An Environment Guide to the World Trade Organization

Steven Shrybman
May 1997




TABLE OF CONTENTS

INTRODUCTION

PART I: THE BIG PICTURE

1.1 THE WTO AND INTERNATIONAL TRADE
1.2 TRADE AND THE ENVIRONMENT

PART II: ENVIRONMENTAL ISSUES AND INTERNATIONAL TRADE

2.1 THE GLOBAL COMMONS
2.2 NATURAL RESOURCES
2.3 AGRICULTURE
2.4 ENERGY
2.5 ENVIRONMENTAL STANDARDS
2.6 THE FIRST WTO TRADE RULING
2.7 INTELLECTUAL PROPERTY RIGHTS

PART III: TRADE RELATED INVESTMENT MEASURES

PART IV: TERMS AND REFERENCES


INTRODUCTION


This environmental guide to the World Trade Organization is intended to provide an introduction to this new and enormously powerful trade regime. We believe that the establishment of the WTO will have far reaching and largely adverse impacts on many areas of environmental policy and law, and will make the goals of sustainable development much harder to achieve. We know that our assessment of the impacts of the new rules for global trade is a daunting one, but there seemed no virtue in understating the impacts of trade rules that effectively entrench the very patterns of economic development that have given rise to the ecological crises we confront.

However we also believe that in the enormous challenges this new trade regime presents, there is also great opportunity to develop models for economic and social development that would finally give concrete meaning to the principles sustainable development. If, as environmentalists, we are to respond to these challenges, we will have to move beyond the symptoms of destructive and unsustainable development policies, and confront the underlying economic, and trade policies that drive them.

For Canadian environmentalists, who were engaged in the debates about free trade with the United States and subsequently NAFTA, much of this analysis will be familiar, and indeed in many ways NAFTA represents the model for the WTO. There are however significant differences between the two regimes, and of course the WTO has global application. While this guide focuses primarily upon the WTO, it does hi-light some of the key distinctions between these trade agreements and also describes how the two often work together.

The following assessment touches on the most important areas where the trade and environment agendas intersect and is organized to allow those with particular interests to find those issues, eg. forestry, intellectual property, energy, etc. that are most important to them. We begin with an overview of the WTO, and describe how in a general way its agenda impacts environmental law and policy. With this introduction, we continue with the exploration of how trade rules will affect the specific environmental and conservation goals that we are working to accomplish.

PART I: THE BIG PICTURE


1.1 THE WTO AND INTERNATIONAL TRADE

The World Trade Organization (WTO), was established on 1 January 1995. The WTO and is comprised of several multilateral trade agreements that represent the culmination of an eight year process of trade negotiation, known as the Uruguay Round{1}. The WTO secretariat is located in Geneva, and on behalf of more than 120 countries that are parties to this trade regime, administers the WTO Agreements{2}, facilitates future trade negotiations, and oversees trade dispute resolution.

The WTO and the Global Economy

The establishment of the WTO, represents a watershed in the process of establishing a truly global economic order and it is likely to exert a more profound influence over the course of human affairs than has any other institution in history. There are three reasons that justify such an assessment. The first has to do with the ever increasing importance of international trade to a global economy. Transnational corporations now control more than one third of worlds' productive assets, and the organization of their production and distribution systems has little to do with national or even regional boundaries. Decisions about locating factories, sourcing materials, processing information or raising capital are made on a global basis, and a particular product may include components from several countries{3}. This explains why nearly 40% of all international trade takes within the same corporate family. Another measure of the growing dimensions of globally economic integration, is the growth in international trade itself which according the most recent figures published by the WTO increased by a staggering 9 1/2 per cent in 1994.

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An Economic Constitution for the Planet

When the Canada-US Free Trade Agreement was concluded, President Reagan described it as the "economic constitution of North America", a characterization that was recently echoed by the Director General of the WTO, Renato Ruggiero, referring to the WTO. In many ways their assessments are appropriate because as traditional constitutions guide the domestic affairs of the members of national communities, so does the WTO set out comprehensive rules to guide activities of the members of the global community. Further, trade agreements operate at a super-jurisdictional level and effectively supersede the sovereign authority of nation states - very much as national constitutional instruments constrain the exercise of legislative authority. Finally, like constitutions, trade agreements set out the fundamental rights of their constituents. Unfortunately, under the WTO only corporations are the beneficiaries of these entrenched rights, and efforts to include social, labour or environmental rights - have been decidedly rejected.

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The second, concerns the way in which the reach of trade rules has extended into every field of economic endeavour. Historically trade agreements were concerned with the trade of goods eg. manufactured goods and natural resource products, across international borders. With the establishment of the WTO, the purview of trade agreements now includes investment measures, intellectual property rights, domestic regulatory initiatives, and services - in fact it would be difficult to identify an issue of social, economic or environmental significance that does not have some relationship to trade.

