. So there is not a full, meaningful dialogue between the environmental institutions and the WTO in the negotiations. The MEA information sessions, as they are called, are really one-off events that do not seem to permeate into the deliberations of the WTO in any observable way.[47]

48. The greater inclusion of MEA secretariats could also make the CTE more effective due to its current lack of expert environmental and developmental knowledge. It is also argued that the increased presence and participation of MEA secretariats in the CTE could help reduce the risk of potential conflict between MEA and WTO rules.[48]

49. Friends of the Earth said:

…an example of how poorly [the CTE] is working, in that people from the MEA secretariats are almost never invited to participate in the discussions, and when they do, they have to sit there until the end of the session and then make a final comment, so, even if they can get into the room, they feel they are not able to participate properly in the negotiations and that is no way to proceed at all.[49]

50. The WTO-commissioned report The Future of the WTO, discussed the benefits of granting observer status for international organisations:

…decisions regarding cooperation agreements with other international organizations and of granting them observer status are guided by the potential contribution those organisations can offer to the activities of the WTO. Such is the case of World Intellectual Property Organisation (WIPO)… given its expertise and responsibilities on intellectual property.

…

More broadly, the Consultative Board takes a favourable view of "horizontal coordination". Cooperation with other intergovernmental agencies generally adds value to the activities of the WTO. It also helps legitimize the WTO since it complies with the general obligation of conduct, related to cooperation, that is part of public international law.[50]

51. The current involvement of the WIPO in WTO negotiations therefore provides a precedent for greater involvement of international bodies including MEAs. The agreement between the WTO and WIPO explicitly establishes that the WTO 'desires a mutually supportive relationship with the WIPO', and provides that there will be cooperation including in technical areas.[51] WWF advocated that MEA secretariats and UNEP should be granted observer status in WTO bodies, and that information exchange must be improved between international environmental organisations and the WTO.[52] The CBI also called for trade policy to be devised in close consultation with MEA secretariats, which it stated should be granted observer status where not already given.[53]

52. These calls are in line with paragraph 31 of the Doha Ministerial Declaration, outlining the trade and environment work programme. This included a requirement to negotiate on the procedures for enabling regular information exchange between MEA secretariats and the relevant WTO committees, and the criteria for granting observer status to MEAs.

53. The importance of improving coordination between MEAs and the WTO should not be underestimated. The MA stressed the need to change institutional governance to enable better management of ecosystems. It acknowledged that numerous obstacles currently weaken MEAs and that coordination is needed between MEAs 'and more politically powerful international institutions such as economic and trade agreements, to ensure that they are not acting at cross-purposes'.[54]

54. The Government in its written evidence confirmed that it believes that it is 'important that clear and formalised mechanisms for observership and information exchange between the WTO and the MEA Secretariats are agreed as part of the DDA negotiations' and that 'the EU will continue to press for these negotiations to be included'.[55]

55. It is essential that MEAs are more extensively involved not only in the CTE but also in other WTO bodies, especially in light of potential conflicts which may arise if trade rules and MEA rules are contradictory. An agreement between relevant MEAs and the WTO similar to the WTO-WIPO agreement which establishes a mutually supportive relationship with information exchange is essential for sustainability to be better incorporated into WTO negotiations. It is also important that MEAs are able to have substantial impact on negotiations. We agree with the Government that observer status and information exchange should be a priority, and we advocate the Government and EC taking a strong line to ensure that this will be included as part of a completed Round.

A HOLISTIC APPROACH?

56. As highlighted above, many are concerned that the more holistic approach envisaged in the DDA, which would have brought environmental and developmental concerns closer into negotiations, has not been achieved. This is exemplified by the situation that occurs now, when environmental demands may be traded-off against unrelated issues.[56][57] It was felt by some that the existence of an "environment" committee added to this disjointed decision-making process in that environmental aspects tend not to be considered in other committees as this is not seen as their responsibility.

