Session 12: Lecture Notes on

Trade and Environment

D.Sridhar Patnaik
Assistant Professor
Indian Society of International Law, New Delhi
________________________________________________________________________

The relationship between trade and environment has become an

important topic for discussion at both the domestic and international
level. With the advent of the World Trade Organization (WTO)
agreements leading to free trade and environmental concerns at the
same time have made these issues more significant. Growing concerns
for protection of environment for a longtime led to the principles of
sustainable development and protection and preservation of
environment as fundamental goals of the WTO. The objective of such
an approach is to achieve a balance between environmental protection
and growth of international trade. The link between trade and
environmental protection in terms of the impact of environmental
policies on trade, and the impact of trade on the environment was
recognized as early as 1970. It may be recalled that growing
international concern about the impact of economic growth on social
development and the environment led to a call for an international
conference on how to manage the human environment and the resultant
was the 1972 Stockholm Conference. During the preparations of this
conference, a study “Industrial Pollution Control and International
Trade” was prepared. The study focused on the implications of
environmental protection policies on international trade. It reflected the
concern of trade officials at the time and that such policies could
become obstacles to trade as well as constitute a new form of
protectionism. In the following decades environmental policies began
to have an increasing impact on trade, and with increasing trade flows,
the effects of trade on the environment had also become more
widespread. During the Tokyo Round of trade negotiations (1973–
1979), participants took up the question of the degree to which
environmental measures (in the form of technical regulations and
standards) could form obstacles to trade. An Agreement on Technical
Barriers to Trade (TBT), also known as the “Standards Code”, was
negotiated, which called for non-discrimination in the preparation,
adoption and application of technical regulations and standards, and for
them to be transparent. During the Uruguay Round (1986–1994), trade-
related environmental issues were once again taken up and certain
environmental issues were addressed in Agreement on Sanitary and
Phytosanitary Measures (SPS), Agreement on Subsidies and
Countervailing Measures (SCM) and Trade Related Aspects of
Intellectual Property Rights Agreement (TRIPS).

The goals of sustainable development and protection and preservation

of environment have been outlined in the Marrakesh Agreement, which
established the WTO and in turn complement the WTO’s objective to
trade barriers and eliminate discriminatory treatment in international
trade relations. It may be emphasized here that the objective of WTO is
to have a smooth, fair and predictable trading system based on the
principles of Non-Discrimination, Reciprocity, Binding and
Enforceable Commitments, Transparency and ensuring Fair
Competition. Under the WTO, there is no specific agreement dealing
with the environment and Member States can adopt trade related
measures as per the WTO rules in order to protect the environment.

An attempt has been made in this primer to provide a comprehensive

overview of environment measures in the WTO Agreements. This
primer is to be read along with the study material which has been
already circulated.

Trade and Environmental Laws: Interface

Environmental Concerns in GATT/WTO Agreements: The

fundamental legal principles upon which the present day liberal trade
regime rests are to be found in the text of the GATT 1994 as well as its
predecessor GATT1947. However GATT 1947 made no express
mentioned of the word ‘environment’. Perhaps the reason not to
mention the word ‘environment’ was during those days
environmentalism as a movement had not attained momentum.
Eventually when formation of the WTO took place as a result of the
Uruguay round, environmentalists wanted to make sure that
environment was included in the WTO working committees.
References to the concerns of Environment in the WTO Agreement can
be found in
- Preamble of the WTO

In the preamble to the Marrakesh Agreement establishing the WTO,

reference was made to the importance of working towards
sustainable development. It states that WTO members recognize:
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.
The WTO takes into account environmental concerns and no longer
allows the full use of the world’s resources. Although this was one
of the objectives in the preamble of the GATT 1947, it was no
longer appropriate to the world trading system in the light of
increasing concerns for environmental protection.

- Article XX on General Exceptions of GATT

Exceptions in Article XX of the GATT allow Members to apply

measures which do not constitute arbitrary or unjustifiable
discrimination between countries or a disguised restriction on
international trade, if those measures are necessary to protect
human, animal or plant life or health or relating to the conservation
of exhaustible natural resources. Such rules of the WTO are set forth
to achieve a balance between rights of the Members to take
regulatory measures, including trade restrictions to attain legitimate
policy objectives. Here lies the significance of the General
Exceptions clause.