The third, has to do with the enormously powerful enforcement tools available to the WTO to ensure that all governments comply with the dictates of international trade law. When governments are found to be in breach of their trade obligations, the penalty is retaliatory trade sanction which will often represent very substantial financial penalties. For example, in the first trade complaint to be resolved under the WTO, US Clean Air Act Regulations were deemed to violate WTO rules. In consequence the US was given two options, remove the offending provisions of its environmental statute or face retaliatory trade sanctions in the order of $150 million a year{4}. While previous trade regimes engendered the use of similar sanctions, their imposition required a consensus among all GATT members, including the offending country. Now WTO rulings are automatically implemented unless blocked by a consensus of WTO members. Moreover, under the rules of cross-retaliation, sanctions can be applied to any aspect of the offending countries international trade - or in other words, where it will be felt the most.

A Bill of Rights for Transnational Corporations

It isn't difficult to regard WTO rules as representing an international bill of rights for transnational corporations. To appreciate why the WTO might be described in this way requires an understanding of the negotiation process that created it. Because international trade has historically been considered an arcane subject restricted entirely to commercial interests, trade negotiations have traditionally conducted by trade ministers with no apparent awareness that other societal values might be at stake. For example, when the Conservative Government of Brian Mulroney was asked what if any environmental assessment had been carried out of the impending free trade agreement with the United States, it responded somewhat incredulously that its trade deal was entirely a commercial agreement and that the environment had not even come up once{5}. This assessment was offered of course, about an agreement that dealt explicitly with energy, agriculture, environmental standards, forests and fisheries. Moreover, even as the ambit of trade negotiations grew to encompass many more spheres of human activity, no real efforts were made to include other facets of governments.

For the same reasons, when governments consulted on trade matters it looked exclusively to the business community, ie. large corporations with a substantial stake in international trade. Thus trade advisory committees were struck which in Canada and other countries were, with very few exceptions, exclusive clubs for multi-national corporations. Of course corporations hardly needed an invitation to make their interests clear to trade bureaucrats, and it is appropriate to regard these corporations as the principal architects of international trade policy.

The other aspect of trade negotiations that is relevant here, concerns the very secretive way in which they are carried out. Because of the strategic nature of the interests at stake, and because of the historical norms of secrecy that attend virtually all aspects of international trade diplomacy and dispute resolution, trade negotiations are carried on behind closed doors, with little being revealed until negotiations are virtually concluded. Not only is there little public accountability, but many governments, and particularly those from developing countries, are also left guessing about what might be going on among the few key players.

When trade agreements finally do emerge, they are presented as an intricate set of tradeoffs and compromises that will unravel should any government imagine that amendments are needed. In this way the normal processes of democratic parliamentary or congressional debate are superseded by this "take it or leave it" presentation of the voluminous and complex agreements that secretive negotiations yield. It would be difficult to conceive of a model for negotiating trade agreements that would be less democratic or accountable.


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THE NEW THEOLOGY

Variously described as liberalizing trade, or free trade, the ideological foundation for these trade policies is the dominant paradigm of sustained, and unconstrained economic growth. In order to assure this growth, governments need only allow market forces to operate unfettered by regulation or other government controls. Thus, a growing international economy will be allowed to produce wealth and prosperity for all.

Of course all this sounds familiar and represents nothing more than an amplification of the economic and trade policies that have guided global commerce for several decades. Absent, as always, is any notion of ecological limits, or of the need to address how the proceeds of this growth are to be distributed.

This paradigm of sustained market driven growth, for developed and developing countries alike, has virtually achieved the status of a new theology and operates as a powerful driving force behind global production and trade. However, there is an agenda at operation here that is even more fundamental, and which has only to do with the interests of multi-national corporations. Therefore when the interests of TNCs collide with the ideology of unregulated global markets, the latter is readily abandoned [see Intellectual Property Rights below].

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Because trade agreements are negotiated in this way - it is hardly surprising that they reflect a myopic preoccupation with the interests of large corporations and reveal an utter indifference to the impact of these commercial interests on other societal goals, such as the environmental protection, democratic processes, worker's rights, and cultural integrity. If the WTO regime can accurately be considered an economic constitution for the planet, it is one that has been written almost entirely by, and for, transnational corporations.

The Agenda: Freeing Corporations from Government Regulation

In the simplest terms the essential goal of WTO rules is to deregulate international trade. To accomplish that objective, and with one important exception{6}, all WTO agreements set out detailed rules intended to constrain the extent to which governments can regulate international trade, or otherwise "interfere" with the activities of large corporations. Thus WTO Agreements essentially comprise extensive lists of actions that governments can't take. Some of these prohibitions apply to measures that would otherwise directly regulate international trade eg. such as controls on endangered species trade, limits on resource exports, or bans on tropical timber imports. But many others prohibit regulations or programs that might only indirectly influence trade, eg. recycling regulations, energy efficiency standards, or toxic substance bans. Yet other trade rules go even further by proscribing law and regulation that have nothing to do with trade at all, but rather concern the right of governments to regulate foreign corporations within their jurisdictions, such as by controlling foreign investment.