57. Chatham House referred to this problem:

… many of the really difficult, controversial issues related to the environment are not even addressed in the Committee on Trade and Environment. One sees them or one reads of them being debated in the Committee on Sanitary and Phytosanitary Measures or in the Technical Barriers to Trade Agreement Committee as a result of notifications that relate to the remit of those committees but also have environmental implications. So those are where the real debates are happening. Those committees of course are even less transparent and absolutely not participatory than the Committee on Trade and Environment.[58]

58. There is also concern that the establishment of separate environment and development committees hinders a more holistic approach to the issues. The MA demonstrates that more sustainable management requires that environmental and development issues be considered together, as well as more widely in trade negotiations.

59. The Government rejected concerns that the separation of these issues into different committees had prevented a holistic approach to trade and sustainable development. It pointed out that suggestions to bring development and environmental issues closer together has elicited a negative response from developing countries:

… who actually do not want the two to be discussed together; they want to keep them separate because they are worried about what the implications of taking them together might be.[59]

60. The concerns that developing countries have with regards to environmental measures, either that they will be used for protectionist purposes or that they could hinder development objectives, must be addressed if we are to move forward on these issues in a truly sustainable manner.

61. We accept that the creation of the CTE was a genuine attempt to better address cross-cutting environment-trade issues, but are concerned that the CTE is now hindering a more holistic approach to the consideration of these issues. Lack of joined-up thinking will result in missed opportunities to make trade, environment and development policies mutually supportive and risks environmental and developmental objectives being undermined by trade agreements. In order better to ensure the sustainability of trade the CTE must become a more effective decision-making forum. The UK Government and the EC must urgently act to reinvigorate the consideration of environmental issues in the CTE, by insisting that environmental consequences associated with wider negotiations also be considered. It is imperative that the UK and the EU works with developing country members to ensure that they are aware that poverty eradication is heavily dependent upon a functioning environment, and that the EU will not compromise their need to develop and eradicate poverty.

Transparency of WTO negotiations

62. The Sub-committee heard in oral evidence from Chatham House that procedures within the WTO could be improved by making them more transparent and participatory. Chatham House described the CTE as 'imperfect' in part due to this.[60]

63. A report published by the WTO, The Future of the WTO, recognised a range of benefits as a result of closer dialogue with civil society, business and other stakeholders, including the provision of additional knowledge and expertise. However, the authors did stress that there will continue to be a need for a degree of confidentiality or there is the risk that negotiations will not deliver meaningful results due in part to political sensitivity.[61]

64. Increased transparency and accountability, including greater involvement of stakeholders, was identified as important in the MA for creating the conditions within which more effective ecosystem management can happen:

Laws, policies, institutions, and markets that have been shaped through public participation in decision-making are more likely to be effective and perceived as just. Stakeholder participation also contributes to the decision-making process because it allows a better understanding of impacts and vulnerability, the distribution of costs and benefits associated with trade-offs, and the identification of a broader range of response options that are available in a specific context.[62]

65. We recommend that the Government and the EU strive to ensure that the WTO process becomes much more open following conclusion of the Doha Round. We believe this will encourage the delivery of more sustainable negotiation outcomes. This would have the added benefit of helping to ensure that countries can be held more accountable for their negotiating stances.

The relationship between WTO rules and MEAs

66. Although there are many MEAs[63], only a few are of any real significance to the environment-trade interface. These include the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and the United Nations Framework Convention on Climate Change (UNFCC). MEAs are thought to provide a solution to potential trade and environment conflicts, and therefore Agenda 21, the World Summit on Sustainable Development implementation plan, and a number of WTO declarations, call for the multilateral trade system and MEAs to be mutually supportive.[64]

67. The problem is that there exists the possibility that MEA rules may conflict with WTO rules. An example of this could be where an MEA permits trade restrictions against some countries (non-parties to an agreement) but not others (parties). A major fear of the environmental community is that a trade law dispute settlement panel will find that a country has breached its trade law obligations by fulfilling its obligations under an MEA, although this has not happened yet.[65]

68. The potential for such conflict is rejected by some WTO Members who have argued in the CTE that the existing principles of public international law adequately govern the relationship:

The 1969 Vienna Convention on the Law of Treaties as well as the principles of customary law could themselves define how WTO rules interact with MEAs.²⁵ The legal principles of "lex specialis" (the more specialized agreement prevails over the more general) and of "lex posterior" (the agreement signed later in date prevails over the earlier one) emanate from public international law, and some have argued that these principles could help the WTO in defining its relationship with MEAs.[66]

