Disputes on Trade-related Environmental Measures (TREMs) at the World Trade Organization (WTO) Dr. Javier Fernández-Pons Associate Professor of Public International Law and member of the Jean Monnet Chair EU Environmental Law (EUEL) University of Barcelona E-mail: xavierfernandez@ub.edu Salerno, 5 July 2018
Contents: Some references I. Introduction II. Disputes on TREMs adjudicated at the WTO III. Controversial proposals of TREMs against climate change and questions not yet resolved by the WTO IV. Final considerations
Some references: Cosbey, A.; Mavroidis, P.: Heavy fuel: Trade and Environment in the GATT/WTO Case Law, Review of European Communityand International Environmental Law, vol. 23-3, 2014, pp. 288-301. Fernández Pons, J.: Ambiente e liberalizzazione degli scambi, en Rossi, L. S. (ed.): Commercio internazionale sostenibile? WTO e Unione Europea, Il Mulino, Bologna, 2003, pp. 165-187. Pauwelyn, J.: Carbon Leakage Measures and Border Tax Adjustments Under WTO Law, March 21, 2012. Available at Social Science Research Network (SSRN): http://ssrn.com/abstract=2026879 and http://dx.doi.org/10.2139/ssrn.2026879 Van den Bossche, P.; Schrijver, N.; Faber, G.: Unilateral Measures addressing Non-Trade Concerns, The Ministry of Foreign Affairs of the Netherlands, The Hague, 2007. Available at SSRN: http://ssrn.com/abstract=1021946 Young, M.: Trade Measures to Address Environmental Concerns in Faraway Places: Jurisdictional Issues, University of Melbourne Legal Studies Research Paper, No. 694, December 2014, available at SSRN: http://ssrn.com/abstract=2538245
Introduction
The multilateral trading system began to develop with the General Agreement on Tariffs and Trade (GATT) of 1947, which promoted, for nearly fifty years, a progressive liberalization of international trade in goods worldwide The Marrakesh Agreements of 1994, which entered into force on January 1, 1995, supposed a great strengthening of this system, contributing to promote a greater economic globalization: The World Trade Organization (WTO) was established The previous GATT 1947 was replaced by the current GATT 1994 The system included other multilateral agreements on trade in goods, services and intellectual property rights Inside the WTO was established an advanced dispute settlement system o Cases are examined, first, by a Panel of three experts and, after, by the Appellate Body
Currently, the WTO has 164 Members Including the European Union (EC-EU) and its current 28 Member States And States of most recent accession, including China (2001), Ukraine (2008), Russia (2012), Kazakhstan (2015) and Afghanistan (2016) All Members are legally bound by all the multilateral agreements of the WTO, which are conceived as a "single undertaking" The WTO has been an important tool to promote the liberalization of global trade at least, until the current presidency of Trump and the growing trade protectionism of the USA
The WTO is an international organization for specific purposes It focuses on promoting trade liberalization It has no powers to set new environmental rules or standards, which are established by States or other international organizations But, the WTO can examine, tangentially, environmental issues Mainly, when it examines and adjudicates disputes between Members concerning trade-related environmental measures (TREMs), in order to determine it these measures are consistent with WTO rules Notion of TREMs: Measures laid down by one State (or the EU) invoking environmental reasons and that have an impact on trade (prohibition of imports, quotas, taxes, labels...)
Types of TREMs: Regarding the product itself. For instance o Prohibition of asbestos o Lower taxes for less polluting cars o Requirements and labels on the energy efficiency of an appliance Concerning non-product-related processes and production methods (NPR- PPMs). For example o Prohibition of imports of tuna from countries that allow fishing methods that cause the accidental death of dolphins o Label on tuna products certifying that it has been fished with methods dolphin safe o Requirements, taxes or labels on products based in their carbon footprint (life cycle approach)
Many TREMs adopted by States or the EU are not challenged at the WTO, because everybody can consider that are consistent with WTO rules But certain TREMs are controversial, and one Member can bring a claim at the WTO, alleging that a measure is inconsistent with WTO rules In such disputes, the claimant Member usually alleges that the TREM challenged is inconsistent with one or more of the WTO basic principles, as: The general prohibition of quantitative restrictions to imports o Established, among others, in Article XI of GATT 1994 The general principles of non-discrimination between like products of different Members o Established, among others, in Article I of GATT 1994, on General treatment of the most-favoured nation MFN, and in Article III of GATT 1994, on National treatment on internal taxation and regulation
Instead, the respondent Member tries to argue that the contested TREM is consistent with WTO principles or tries to defend, subsidiary, that the challenged measure is justified under one of the exceptions included in the WTO law The main exceptions relevant for environmental issues are contained, among others, in Article XX of the GATT 1994, on General Exceptions, which requires a two tier test : First, determine that the measure has a legitimate objective according to the provisions of this Article. It refers, among others, to measures (a) necessary to protect public morals; (b) necessary to protect human, animal or plant life or health; (g) relating to the conservation of exhaustible natural resources ( ) Second, comply with the heading or introductory clause of this Article, known with the French word chapeau o That the measure is not applied in a manner which will constitute a means of arbitrary or unjustifiable discrimination between countries, or a disguised restriction on international trade
Disputes on TREMs adjudicated at the WTO
Case United States Gasoline (1996, WT/DS2) Claimants: Venezuela and Brazil Measure at issue: The United States established, by virtue of the Clean Air Act, a regulation establishing maximum levels of pollutants for the gasoline to sell in the United States o The problem with this US regulation was that it was less demanding for domestic gasoline than for imported gasoline, which was subject to more stringent levels The Panel and the Appellate Body concluded: o This distinction between domestic gasoline and imported gasoline was inconsistent with Article III of the GATT 1994, because it discriminated between like domestic and imported products o No exception justified such arbitrary discrimination o It follows that the United States may set a maximum level for the pollutants of the gasoline to sell in its market, but requiring that maximum level equally to domestic gasoline and imported gasoline
