Promotion of Multilateral Agreements - Essay Example

Multi Lateral Agreements Introduction: The promotion of free trade among countries was one of the important objectives of the World Trade Organization, especially as spelt out under the GATT – General Agreement on Tariffs and Trade. But recent trends for the formulation of multi-lateral agreements to restrict trade in the interest of protection of the environment1 have received a mixed reaction from developing countries. While on the one hand, these agreements are welcomed because they help to protect the fragile environment, some developing countries also perceive these agreements as barriers to trade, which will hinder their competitiveness because they are already handicapped in their access to finance, technology and information.2 Article XX of GATT is significant, because it provides scope for GATT members to exercise environmental restrictions in certain instances, despite their being inconsistent with the free trade obligations spelt out under the provisions of the GATT. It is especially significant from the perspective of environmentalists, because it strengthens their case by allowing restrictions on trade to be place in the interest of protection of the environment. But this article also makes it clear that such restrictions cannot be exercised by States when their implementation would be tantamount to discrimination against other States. As a result, it provides scope for those in favor of free trade who wish to contest environmental restrictions. The relative efficacy of Section XX of GATT from the perspective of environmentalists and free trade proponents is detailed further in this report. The GATT provisions and multilateral agreements: The broad objectives of the GATT – General Agreement on Tariffs and Trade- have been to foster trade among countries and to reduce the restrictions that are imposed by individual nations in order to protect their own, narrow, regional interests. The GATT was intended to represent the common set of rules and regulations to settle trade disputes through negotiations among the countries.3 Hence, the GATT seeks to promote a free flow of trade between all members who are its signatories. Multilateral agreements on the environment are those agreements made between various countries with the objective of preserving and protecting the environment. They may comprise two kinds of agreements: (a) agreements on the preservation of the environment through measures like preventing global warming, ozone depletion, rise in sea levels or other measures related to the environment and (b) agreements that link trade and the environment, wherein certain measures are included to discourage trading in those commodities that may be linked to unsound environmental practices or where the materials produced may be hazardous.4 Agreements between countries on free trade are exemplified in the provisions of GATT – the General Agreement on Tariffs and Trade. The GATT has been attacked by environmentalists on the grounds that international trade in effect blindly encourages the exploitation of natural resources, allowing big businesses a free hand in exploiting the earth’s resources – “free trade can destroy the environment.”5 World bank Economist, Herman Daly, has called upon the United States to reduce free trade and to increase tariffs in order that there is reduced incentive abroad to produce goods that are targeted for the American market.6 In arguing against the U.S. Canada free trade agreement for example, Steven Shrybman, Counsel for the Canadian Environmental Law Association has stated that this free trade agreement is a “disaster because the environment was utterly and completely ignored.” Article XX of GATT: Exceptions to the rule of free trade obligations spelt out under GATT are allowed under Section XX of the GATT Treaty, which permits restrictions on trade in certain instances. This article provides that such exclusions may be justified in some instances, such as for example, when they are “(a) necessary to protect public morals, necessary to protect human, animal or plant life or health ……[are] relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption…”7. There are a series of exclusions that are provided under Section XX, but all these are laid out under the umbrella referred to as the chapeau of Article XX, which qualifies that such exceptions must not be applied in such a manner “which would constitute a means of arbitrary or unjustifiable discrimination between countries….or a disguised restriction on international trade..”8 On this basis, therefore, it may be seen that GATT, in Article XX, contains the provision that allows for a restriction in trade in certain instances where it may be necessary to ensure environmental protection, but any such measures must not be discriminatory. According to Jackson, Article XX plays a central role in the determination of “where decisions should be made….for different subjects, hence it provides a reliable criterion for assessing how the authority to make decisions on environmental matters is to be allocated between national government and international institutions. The OCED has developed a framework to categorize the environmental effect of production and consumption of products and how it is to be related to trade measures. The basis upon which the OCED makes its determination is (a) the proximity of interest that may be noted between the country that is implementing a trade measure and the environmental resource that is being protected and (b) the location of those who are producing the product.