The Challenges Ahead

It is apparent that if the primary goal of trade law is to limit the ability of governments to regulate corporate activity in the public interest, serious problems will ensue for environmental law and policy which of course rest on the premise of such public control. And the establishment of multilateral trade agreements in accordance with this free trade model, has created very substantial new impediments to progress in areas of environmental protection, resource conservation and sustainable development. This guide offers a detailed examination of how the WTO will operate to undermine environmental objectives, and it is daunting to realize just how destructive of environmental goals, these rules of trade will be.

However in one important way, understanding how trade policy undercuts environmental goals conveys an important lesson about the need for environmentalists to identify the economic, resources and trade policies that will be needed to support environmental objectives and sustainable development.

If we are to achieve critical environmental objectives, it will be imperative to convert the WTO into an institution that will foster rather than undermine the goals of sustainable development. Admittedly this will be a difficult challenge, but it is not entirely unlike the one that confronted environmentalists several decades ago when governments and courts were uninformed about, and indifferent to, the principles of environmental protection and resource conservation. We struggled for years to overcome that resistance, but we succeeded by mobilizing public opinion, by fostering scientific research, and by forcing governments to respond with progressive environmental initiatives. In the process we also persuaded governments of the need to make policy development and legislative processes more open and democratic and won hard fought battles for accountability in environmental decision making.

It is discouraging to realize that we are going to have fight many of these same battles all over again. It has also been difficult to witness the erosion of the gains we have made over the past three decades under the onslaught of globalization and free trade. There are however two important reasons to be optimistic about the struggle ahead.

The first has to do with having to recognize the underlying causes of the environmental problems we have too often failed to identify as merely symptomatic of a more profound and systemic problem - unsustainable economic, resource and trade policies. Thus while pesticides, or even a particular pesticide, can become the target of a national environmental campaign, little attention is paid to the agricultural policies that make the continued use of pesticides inevitable. Of course regulating pesticides, saving whales, creating parks and controlling pollution are important goals - but we need now to move beyond these symptoms to tackle the root causes of these problems, which if left unchecked, will keep us on the defensive forever.

This is not to say that we have not made considerable progress in moving our sights further up the "pipe", and we begun to focus much more attention on principles such as pollution prevention, selective harvesting and organic agriculture. However, we have not yet seriously considered the economic and resource policies that would make these goals realizable. Understanding and developing strategies to confront the impacts of deregulating trade will force us to do so. In the process will need to develop a more holistic and comprehensive strategy for addressing the increasingly serious dimensions of the ecological crises before us.

The other reason to be hopeful about the difficult tasks ahead, comes from an appreciation of the need to establish strong international regimes to confront global ecological problems. Indeed the WTO represents an excellent model for such an international agreement. When corporate interests are determined enough, trade agreements can engender incredibly proactive and effective measures for accomplishing corporate goals. We can therefore, consider these agreements as useful prototypes for agreements that would forster truly sustainable trading relationships. We must therefore endeavour to persuade governments that such problems as climate change and biodiversity loss are as important as protecting investment and intellectual property rights - if we can then trade agreements may be harnessed as a powerful force for bringing about environmental and conservation reforms.


1.2 TRADE AND THE ENVIRONMENT

A Brief History of the Debate about Trade and the Environment

Canadian environmentalists were among the very first to raise concerns about the relationship between international trade and the environment during the debates about the Canada-US Free Trade Agreement [CUSTA] which took place nearly ten years ago. We also played a significant role in sounding the alarm that brought these important issues to the attention of environmentalists in the United States, Europe and elsewhere.

In the years following the implementation of the CUSTA, trade dispute processes have been successfully invoked to challenge, environmental and conservation measures in Canada, the US and Europe - and a GATT challenge to US Marine Mammal Protection Legislation played a particularly important role in gaining the attention of US environmentalists and lawmakers during the NAFTA debates. In fact trade and environment issues became so prominent in the US that NAFTA was amended to accommodate some of the concerns of its environmental critics. The most significant of these amendments exempted certain multilateral environmental agreements from the strictures of free trade rules. The other, was the establishment of the North American Commission on Environmental Cooperation.

The WTO Committee on Trade and the Environment

Because of these and other developments, during the early nineties, the environmental implications of Uruguay Round trade negotiations began to emerge as important issues, particularly in the United States and Europe. Unfortunately however, these issues never achieved the prominence needed to force amendments to the WTO agreement. Instead, the parties to the WTO agreed to revive a long dormant GATT Committee on Trade and the Environment which has now been reconstituted as the WTO Committee on Trade and the Environment (the CTE). The CTE was given a very broad mandate to consider trade and environment interrelationships and was directed to report to the first biennial meeting of the WTO which took place in Singapore in the fall of 1996{7}.

