World Environmental Issues

Many environmental issues are cross border in nature. Low environmental standards in one state may have an adverse effect on other states. Some environmental concerns are of a worldwide nature, including, the impact of Greenhouse gas emissions.

There may be shared natural resources such as water and air bodies adjacent to national boundaries.

Trade may be used as a sanction or motivation in the negotiation of environmental standards. Environmental issues may arise in trade agreements in the context of providing a level playing field.

On the one hand, states may seek to obtain international investment by under cutting their environmental standards to the detriment of the population and workers. On the other hand, overly onerous environmental standards may cause a loss of industries or market share to foreign producers who face less stringent standards. It is argued to be unfair that states with more lax standards can exert downward pressure through trade on those with higher standards.

Environment and WTO

The GATT and WTO agreements do not contain detailed provisions on trade and the environment. However, the GATT agreement allows states to maintain measures necessary to protect human, animal or plant life or health or relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption. The measures must not be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or be a disguised restriction in world trade.

The World Trade Organisation agreement preamble refers to 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 so doing in a manner consistent with the members’ respective needs and concerns, at differing levels of economic development.

Environmental issues have been raised on a number of occasions in disputes as to the necessity of particular measures to protect human, animal, plant life or health, which are permitted by way of exception to the general principles of non-discrimination in relation to imports.

The Panel cases indicate that measures should be approached firstly for consistency with the exceptions and then evaluated as to whether they are applied in an unjustifiably discriminatory way.

The measures in question must address an interest and must not be arbitrarily or unjustifiably discriminatory in themselves. Measures which are inconsistent with the purposes of GATT and are likely to destabilise the trading system are not readily justifiable. The measures must be consistent with domestic restrictions. If there are comparable effective measures that can readily be taken, the exceptions will be subject to greater scrutiny.

States must apply the exceptions in good faith. They must not be a disguised restriction on international trade. The measures must not be applied in a manner that constitutes arbitrary or unjustifiable discrimination between states in which the same conditions prevail.

Discrimination may be justified if it is consistent with a rationally related to a legitimate policy objective. Broad discretionary or ambiguous elements are less likely to be consistent with the exception.

Panel decisions have indicated that a state may justify trade restrictions beyond its territory, but not if the   impact of the restrictions would be to induce other states to change their laws and policies.

Carbon Taxes

EU and many other developed countries have applied carbon taxes in the context of their carbon reduction obligations. There have been proposals (2014) to apply carbon tariffs and emission allowance requirement on imported products. This proposal has generated considerable controversy.

Developed countries argue that in the absence of such provisions, their domestic measures would be negated, and they may lose industry to countries with lower standards, which are major CO2 emitters. Their own industries may relocate directly to such countries in with a loss of domestic employment and investment.

Complex issues arise to whether such measures are compatible with GATT. Members are free to impose a charge equivalent to an internal tax consistent with the GATT agreement in respect of domestic and imported products and in respect of products manufactured or produced in whole or in part form the imported product.

The measures must be justified under one of the exceptions. The imported products and the resultant manufactured products must not be taxed more than the level of tax imposed on equivalent domestic product.

Similar issues arise with government subsidies to promote renewable energy production or offset the cost of changing conventional production processes so as to reduce carbon emissions. They must be justified under the Subsidies and countervailing measures agreement.

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