(Gaines, 2002). This helps in a determination of whether a protective trade measure can be said to arise under territorial considerations, i.e, it impacts only upon the country that has instituted the trade measure or is objecting to the trade measure, or whether the problem is a transnational one that poses a serious environmental threat. It must also be noted that Article XX of GATT does not allocate the power of decision making over certain issues into the national or international levels. Rather, by virtue of the terms that are contained within it, Article XX provides a means for States to justify restrictive trade measures that they may be applying which may otherwise arise in conflict with the obligations that are laid out upon the States under the GATT. Article XX, from the perspective of environmentalists: In the case of Commission v Denmark,9 the issue at stake was the Danish ban on non-returnable containers. All beverage containers to be sold in the country had to be approved in advance and the sales of foreign beverages in non approved containers was restricted. This measure was challenged on the basis that it constituted a restriction on the free trade and movement of articles within the European market by Article 30 of the EC Treaty. In this instance, the Court agreed that the measures to restrict foreign containers and the approval requirements could constitute a restriction in trade for purposes of Article 30. But the extent of free trade would also be restricted by the provisions of Article 36 of the EC Treaty, which allows some exceptions to the general principle of unrestricted trade, in the interest of safety, health or to satisfy public policy. This is similar to Article XX of GATT, which also allows similar restrictions, hence the manner in which the Court arrived at its decision is useful in assessing when this exception can be successfully used by environmentalists. Article 36 of the EC allows restrictions on trade when it is in the interest of public health and morality or to protect the environment. In the Danish case, the Court in arriving at its judgment relied upon three criteria (a) did the objective sought to be attained by the measure fall within the scope of exemptions provided for under Article 36 of the EC Treaty (b) had the measure been applied on a uniform basis without any discrimination on foreign suppliers and (c)whether or not the measure satisfied the principle of proportionality, according to which the application of the measure of protection must be necessary to accomplish the purpose. In its judgment, the Court found that the requirement for non returnable containers was justified, but the restriction of foreign suppliers requiring them to use only Danish bottles was not justified when applying the rule of proportionality, because it could constitute a discriminatory measure against other nations. The measure disallowing foreign bottles to be used could not be construed as being necessary to accomplish the purpose of environmental protection. While the use of non returnable bottles was justified, it was not necessary that only Danish bottles were used. In the case of Turtle Island Restoration Network v Mallett10 a group of environmentalists filed suit against defendant Federal Government officials. The dispute was over a process initiated by the Government to allow a selective import approval process for turtle excluder-device caught shrimp that were being imported from certain countries. The Plaintiffs sought action against the Government on grounds of environmental protection, while defendants claimed that the use of the turtle excluder devices ensured that there was substantial environmental benefit. The Court in this case, found in favor of the Plaintiffs, holding that statutes for the protection of sea turtles had been violated by allowing entry of shrimp harvested using trawlers that were equipped with turtle excluder devices. The Court of International Trade held that the enforcement of the guidelines was justified under Section XX of GATT which allows exclusionary measures on trade under certain conditions. In this instance, the restriction constituted a conservation measure that was permissible and not discriminatory by applying the provisions of Section XX of GATT. This judgment therefore favored the environmentalist position for the protection of sea turtles. However, it is significant to note that the Court in this case did not grant injunctive relief and held that “plaintiff’s application for any award of fees, etc cannot be granted; the motion for injunctive relief based upon the declaratory judgment in their favor must also be denied.”11 The reason for this was the Court’s finding in the case that disallowing non certified countries from exporting shrimp to the United States was not substantially justified because relatively few sea turtles were being harmed in the waters of these uncertified nations. This case was also the basis upon which India, Malaysia, Pakistan and Thailand contented that there had been a violation under GATT over the enforcement of section 609 of the State Department’s 1999 Guidelines in the matter of importing shrimp into the United States.12 Dispute resolution