Case EC Asbestos (2001, WT/DS135) Claimant: Canada Measure at issue: The EC prohibited the marketing and import of asbestos in its territory, invoking that, according to the WHO, it is a highly carcinogen product The Panel considered: o The prohibition was inconsistent with article III of the GATT 1994, because it considered that asbestos fibers (forbidden) and other fibers, such as fiberglass or polyvinyl fibers (allowed) were like products" and should receive the same treatment o But the prohibition was justified under the exception of Article XX b) of GATT 1994, as "necessary for the protection of health" The Appellate Body concluded: o The prohibition was consistent with article III of the GATT 1994, because it considered that asbestos fibers should not be considered as like products" to other fibers, as health effects have to be taken into account in the analysis of the likeness
Brazil Retreaded tyres (2008, WT/DS332) Claimant: EU Measure at issue: prohibition by Brazil of the importation of retreaded tyres, invoking that such imports increased more quickly the number of tyres for scrap in its territory. According to Brazilian authorities, the great accumulation of waste caused by the import of such tyres facilitated, under the weather conditions usual in Brazil, the proliferation of mosquitoes that spread the dengue The Panel and the Appellate Body concluded: o The contested measure was inconsistent with Article XI of GATT 1994, as it was a prohibition of imports o But the essence of this prohibition was finally justified under the exception of article XX b) of GATT 1994, because it was deemed "necessary for the protection of human life and health. It passed the necessity test
EU Measures Prohibiting the Importation and Marketing of Seal Products (2014, WT/DS400 401) Claimants: Canada and Norway Measure at issue: The EU established a general prohibition on the marketing of products derived from seals, estimating that seal hunting inflicts suffering contrary to European public morality on "animal welfare. The EU included some exceptions to the general ban, allowing the import and marketing of products derived from: Seals hunted by indigenous communities Inuit (exception IC) Seals hunted for the management of marine resources (exception MMR) The Panel and the Appellate Body concluded that the general prohibition is justified under the quoted paragraph (a) of Article XX, but that the exceptions on IC and MMR incur in arbitrary discriminations, which are inconsistent with the introductory clause ("chapeau ) of the Article XX, and should be removed or redesigned
United States Shrimps (Article 21.5 of the Dispute Settlement Understanding) - 2001 Claimant: Malaysia Measure at issue: in warm waters, shrimps coexist with marine turtles, which are endangered species. The USA imposed, in their waters, fishing methods that avoid the accidental death of turtles: use of filters in the nets. See an image of these filters in the following slide o The USA established the prohibition of importing shrimps from Malaysia o Invoking that the methods for fishing shrimps authorized in Malaysia (nets without filters) cause the accidental death of marine turtles The Panel and the Appellate Body concluded that: o The prohibition established by the USA was a TREM regarding NPR-PPMs, which was inconsistent with certain WTO principles o But the measure was considered, finally, fully justified under the section g) of Article XX of GATT 1994 and its chapeau o This case shows that, in certain cases, WTO exceptions can justify trade distinctions or restrictions based in NPR-PPMs o Aspect particularly relevant for certain TREMs against climate change, which sometimes take into account NPR-PPMs (carbon emissions caused in the production at the origin country)
Case United States Shrimps Image of a filter or turtle excluder device (TED)
Controversial proposals of TREMs against climate change and questions not yet resolved by the WTO
The case law of the WTO shows that certain TREMs adopted against the climate change can be fully consistent with WTO rules For example, in Norway there are, currently, very high taxes on conventional cars, which are not applied to electric cars, promoting the use of less polluting cars. This is a TREM based in the characteristics of the product itself and nobody has challenged this measure at the WTO But there are other measures or proposals, where there is not yet a clear answer from the WTO For example, a proposal of the then French President Sarkozy in 2007, which was not implemented in practice o He suggested the establishment of special taxes to products elaborated in countries that do not assume commitments in the reduction of emissions of carbon and other greenhouse gases o Could this proposal be consistent with WTO rules?
Other proposals of the European Union against the climate change with an impact on international trade have been very controversial For instance, a proposal of the EU Commission (of 2011-2012) in order to penalize especially gasoline or other fuels obtained from tar sands o With a growing production in the Canadian province of Alberta o The process of production of this alternative fossil fuel is more pollutant than traditional fossil fuels o The EU Commission suggested that the taxation or other penalizations of fossil fuels should take into account not only the emissions during the consumption of these fuels inside the EU, but also the emissions caused during the extraction and production of the fossil fuels at the country of origin (in this case, Canada)
This proposal was a TREM based on NPR-PPMs Canada considered that this proposal was clearly inconsistent with the WTO rules I think that this was, at least, debatable But, Canada warned that if this measure was adopted, it will bring a claim against the EU at the WTO. Finally, after many pressures, the EU decided do not approve this proposal See: Lawrence Herman (22-2-2012): The ground war with Europe over Alberta s oil Link: http://www.theglobeandmail.com/news/opinions/opinion/the-ground-warwith-europe-over-albertas-oil/article2345559/
Final considerations
Lights and shadows In general terms, it is better to address environmental problems inside the country of origin (for example, establishing effective limitations to carbon emissions) than with extraterritorial trade measures of other countries based on NPR-PPMs, which consistency with WTO rules is sometimes uncertain Thank you very much!