The WTO Dispute Settlement Body (WTODSSB) for example

reaffirmed interalia in the Shrimp-Turtle Case (1998), US-Gasoline
(1996), Brazil Retreaded Tyres(2007) cases the discretion of the
WTO Members to adopt trade related measures aimed at protecting
the environment. Since the entry into force of the WTO in 1995, the
WTODSSB dealt with a number of disputes concerning
environment-related trade measures. Such measures have sought to
achieve a variety of policy objectives — from conservation of sea
turtles from incidental capture in commercial fishing to the
protection of human health from risks posed by air pollution. WTO
jurisprudence has affirmed that WTO rules do not take precedence
over environmental concerns.

The landmark dispute in the WTO dealing with trade and

environment is the Shrimp Turtle Case (1998) a dispute between the
United States on one side, and India, Malaysia, Pakistan and
Thailand on the other, on the importation of shrimp and shrimp
products from the latter countries to the former. It brought to the
surface that trade and environmental interests could clash, and posed
the difficult challenge of reconciling this clash with the multilateral
trading regime. In this case the WTO pushed members towards a
strengthening of their environmental collaboration; it required that a
cooperative environmental solution be sought for the protection of
sea turtles between the parties to the conflict.

The US-Gasoline case was brought by Venezuela and later Brazil

against the US. The panel report was adopted in 1996. The case did
not challenge a country’s right to set environmental standards. The
central question was about discrimination — whether the US
measure discriminated against imported gasoline and in favour of
domestic refineries.

At issue in the Brazil-Measures Affecting Import of Retreaded Tyres

case (2005-2007) was Brazil’s ban on imports of retreaded tyres.
The European Communities (EC) challenged the ban as a violation
of WTO rules, whereas Brazil defended the measure as necessary to
protect health and the environment. The Panel held that, although
the ban was necessary to protect health and the environment, it was
applied in a WTO-inconsistent manner because Brazil failed to
enforce a similar ban on used tyre imports. Thus, the Panel decision
effectively directed Brazil to impose further trade restrictions so as
to advance its environmental objective. Previous WTO decisions
have not gone this far in safeguarding environmental values. This
case has the potential to become a milestone in the jurisprudence of
the WTO on matters relating to trade and environment as previous
WTO decisions have not gone this far in safeguarding
environmental values.

- Agreement on Sanitary and Phytosanitary Measures (SPS)

The SPS Agreement stipulates general provisions relating to

measures taken to protect human, animal and plant life or health
from certain specified risks. SPS measures are to be based on a risk
assessment conducted pursuant to Article 5 of the Agreement. It
deals with Assessment of Risk and Determination of the Appropriate
Level of Sanitary or Phytosanitary Protection. In the assessment of
risks, Members shall take into account available scientific evidence;
relevant processes and production methods; relevant inspection,
sampling and testing methods; prevalence of specific diseases or
pests; existence of pest or disease free areas; relevant ecological and
environmental conditions; and quarantine or other treatment. The
purpose is to ensure that consumers are being supplied with food
that is safe to eat and ensuring animal and plant health. Under the
WTO rules, the SPS Agreement allows countries to set their own
standards. But it also says regulations must be based on science.
They should be applied only to the extent necessary to protect
human, animal or plant life or health and they should not arbitrarily
or unjustifiably discriminate between countries where identical or
similar conditions prevail. The basic aim of the SPS Agreement is to
maintain the sovereign right of any government to provide the level
of health protection it deems appropriate, but to ensure that these
sovereign rights are not misused for protectionist purposes which
could result in unnecessary barriers to international trade.

- Agreement on Technical Barriers to Trade (TBT)

The WTO Agreement on Technical Barriers to Trade also governs
the national laws on the environment. Technical regulations and
standards are important, but they vary from country to country.
Having too many different standards makes life difficult for
producers and exporters. If the standards are set arbitrarily, they
could be used as an excuse for protectionism. Standards can become
obstacles to trade. But they are also necessary for a range of reasons,
from environmental protection, safety, national security to consumer
information. In a nutshell, it may be said that the TBT Agreement
deals with government regulations on products.

- Agreement on Subsidies and Countervailing Measures (SCM)