panelists of WTO from Germany, Brazil and Hong Kong contended that the U.S. approach in section 609 of its Guidelines were inconsistent with the 1994 GATT agreement and constituted “a threat to the multinational trading system….applied without any serious attempt to reach, beforehand, a negotiated solution. We therefore find that the U.S. measure at issue is not within the scope of the measures permitted under the chapeau of Article XX.”13 The United States however, in its appeal to the Appellate body of WTO, pointed out that the aims of GATT and the multilateral WTO trade agreement had provided that the rules were to not only foster an expansion in trade but must do so in a manner that protects the environment as well. The Appellate body then concluded that the consolidated WTO panel had erred in holding that the U.S. Guidelines on the import of shrimp were inconsistent with GATT and the United States is within the scope of the exclusions that are permitted under Section XX of GATT. But the Appellate body also held that while the measure may be provisionally justified under Article XX(g), it could still not be fully included under the exemptions permitted under Section XX, because it failed to qualify under the chapeau of Article XX and constituted a discriminatory measure against other nations.14 This case also demonstrates how the Courts have used the principle of proportionality in arriving at a balance between the exclusions permitted under Section XX for purposes of protection of the environment and the requirements of free trade, when such protective measures can constitute discrimination. After this case, the United States revised its Guidelines and has also pressed for more countries to take measures to protect sea turtles in their waters, so that they do not fall prey to commercial trawler fishers. Although the justification of the Courts in this instance was that very few sea turtles were being harmed since turtle-excluder devices were being used on shrimp trawlers, the United States has pointed out that protection extended to sea turtles can only cover its own waters, but such restrictions also need to be extended to other countries. This also raises another issue that has been important to Courts in arriving at decisions, i.e, the proximity of interest principle set out by the OCED. The extent to which a State has a territorial interest in the problem demonstrates a way to determine the connection between the measure and the State interest, through an assessment of the impact that a particular environmental problem has on the State applying the measure. The territorial connection may not always be clear in cases involving global environmental problems although they may be easily determined in the case of transnational environmental problems15. In another case, there was a dispute in relation to asbestos between France as a part of the European Communities and Canada.16 In this case, France had instituted a ban on the import of asbestos and asbestos-related products, especially because chrysolite asbestos is considered to be highly toxic material. Canada, which is the second largest producer of asbestos worldwide, contested this import restriction on the grounds that there was a distinction between chrysolite fibers and chrysolite which was embedded in a cement matrix; the latter was not harmful to human health.17 In this case, the WTO panel found that the restriction on imports could constitute a violation under Article III of GATT, which requires that equivalent treatment be granted to like products. But despite this violation, the WTO Panel found in favor of the European Communities, arguing that the ban on asbestos products would fall within the scope of exemptions permitted under Article XX (b), because it could be regarded as a measure that was necessary in order to “protect animal, human, plant life or health”. It based its conclusions on the prima facie case that had been made out by the European Communities, containing the views of health experts on health risks associated with all forms of chrysolite. This prima facie case was not rebutted by Canada and the Panel held that “the EC have shown that the policy of prohibiting chrysolite asbestos implemented by the Decree falls within the range of policies designed to protect human life or health.18 This case is an example of one that was solely in favor of the environmentalists, where the exceptions allowed under Article XX were upheld. It is also significant to note that in case, the Panel held that EC/France action did not constitute a discriminatory measure against Canada as assessed within the scope of the provisions of the chapeau of Article XX. Article XX from the perspective of proponents of free trade: For many countries, the implementation of environmental measures restricting free trade is not welcome. For example, Pakistan’s cotton textile exports and Fiji’s sugar exports are losing their competitiveness in international markets because its trading partners are aware that the processes used in manufacture of such products are not environmentally sound19. Countries like Papua New Guinea and Solomon Islands are facing bans on hardwood products from countries like Australia and New Zealand because these countries exploit landowners and do not follow sage logging practices. In some cases however, restrictions placed by States have been successfully contested under