While few environmentalists would know of its existence, a handful of environmental groups became actively engaged in its discussions, which ultimately centred on three issues:-

The relationship between WTO and trade measures authorized by several multilateral environmental agreements (MEAs), such as the Basel Convention, the Montreal Protocol and CITES.-

The use of eco-labelling, to convey information about the product or about the production or harvesting processes associated with the product.-

The effects of environmental measures on market access, "considering the benefits of removing trade restrictions."
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It is telling of the orientation of the Committee's discussions that the issues upon which most attention settled, had little to do with enlarging the scope for environmental initiative in the WTO context, but rather with the prospects for diminishing it. For example, on the subject of MEAs, the Committee's report asserts the right of WTO members to challenge the use of trade measures taken in accordance with the provisions of a MEA to which it is actually party, under WTO dispute resolution. While few anticipated that the Committee's work would actually undermine the integrity of MEAs, this is the likely effect of its deliberations.

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Two Strikes

Canada has played an active role in the deliberations of the WTO Trade and Environment Committee, but it has hardly been a helpful one from an environmental perspective. On the status of MEAs under WTO rules, Canada was prominent among the countries insisting on maintaining its recourse to WTO dispute processes with respect to MEA authorized trade measures, even where it was a party to the MEA.

On the issue of eco-labelling, again Canada played an important role in trying to extend the reach of WTO rules to constrain the use of such eco-labelling initiatives even when developed by non-governmental organizations, such as environmental groups.

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The Committee's discussions about eco-labelling reflect a similar bias in favour of establishing the primacy of trade policy over environmental initiatives. On this issue the Committee's deliberations concentrated on the use of eco-labelling schemes intended to inform consumers about the environmental impacts associated with harvesting or production processes. Fortunately, given the Committee's inclinations, its report on this point is ambiguous and inconclusive.

Green Protectionism

The third issue upon which the attention of the Committee focused, concerned the potential for domestic environmental regulations to create market access barriers. Apart from being of interest to free traders, this issue was also a major concern for developing countries fearing the use of environmental laws to limit their access to important northern markets - a practice that has been described as "green protectionism."

This was perhaps the most serious issue to emerge during the course of Committee meetings, because it revealed a significant difference of opinion between northern and southern NGOs on the subject of whether WTO rules should allow greater scope for environmental or resource conservation initiatives. While the position of groups from developing countries was not monolithic of these issues, there was often strong resistance expressed by third world NGOs and governments to proposals for "greening" the WTO.

To a considerable degree the concerns expressed by southern groups are well founded. Should greater scope for environmental trade measures be created or recognized under the WTO, it is likely that only developed countries would be able to take advantage of them, because poorer countries have no meaningful bargaining power when it comes to imposing trade sanctions against powerful trading partners. Consider for example, the likelihood of a trade challenge by a developing country to the enormous environmental externalities that underwrite the real costs of northern agricultural production. In addition, while the rule of trade law has been greatly strengthened by the establishment of the WTO, power-politics is still a very important dynamic of the trade equation.. A current illustration of this reality is the US Helms-Burton Law, which imposes sanctions against companies doing business with Cuba in blatant violation of WTO rules. From a southern perspective it is no coincidence that a third world country is the target of such a measure.

However, it is also true that trade rules must recognize the fundamental principles of environmental policy, such as the internalization of environmental costs, and the precautionary principle, rather than work to undermine them. If we cannot reform trade policy to this end, then the prospects for all of humanity are rather bleak. Secondly, it is demonstrable that the rules of trade, as they have existed in GATT and have now been strengthened in the WTO, have not fostered anything resembling sustainable development for developing countries, and a defence of the status quo seems dubious in these circumstances. Finally, by focusing on access to northern markets, the critics of "green protectionism" impliedly subscribe to the paradigm of export lead growth as the path to prosperity for poorer countries. However, in many areas, perhaps the most important of which is agricultural production, this paradigm if extremely problematic (see Agriculture below).

Other than revealing the significant work that needs to be done if NGOs are to arrive at a common position, the Committee made no substantive progress in addressing this issue. Nevertheless its report repeats the same unquestioned faith that "the prompt and full implementation of the commitments of the UR will constitute an important contribution [to ensuring] that trade induced growth will be sustainable{8}."

Strategies for Environmentalists

It is clear that Canadian environmentalists have work to do in exposing the regressive positions that the Federal Government has been taking in WTO discussions about trade and the environment. When progressive environmental proposals are advanced, as they have been by Nordic and European Countries, Canada should be finding ways to support, rather than defeat them. We can work at home to shed much needed light on what the government is saying on behalf of Canadians in international trade fora, and we can work with environmental groups in other countries to expose the lack of public support for the positions Canada has been taking.