69. The WTO Appellate Body, which considers appeals in WTO disputes, has already made decisions in reference to international law:

On more than one occasion the Appellate Body has used international environmental agreements and declarations to help it understand and interpret the various rights and obligations found in the trade agreements. In doing so, the Appellate Body has expressly sought mutually supportive interpretations and applications, in practice, of both sources of international law, putting into practice the widely-issued calls for mutual supportiveness.[67]

70. Chatham House commented that the decisions of the Appellate Body have 'led to a set of rulings that are legally robust and which create effective balances between trade liberalisation and environmental protection'.[68] However it did acknowledge the shortcomings of the current situation in that decisions made by the Appellate Body do not operate under the principle of stare decisis (earlier decisions do not create a precedent for future decisions).[69]

71. The potential for conflict between MEAs and the WTO has led to calls for greater legal certainty through a decision as to the formal relationship between the bodies. Indeed, paragraph 31 (i) of the Doha Ministerial Declaration initiated negotiations on an aspect of this relationship:

…the relationship between existing WTO rules and specific trade obligations set out in multilateral environmental agreements (MEAs). The negotiations shall be limited in scope to the applicability of such existing WTO rules as among parties to the MEA in question. The negotiations shall not prejudice the WTO rights of any Member that is not a party to the MEA in question;[70]

72. Pascal Lamy, Director General of the WTO, stressed the importance of MEAs and stated that:

The ultimate objective of the negotiation is to ensure that trade and environmental regimes become "mutually supportive". … The Doha Round, in which this issue is currently under negotiation, is a once in [a] lifetime opportunity to confirm the need for "mutual supportiveness."[71]

73. However, it has been argued that this inclusion to the agenda may not have a positive outcome for the environment:

…the Doha mandate on MEAs is viewed by some as hamstrung by its narrow scope; it is only concerned with the use of what the WTO has termed "specific trade obligations" in a currently unspecified set of MEAs and, even then, only between parties to the MEA. In other words, only the least controversial (some would say uncontroversial) aspects of the relationship are being discussed. The negotiating mandate, in a passage that even further limits prospects for progress in these discussions, requires that the negotiations do not result in changes to the existing balance of rights and responsibilities of the WTO members.[72]

74. There is concern that this narrow mandate may even have damaging impacts on international environmental protection regimes.[73] Chatham House pointed out that any attempt to modify the relationship between MEAs and the WTO should not 'jeopardise' the current situation in which the Appellate Body has shown itself as being able to come to some balanced conclusions as to the relationship between trade and the environment.[74] Some countries have suggested that the status quo should be maintained due to the risk of a loss of this balance.[75]

75. Nevertheless, maintenance of the current situation comes with its own disadvantages. A lack of clarity may cause uncertainty in international law which, WWF argued, has led to a chilling effect in the formulation of new international environmental regulation:

… I was speaking a while ago to an American who is closely involved in negotiating the CITES agreement, the MEA which governs trade in endangered species. They said they could not foresee an MEA like that being negotiated today, given the current climate in terms of multilateral trade rules. There is an unseen impact here, which is what does not happen as a result of the failure to reconcile this tension of jurisdiction.[76]

76. The Government acknowledged that progress on this issue has so far been slow, but affirmed its commitment to a clarification of the relationship between WTO and MEA rules:[77]

We strongly believe that it would be valuable to achieve an outcome which does clarify the relationship between the WTO and MEAs and, furthermore, on the basis that they are mutually supporting. That is not the view of all our partners including some developed country partners, but it is certainly the UK line. There is a lack of clarity which we believe it would be worth clarifying.[78]

77. We are concerned that a lack of clarification of the legal interface between the WTO and MEAs is leading to unnecessary uncertainty in the formulation of new, and the application of existing, MEAs. This therefore must be addressed as part of a successful Doha Round. As knowledge of the interactions between poverty, environmental degradation and economic activity improves it seems increasingly likely that economic priorities are going to have to be balanced against sustainable development priorities. For this to occur a robust legal foundation is imperative. We therefore urge the Government and EC to do all in their power to move forward on this issue. However, it is of utmost importance that any agreement reached must acknowledge that MEA and WTO rules have to be mutually supportive. If negotiations develop in such a way that MEAs look set to become disadvantaged in comparison to the current situation, the Government should strongly resist such a conclusion.