Article XX of GATT on the basis that they constitute measures that restrict free trade. In these instances, Article XX has worked in favor of those propagating free trade. For example, with respect to Article XX of GATT in the import of retreated tyres into Brazil, the import ban was held to be unjustified in the decision reached by the WTO panel on the dispute20. This dispute arose between the European Communities and Brazil, where the latter had imposed a fine for import of retreaded tyres. Article XX(b) of GATT allows exclusions on trade restrictions for environmental reasons, i.e, to protect human, plant and/or animal life and health. The Appellate Body upheld the Panel’s findings that the import ban could be considered to be “necessary” under the provisions of Article XX(b).21 Both the Panel and Appellate body balanced the contribution of the import and its purported objectives against the extent of its restriction of trade, while taking into account, the importance of the underlying values. But it is significant to note that this did not function as a barrier restricting import of retreated types into Brazil, because the Appellate Body held that Brazil’s current policy on the import of retreated types was “being applied in a manner that constitutes arbitrary or unjustifiable discrimination within the meaning of the chapeau of Article XX of the GATT 1994.22 The ban on imports was not applied by Brazil in the case of the MERCOSUR countries, which further heightened the discriminatory aspect of the restriction in terms of trade, because it was being applied in a manner that made it equivalent to a disguised restriction on international trade. On this basis, the Panel also held that the fines payable to Brazil under the import restrictions were also not justifiable under Article XX(d) because they do not fall within the scope of measures seeking compliance with laws that are not themselves incompatible or inconsistent some provision of GATT. This case further illustrates how an exclusion allowed under one of the subsections of Article XX may not be permissible under the capeau of Article XX itself, when the measure can be deemed to be discriminatory. Another example is the case of Thailand – Restrictions on importation and internal taxes on cigarettes23 the matter under dispute was the restrictions imposed by the Royal Thai Government on cigarettes as well as the imposition of taxes on the cigarettes. The dispute came before a panel specially constituted to hear the case, and this Panel also consulted officials of the World Health Organization. The United States argued that Thailand’s restrictions on the import of cigarettes could not be justified under Article XX(b) because they were not necessary to protect human health and the provisions of the Tobacco Act of 1996 upon which they were based did not impose mandatory import restrictions. Thailand contended that its restrictions on imports were justified under Article XX(b) of GATT because (a) chemicals and other additives contained in U.S. cigarettes were more harmful than Thai cigarettes and (b) measures instituted by the Government under its public policy to control smoking could only be effective if cigarette imports were prohibited. The Panel examined whether Thailand’s defense on restricting imports of cigarettes on grounds of protection of public health could fall under the scope of Article XX(b). It accepted that smoking constituted a serious risk to human health, as a result measures instituted by States to give priority to human health over trade liberalization would be allowed under Article XX(b). But the Panel also noted that in order for a State to successfully implement such a provision, Article XX(b) required that such a measure had to be “necessary”. In arriving at a meaning of the term “necessary”, the Panel referred to a previous discussion by the Panel in a discussion of Section 337 of the Tariff Act of 193024 where a meaning of “necessary” had been set out as pertaining to Article XX(d). The Panel held in this case, that the objective of Article XX in spelling out the term “necessary” was the same in both instances, i.e, paras (b) and (d), that trade restrictive measures could be instituted when they were so essential to pursing overriding policy goals that inconsistencies with the obligations of free trade were unavoidable. On this basis, the Panel held that Thailand’s measures to restrict imports could be deemed to be “necessary” only if there were no alternative measures available to achieve the same objectives. The Panel held that in this instance Thailand could achieve its public policy objectives through other means and a restriction on free trade and the import of American cigarettes could not be justified under the exception allowed under Article XX(b). In this case the Court held that because other reasonable measures were available to Thailand to control the quantity and quality of the cigarettes smoked, hence the imposition of a discriminatory trade measure designed to filter out America cigarettes while allowing the sale of domestic cigarettes, could not qualify under the definition of a measure necessary for public health. The meaning of the term “necessary” as set out in the Panel discussion mentioned above, on Section 337 of the Tariff Act is also in support of free trade. In this case, the panel had held that a restrictive trade measure under the