As for participation in the discussions of the CTE, there has been significant debate among environmentalists about the utility of investing scarce resources in the work of this WTO committee in light of its limited prospects for achieving any meaningful headway. Experience to date lends considerable support to the criticism that the establishment of the Committee represents no more than a strategic ploy to deflect, and neutralize environmental criticism of the WTO. Moreover, given the character of the Committee's deliberations there is real concern that it will operate to further establish the primacy of trade over environmental policy, which is clearly the case with respect to the Committees views on MEAs. On the other hand, it may be its potential for creating even further damage to environmental law and policy that argues for the continued participation by environmentalists.

PART II: ENVIRONMENTAL ISSUES AND INTERNATIONAL TRADE


2.1 THE GLOBAL COMMONS

While there remains an enormous disinclination on the part of most governments to take environmental problems seriously - there is a broad and growing scientific consensus that we are confronting ecological crises likely to have profound, global and devastating consequences if we do not move quickly to avert them. Thus, notwithstanding the reluctance of political administrations to take meaningful steps on the domestic front, significant progress is being made to establish international environmental agreements that at least provide a framework for national initiative.

The most important of these are multilateral environmental agreements (MEAs) that address the problems of global warming, ozone depletion, biodiversity protection, species loss and hazardous waste trade. Several of these MEAs authorize the use of trade sanctions, which in some instances are central to the very goal of the MEA, as is the case with respect to international trade in endangered species or hazardous waste. In other cases trade sanctions are simply the most effective way to ensure that domestic measures aren't undercut by governments willing to ignore international norms or agreements. However, a reading of the trade provisions adopted by several MEAs against the rules of trade set out in the WTO, particularly as those rules have been interpreted by several trade dispute panels - reveals several areas of serious conflict.

The Three Bedrock Principles of Free Trade

In order to understand these conflicts, it is helpful to begin by briefly describing the core obligations of the WTO regime. While the trade agreements that comprise the WTO are now numerous and complex, the essential elements of the trade agenda can be found in three core GATT articles (remember that the original GATT Agreement of 1947 still provides the foundation of the WTO regime).

Article I: Most-Favoured Nation Treatment (MFN): requires all WTO Parties to treat "like" products from one country as favourably as those from any other. Put another way, Article I prohibits GATT members from discriminating among the products of others.

Article III: National Treatment: requires all GATT member countries to treat "like" products of all GATT members as favourably as it treats its own domestic products. In other words Article III prohibits discrimination between foreign and domestic producers.

Article XI: Elimination of Quantitative Restrictions: prohibits the use of import or export restrictions other than duties, tariffs or other charges. This means that countries cannot seek to restrict imports or exports by establishing quantitative limits (such as quotas, or bans) to the flow of goods across its borders.

In addition to these basic rules several other GATT provisions and WTO agreements impose significant constraints on the opportunity for environmental or resource conservation initiatives. For example agreements concerning intellectual property rights, agriculture and technical barriers to trade are particularly important and will be considered in some detail later in this guide. To begin with however, it is important to understand how core GATT rules undercut environmental goals, and in particular how they are likely to affect the implementation of MEAs.

While no trade dispute has yet challenged a trade measure implemented under a MEA, it is unlikely that such a measure would survive WTO scrutiny. Unlike NAFTA, which specifically exempts certain MEAs from the application of trade disciplines, nothing in WTO regime insulates these agreements from trade challenge. In fact as noted, the CTE has rejected a proposal by the European Union that these MEAs override WTO rules. Moreover the primacy of trade policy objectives has actually been written into the provisions of several MEAs{9} although it is highly unlikely that the inclusion of these provisos was the product of any informed discussion about their potential consequences.

MEAs, Enforcement and Trade Sanctions

The more important multilateral environmental agreements that have adopted trade provisions to encourage compliance with, and implementation of their objectives, are:

The Convention on International Trade in Endangered Species and Wild Fauna and Flora (CITES), uses trade measures to restrict international trade in endangered or threatened species because international trade in these species is often a primary cause of their over exploitation. CITES establishes a system of trade regulation that is based on the relative vulnerability of a particular species in a specific geographic community. Thus trade in members of a threatened group may be prohibited while trade in members of the same species from other geographic communities, may be permitted.

The Montreal Protocol on Substances that Deplete the Ozone Layer, (the Montreal Protocol), proscribes trade with non-parties in ozone depleting substances and products that contain substances that are harmful to the ozone. The purpose of these measures is to prevent collective efforts at eliminating the use of ozone damaging substances, from being undercut by the practices of countries that are not parties to the Protocol, or by the movement of production facilities to those jurisdictions.

The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (the Basel Convention), restricts international trade in hazardous waste, because that trade itself is dangerous to the environment, and because many countries, that might otherwise be the recipients of those transboundary shipments, are ill-equipped to manage or dispose of such wastes in an environmentally sound manner. As a counterpart to the Basel Convention, African nations have adopted the Bamako Convention that prohibits the importation of hazardous wastes into Africa.