Is there a need for a new environment-trade body?

78. During the course of our inquiry a number of NGOs called for the introduction of a new environment-trade body in order to address concerns that the WTO is not providing an adequate arena within which to resolve environment-trade issues. Chatham House stated that any such body should have three functions:

One would be the analysis of the problem… I think there is a lot more analysis and fact finding that needs to take place on the very complex relationship between trade liberalisation and the environment.

Secondly, the body would need to develop recommendations for policy-making, and I am saying that very cautiously because I am not suggesting that we create a brand new institution that is going to make all the decisions on trade and environment. I envisage a more realistic scenario whereby a body can make recommendations to the more specialised agencies that relate to their competencies, so the WTO in relation to eliminating economic and trade protectionism, and MEAs in the development of their trade agenda that promotes their objectives…

The third function is dispute settlement. There will be cases where conflicts will arise. The WTO Dispute Settlement Body, as robust and in many ways constructive as it has been, is really there to apply WTO law. It is not there to interpret or apply the law of other international treaties… So there is a gap; there is not yet a place where there is a sufficient mandate or sufficient trust to resolve disputes relating to trade and environment...[79]

79. Friends of the Earth conducted an analysis of this issue and found that alternative international fora could already provide 'real options for trade and environment negotiations outside of the WTO and that Governments have no need to resort to the WTO for solving disputes over WTO and environmental rules'.[80] They established that the International Court of Justice (ICJ) and the Permanent Court of Arbitration are likely to be the most effective fora for dispute settlement outside of the WTO.[81] In addition, on the basis of environmental expertise, openness, and legal and political significance, the ICJ and International Law Commission (ILC) would be most promising as bodies to formulate objective and transparent rules by ensuring:

… that MEA provisions are not automatically subordinated under the goal of trade liberalisation or considered legitimate only as long as they are implemented as the least trade restrictive measure possible.[82]

80. We asked Government officials about their view on the establishment of a new body:

In practical terms of resolving issues that might emerge, I do not see how the creation of a new body would help… The only thing I would say is that you would have to then resolve the relationship between that body and the WTO disputes settlement body, which just gives us another problem to solve along the way. So in terms of who would have primacy to rule on whose rules, I think it is a complex solution that there is not an easy answer to.[83]

81. Moves to address environment-trade issues may ultimately prove inadequate unless the WTO can be used to ensure that sustainable development is more fully considered in trade negotiations, and unless MEAs are able to protect the environment without the risk of contravening WTO rules. Although we accept that the Government may be correct in saying that a new body may create new problems, the current lack of progress on formulating a coherent approach to these issues within the WTO suggests that an alternative approach may be needed. This may involve certain functions of the WTO being transferred into other international fora such as the International Court of Justice. We call on the Government to raise this issue with the EC and other EU Member States, with a view to the adoption of a policy to ensure interactions between international organisations can be made more mutually supportive.

30 The World Trade Organisation (WTO), Standard Note SN/EP/1491, House of Commons Library, May 2006 Back

31 United Nations Environment Programme & International Institute for Sustainable Development, "Environment and Trade - A Handbook", International Institute for Sustainable Development (2005) Back

32 The World Trade Organisation (WTO), Standard Note SN/EP/1491, House of Commons Library, May 2006 Back

33 "Trade can be a friend, and not a foe, of conservation - Lamy", WTO News, October 2005, www.wto.org Back

34 "Marrakech Agreement Establishing the WTO", WTO, 1994, Paragraph 1, www.wto.org Back

35 "Parameters of the discussion in the WTO", WTO, October 2006, www.wto.org Back

36 "Trade and Environment at the WTO", WTO, www.wto.org Back

37 "Doha WTO Ministerial Declaration 2001", WT/MIN(01)/DEC/1, 14 November 2001, paras 32 & 51 Back

38 The mandate for the Doha round of negotiations. Back

39 "Trade can be a friend, and not a foe, of conservation - Lamy", WTO News, October 2005, www.wto.org Back

40 Ev25 Back

41 Q41 [Mr Tarasofsky] Back