exemption provided in Article XX(d) could not be held to be “necessary” if “an alternative measure which it could reasonably be expected to employ and which is not inconsistent with other GATT provisions is available to it.”25 This demonstrates that even instances where exemptions to free trade may be claimed under the provisions of Article XX, they can be justified only when they can be shown to be necessary. The Section 337 decision also stated that any restricting measure imposed by a State would need to utilize a measure that entails the least degree of inconsistency with other GATT provisions. This clearly sets out the fact that upholding the principles of free trade would be paramount in any decision involving Article XX of GATT. Hence the exemptions do allow for environmental protection but they cannot easily be used to circumvent GATT obligations without strong justification being provided in their support. Conclusions: On an overall basis, multilateral agreements have generally contributed towards the development of sustainable practices of production that aid in the protection and preservation of the environment. Although such agreements have been contested as being violative of free trade, it must be noted that on the basis of the discussion of cases above, courts and arbitration panels have always placed the interests of free trade over and above environmental goals. The provisions of Section XX of GATT do contain exclusions, when free trade may be restricted if environmental goals are not upheld. But although Section XX allows exclusions, it also qualifies that such exclusions may only be held to be viable and applicable when they do not constitute discriminatory measures against other countries. The scope of the exclusions provided under Article XX is also restricted. As may be noted from the Panel discussions on the meaning of “necessary” as constituted within sections (b) and (d) of Article XX, any restriction on import which is taken up for environmental reasons must be shown to be necessary before it can constitute a valid exclusion. Thus was also the reason why in the cases of shrimp imports to the United States, the Courts refused to allow injunctive relief, because the scope of damages that were done to sea turtles was minimal. As a result, despite Article XX of GATT, it is the free trader rather than the environmentalist who is generally the beneficiary. There are only rare instances where environmental rights have superseded trade agreements, as in the Trail Smelter case26 where a mining Company in the Canadian province of British Columbia had to pay damages to the United States for pollution caused in American territory. Another example that was discussed earlier is the case of the health hazard that was posed by asbestos which justified the imposition of restrictive trade measures. Such cases have however been the exception rather than the rule because the interests of free trade are generally promoted through the chapeau provision of Article XX that does not allow the imposition of any trade measures that could be considered discriminatory in nature to any country because in that instance, they would amount to an underlying attempt to circumvent free trade. Bibliography Brazil – Measures Affecting Imports of Retreaded tyres, WTO Panel Report WT/DS332/R Case 302/86, Commission v. Denmark, (1988) ECR 4607 Dispute Settlement: Dispute DS 58, http://www.wto.int/english/tratop_e/dispu_e/cases_e/ds58_e.htm; Dispute Settlement: Dispute DS332: Brazil – Measures affecting imports of retreaded tyres”, http://www.wto.int/english/tratop_e/dispu_e/cases_e/ds332_e.htm; Environment: Disputes 9: European Communities – Asbestos. http://www.wto.org/english/tratop_e/envir_e/edis09_e.htm; Gaines, Sanford E, 2002. “Processes and production methods: How to produce sound policy for environmental PPM based Trade measures?” 27, Columbia Journal of International Law, 383 Howse, Robert, 2002. The Appellate body rulings in the Shrimp/Turtle case: A new legal baseline for the Trade and Environment Debate”, 27, Columbia Journal of Environmental Law, 491 Import Prohibition of Certain Shrimp and Shrimp Products Report of the Panel, WT/DS58/R (1998) Kohr, Matrin, 1990. “The GATT and environmental protection”, Greenpeace, Postrel, Virginia I, 1990. “The Big green trade killing machine”, Wall Street Journal, September 21, Report of the Panel on “United States – Section 337 of the Tariff Act of 1930 (L/6439, paragraph 5.26, adopted on 7 November 1989), http://www.worldtradelaw.net/reports/gattpanels/sec337.pdf; “The General Agreement on Tariffs and trade (GATT). http://www.indiaagronet.com/indiaagronet/exportimport/Gatt.htm; “The implementation of multi-lateral environment agreements”, http://www.unescap.org/drpad/publication/dp21_1990/dp21_vii.PDF; “The CITES Fort Lauderdale criteria: The use and limits of science in International decision making”, 114 Harvard Law Review, 1769 (2001) Thailand – Restrictions on importation and internal taxes on cigarettes (1990) DS 10/R -37S/200, Report of the Panel adopted on 7 November 1990, http://www.worldtradelaw.net/reports/gattpanels/thaicigarettes.pdf; Trail Smelter Case (U.S. v Canada) 3 R.I.A.A. 1905 (1941) Turtle Island Restoration Network v Mallett, 100 F Supp 2d 1005 (Court of International Trade, 2000) Section XX (a) (b) (g) of GATT, http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXX; Read More