When these trade measures are considered against the prohibitions, set out in core GATT rules, there are several obvious contradictions, some of which were brought to light in the "Tuna-Dolphin` trade disputes (see case note). For example, all three of these MEAs seek to either control or ban trade in endangered species, ozone depleting substances and hazardous waste, respectively. But such import and export restrictions are clearly incompatible with Article XI rules disallowing the use of quantitative trade controls.

Secondly, by authorizing the use of trade sanctions against non-parties to these agreements ( ie. countries which nevertheless may be parties to WTO) these MEAs allow a form of discrimination among WTO members that is in direct contradiction to the MFN obligations of Article I. For example the Montreal Protocol bans trade in ozone depleting substances with non-parties to the Protocol while allowing trade to be conducted in the same products with countries that are observing its provisions.

Third, by allowing for the application in certain circumstances of different rules to foreign and domestic producers, the requirement for "national treatment" set out in Article III of GATT would be violated. For example, CITES mandates restrictions on international trade in endangered species but doesn't seek to regulate domestic trade or consumption. The same is true of the Basel Convention. Similarly the Montreal Protocol obviates the need to provide national treatment to ozone depleting substances produced in jurisdictions that are not in full compliance with Protocol. In this way all three agreements offend this GATT rule against providing more favourable treatment to domestic goods.

Furthermore, according to the Tuna Dolphin and other trade cases, the meaning of "like products" in Articles I and III precludes the possibility of distinguishing between products with the same physical characteristics but with very different environmental histories. Yet CITES would allow countries to discriminate between identical products where one comes from a jurisdiction where the species is threatened and the other does not. Similarly the Montreal protocol allows for discriminatory trade treatment of "like products" depending upon whether the exporting jurisdiction is a party to the Protocol and in full compliance with its provisions.

When considered against the goals or sustainable development, these trade rules are clearly untenable because they force us to ignore the great differences that often exist between the environmental impacts associated with producing goods that may be quite indistinguishable in all other respects. Thus lumber from a liquidation cut of old growth forest, and lumber from a selective cut of a managed second growth forest, must be treated in precisely the same way under WTO rules. This enforced blindness is obviously irreconcilable with the goal of encouraging consumers and producers to discriminate in favour of sustainable forms of production and resource management.

Therefore it is not surprising that these concerns have been repeatedly raised by environmentalists during sessions of the WTO Trade and Environment Committee. In the arcane jargon of trade speak, the issue is described as having to do with production and process methods or PPMs. That is, measures that are intended to address the way products are made or harvested, but not necessarily their physical characteristics - regulations such as those required under CITES and the Montreal Protocol. As the case notes included in this guide consistently reveal however, trade panels and trade bureaucrats have been determined to prevent governments from adopting regulations that might even indirectly have some impact on production or harvesting methods beyond their borders. It is not surprising then that discussions of this issue by the CTE quickly bogged down.



General Exceptions

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(b)necessary to protect human, animal or plant life or health;

(g)relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

Given the failure of environmentalists to make progress on this front, and in the face of patent contradictions between the provisions of these MEA and GATT rules, much of the work of the WTO Trade and Environment Committee focused on the fate of such measures. In particular the Committee considered whether the use of trade measures under these MEAs would qualify as exceptions to the broad proscriptions set out in GATT rules. The key provisions here are found in Article XX of GATT which provide, in part, as follows:

While a plain reading of these provisions suggests that ample scope for environmental regulation would be possible under the umbrella that Article XX creates, trade dispute panels that have been called upon to interpret the scope of these exceptions, have given them such narrow reading that it is difficult to conceive of an environmental regulation that could meet the standards these cases have established. While none of these trade cases have specifically considered a trade measure taken in accordance with a MEA, the interpretation given Article XX strongly suggests that it would be unlikely to survive the challenge.

The following summary of two of the first cases to consider the ambit of Article XX exceptions illustrates some of the problems that have arisen here.

TUNA, DOLPHINS, GATT and the ENVIRONMENT

During recent years the trade provisions of US marine mammal protections laws have come under GATT fire on two different occasions{10}. Tuna-Dolphin I was the first of these and concerned tuna import restrictions authorized by US Marine Mammal Protection Act {11}(MMPA), which regulated the fishing practices used by the US tuna fleet to limit, and ultimately eliminate, the "incidental" killing of dolphins. In order to prevent its regulation of the US fleet from being undercut by the activities of foreign producers, the MMPA required the US government to ban the importation of tuna caught with dolphin lethal fishing practices.

In response to a petition by an US environmental group, alleging that Mexico and other central and south American countries were exceeding the limits set out by the MMPA, the US imposed an embargo on the importation of commercial tuna from these countries{12}. Mexico, which had enjoyed a robust export trade in tuna to US markets objected, and filed a GATT complaint challenging that embargo. Several other countries intervened, as did Canada, which supported Mexico's challenge to the MMPA.