The objective of this Agreement is to regulate the use of subsidies
and to further regulate the actions countries can take to counter the
effects of subsidies. In general parlance, subsidy is a form of
financial assistance given to a particular sector. Article 1 of the
SCM Agreement defines subsidy as involving a financial
contribution by a government or any public body within the territory
of a member or any form of income or price support which confer a
benefit on the recipient. And the SCM Agreement introduces an
environmental subsidy provision which permits Governmental
assistance to promote adaptation of existing facilities to new
environmental requirements.
- Trade Related Aspects of Intellectual Property Rights
(TRIPS) Agreement
The Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS), negotiated in the Uruguay Round, introduced
intellectual property rules into the multilateral trading system for the
first time. Article 27(2) of the TRIPS Agreement states that
Members may exclude from patentability, inventions whose
prevention within their territory is necessary to protect among other
objectives, human, animal or plant life or health or to avoid serious
prejudice to the environment.
These provisions are specifically designed to address the
environmental concerns related to the protection of intellectual
property.
- Committee on Trade and Environment (CTE)
The WTO also supports sustainable development and the
environment through its specialized committees and bodies like the
CTE. It is a forum for dialogue on trade and the environment. The
1994 Ministerial Decision (Marrakesh Conference) on Trade and
Environment created the WTO’s Committee on Trade and
Environment (CTE), which is open to the entire WTO membership,
with some international organizations as observers. The committee’s
mandate is broad, and has contributed to identifying and
understanding the relationship between trade and the environment in
order to promote sustainable development and make appropriate
recommendations regarding modifications of the provisions of the
multilateral trading system. Although the CTE has not
recommended any changes to the rules of the multilateral trading
system, its work has led to some trade and environment issues
leading to negotiations as key components of the Doha round like
for example fisheries, this is an area where eliminating fishery
subsidies can help protect fish stock. Some issues first raised in the
CTE have become fully-fledged negotiations, for instance the
relationship between the WTO and multilateral environmental
agreements (MEAs) including the relationship between their dispute
settlement mechanisms. Today there are over 500 international
treaties and other agreements related to the environment, of which
over 320 are regional. Nearly 60 percent date from 1972, the year of
the Stockholm Conference, to the present. Since 1972, there has
been an accelerated increase in MEAs; over 300 agreements were
negotiated.

Other issues of focus according to the 1994 work programme

mandate of the CTE are exploring the relationship between
environmental policies relevant to trade and environmental measures
which can have significant trade effects and the provisions of the
WTO. Further, establishing the relationship between the provisions
of the WTO and charges and taxes for environmental purposes; and
requirements for environmental purposes relating to products, such
as standards and technical regulations, and packaging, labeling and
recycling requirements has been part of the CTE’s work programme.
For comprehensive provisions of the multilateral trading system
dealing with the transparency of trade measures used for
environmental purposes an Environmental Database (EDB) was
established in 1998 for the WTO Secretariat to compile and update
annually all measures related to the environment that Governments
have notified to the WTO or that have been noted in trade policy
reviews. This followed intensive discussions on transparency in the
CTE and the recommendation in the CTE’s 1996 Report to the
Singapore Ministerial Conference. Other aspects of relevance are
study on how environmental measures affect market access,
especially in relation to developing countries and least developed
countries; and the environmental benefits of removing trade
restrictions and distortions and issue of exports of domestically
prohibited goods (DPGs), in particular hazardous waste.

- Doha Declaration 2001

The declaration adopted at the Doha Ministerial Conference1 of the
WTO also reflects the concerns expressed by the Members of the

1
The topmost decision-making body of the WTO is the Ministerial Conference, which has to meet at
least every two years. It brings together all members of the WTO, all of which are countries or customs
WTO on the issues of environment. For the first time, environmental
issues figured openly in the context of a multilateral trade
negotiations with an objective of enhancing the interface of trade
and environment. The Doha Declaration reaffirmed commitment to
the objective of sustainable development, as stated in the Preamble
to the Marrakesh Agreement and for upholding and safeguarding an
open and non-discriminatory multilateral trading system, and acting
for the protection of the environment and the promotion of
sustainable development is a mutually supportive process. The
declaration recognized the efforts by members to conduct national
environmental assessments of trade policies on a voluntary basis and
that under WTO rules no country should be prevented from taking
measures for the protection of human, animal or plant life or health,
or of the environment at the levels it considers appropriate. In this
background, it may be pertinent to note the significant attached to
TRIPS Agreement vis a vis protection of environment. The
declaration emphasized the importance of the implementation and
interpretation of the TRIPS Agreement in a manner supportive of
public health and for adopting a separate declaration. Further, the
declaration welcomed WTO´s continued cooperation with UNEP
and other inter-governmental environmental organizations and
identified the need to promote cooperation between the WTO and

unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade
agreements. Some of the Ministerial Conferences: Singapore (1996), Geneva (1998), Doha (2001),
Cancun (2003), Hong Kong (2005).
relevant international environmental and developmental
organizations, especially in the context of the World Summit on
Sustainable Development (WSSD), 2002.
Both the trade regime and environment regime will hopefully evolve
to accommodate the emerging circumstances. It is therefore
important to continue to monitor and analyze the relationships
between the two regimes. This will help avoid the perception and
reality that environment measures might be used as an excuse for
protectionist discrimination.