Products not Processes:

In defence of its environmental regulations the US pointed out that it was not discriminating against Mexican tuna imports, because it had treated imports from Mexico effectively in the same way that it would the catch of its own fishing fleet, should it be in breach of MMPA rules. In rejecting this argument the panel held that the regulations at issue "could not be regarded as being applied to tuna products as such because they would not directly regulate the sale of tuna and could not possibly affect tuna as a product." In other words, "national treatment" of "like products" required by Article III of GATT means that no distinction can be made among products with the same physical composition or characteristics, no matter how different the processes employed to manufacture or harvest them.


Open Season on Global Resources::

A second important aspect of TunaI had to do with this trade panel's narrow reading of Articles XX (b) and (g) of the GATT to preclude the use of environmental measures intended to protect the environment or conserve resources beyond the country's borders. The panel reasoned that to allow otherwise would be create a situation in which "each contracting party could unilaterally determine the conservation policies form which other contracting partied could not deviate ..." The implication for international environmental treaties or conventions is obvious.

However, in Tuna Dolphin II (this time the trade dispute involved a challenge by the European Community to a secondary embargo against tuna products, also imposed under the MMPA), the panel could find nothing in the language of either GATT article that would impose territorial limits on their application. However, having opened the door slightly to the potential use of Article XX exceptions, the panel quickly closed it again by disallowing the MMPA import restrictions because they "could not by themselves further the United States [conservation] objectives, because they required another country to change their policies and practices to be effective." Yet this is precisely what multilateral environmental agreements strive to achieve in encouraging all countries to reform their policies and practices to achieve global environmental goals.

Amending GATT Rules to Protect the Environment:

Perhaps the most important thing this trade panel had to say was offered by way of its concluding remarks when it stressed what it regarded as fundamental contradictions between the GATT principles of free trade on the one hand, and resource conservation or environmental measures that might interfere with trade, on the other. Should GATT parties wish to allow such measures, the Panel reasoned, they should make clear that intention by amending the GATT to precisely describe the ambit of any environmental or resource conservation exceptions to the trade agreement. In other words, if GATT parties wanted trade agreements operate as instruments for accomplishing rather than undermining environmental and resource conservations objectives, they would have to clearly say so. Unfortunately GATT parties have been steadfast in refusing such reforms.

It is also worth noting the irony of the concern these trade panels express for the sovereign prerogatives of nation states to determine their own environmental and resource conservation policies, because arguably the greatest threat to that independence is to be found, not in initiatives such as the US embargo, but rather in the Panel's decision striking them down. It is important to note therefore, that the panel's ruling impugned not only the embargo, but the legislation that authorized it as well.

Under WTO rules such a panel decision would be accepted by the General Council, whereupon it would then be incumbent upon the US administration to remove the offending provisions from the MMPA or face retaliatory trade measures. However, because both of these cases proceeded under pre WTO GATT rules, the US was able to block their adoption. How the next trade panel might resolve similar issues, is very uncertain.

A Note About Trade Dispute Resolution

Trade decisions are not binding on subsequent panels which are under no obligation to follow or otherwise adopt the reasoning or findings of panels that have previously considered similar issues. In fact, when it comes to trade disputes involving environmental or resource issues, trade panels have often adopted inconsistent and contradictory approaches.

Given the vigour with which dispute panels have assailed environmental and resource conservation initiatives this is a small blessing. At least future trade panels will not be bound by the excessively narrow reading previous panels have given to the scope for environmental and resource conservation regulation under GATT rules. However, the down side to this lack of consistent or predictable interpretation, is the uncertainty that confronts regulators wishing to craft regulatory solutions that will not run afoul of trade rules. As the summaries of trade decisions that are included in this guide reveal, would-be regulators are definitely shooting at a moving target, which to this point has been impossible to hit.

However inconsistent or confused the reasoning, there are two common themes that emerge from the trade dispute rulings that have concerned environmental or conservation measures. The first is the expansive reading given to WTO rules that limit government regulatory options that might, even indirectly, interfere with trade. Conversely, the other offers an exceedingly narrow interpretation of those trade provisions that might otherwise have created some space for environmental or conservation exceptions to the free trade orthodoxy. This double whammy has spelled disaster for every environmental or conservation regulation that has found itself in the cross hairs of a trade dispute panel, and none have survived the encounter. In fact in every case, trade panels have found several grounds on which to rule against the environmental regulation - the contest hasn't even been close.

Part of the explanation for the apparent bias that pervades these trade decisions has to do with the qualifications of panel members who are chosen from an international roster of trade professionals. However, nomination to this roster requires no background, training or other qualification that would in any way equip prospective trade adjudicators with the expertise needed to deal with the important and often complex matters of environmental law and policy they will be passing judgement on. Moreover the only parties with standing to participate in trade disputes are National governments, which inevitably are represented by their respective economic or trade departments. These in turn suffer from the same deficiencies of mandate and competence that is characteristic of panel members. Appreciating the single- minded and myopic perspective that handicaps trade dispute resolution is an important aid to understanding the contorted and often perverse reading that trade panels have given GATT rules, when the subject of the dispute concerns the scope for environmental regulation.

Asserting the Primacy of Multilateral Environmental Goals

As the Tuna - Dolphin and other trade cases make clear, current interpretations of GATT rules pose serious problems for the trade provisions adopted by MEAs. If these contradictions are left unresolved, they are sure to slow efforts to implement existing multilateral commitments, and are also likely to frustrate efforts to devise compliance mechanisms for the most recent environmental conventions and protocols. The two most important of these being:

The Convention on Biological Diversity (Biodiversity Convention) which includes rules that are specifically address technology transfer and the protection of intellectual property rights. These are intended to provide economic incentives for habitat preservation and to accomplish a more equitable distribution of the benefits of biotechnology research [both of these issues are considered further below, see TRIPS Agreement].

The United Nations Framework Convention on Climate Change (Climate Change Convention), which while lacking in specific targets or precise measures that will be needed to achieve targeted reductions, nevertheless clearly contemplates the use energy or carbon taxes and other economic instruments for achieving its goals [see Energy below].

Implicit in the discussions of the CTE, and explicit in the jurisprudence of trade panel decisions that have passed judgment on environmental measures, is the primacy of trade policy objectives over competing environmental goals. Yet few if any countries have allowed any opportunity for informed and democratic debate about the relative priority of environmental and trade policies objectives. Naturally, trade and economic departments or ministries have assumed the paramountcy of their agendas, and it has been these government institutions that have had virtually unfettered discretion to determine trade policies and law. Because other constituencies have been effectively excluded, trade agreements reflect a myopic preoccupation with economic policy goals to the exclusion of all other and potentially moderating influences.

In fact the trade lobby has done a much better job of grafting their agenda onto the sustainable development paradigm than environmentalists have been able to accomplish in moderating the "grow now, pay later" model of free trade. For example Article 12 of the Rio Declaration, states:

The international economy should provide a supportive international climate for achieving environment and development goals by:

(a)Promoting sustainable development through trade liberalization;
(b)Making trade and environment mutually supportive;
(c)Providing adequate financial resources to developing countries and dealing with international debt;
(d)Encouraging macroeconomic policies conducive to environment and development.

But there is no empirical basis for the dubious proposition that free trade promotes sustainable development. Moreover whatever the extent of the common ground that might exist between trade and environmental policy goals, it is very evident that no such compatibility can be found in decisions of trade dispute panels that have considered the two side by side.

But more to the point - there are very good reasons for concluding that trade bureaucrats and corporate lobbyists have got it backwards. Given the potentially devastating consequences of global warming, ozone depletion, biodiversity loss, and unregulated waste trade it is simply impossible to accept the proposition that efforts to confront these problems give way to the goal of increasing international trade.

While it is theoretically possible to read WTO rules liberally enough to accommodate the trade provisions of MEAs, given the history of trade disputes, the secretive and undemocratic character of trade dispute resolution, and an institutional myopia that perceives the world only in terms of trade, and growth - that reading is exceedingly unlikely. Rather if the integrity of the enforcement provisions of MEAs are to be sustained, it is not reasonable to leave their fate at the whim of the WTO, when there are at least two straightforward ways to assert the priority of MEA provisions . . .

The first, would be for the parties to MEAs to prepare amendments that would assert the primacy of its provisions should conflict arise with the rules of trade. In light of the fact that significantly more governments are parties to MEAs than are members of the WTO this should effectively resolve most conflicts. To guard against the possibility that MEA trade measures might be challenged by a non-party, the WTO should also be amended to exclude MEAs from the application of trade disciplines, as is the case under NAFTA.


2.2 NATURAL RESOURCES

Concerns about the environmental implications of international trade have focused almost exclusively on the impacts of trade rules on environmental standards. By comparison very little has been done to reveal, let alone address the impacts of global trade rules on our prospects for achieving sustainable resource management goals and for preserving biodiversity. In fact, issues concerning trade and natural resources have not even found their way onto the agenda of the WTO Trade and Environment. Over the longer term however, it is likely to be the impacts of free trade on natural resources and biodiversity that will be its most destructive legacies.

Export Controls and Tariff Escalation

There are two basic observations that can be made about the character of international trade in natural resources. The first is that most of the worlds natural resources (roughly 80%) are consumed by the 20% of us who live in developed countries. The second is that developing countries have been effectively denied the economic development that comes from processing raw resources, or converting them into manufactured goods.

Two aspects of trade law and practice establish and reinforce these inequitable and historic trade patterns. The first can be found in Article XI of the GATT, which as we have seen prohibits the use of export controls, to support domestic manufacturing or for any other purpose. The second can be found in the practice of tariff escalation adopted by developed countries to impose higher tariffs on manufactured goods than on the raw materials used to produce them. The more value added, the higher the tariff. Thus a bale of raw cotton receives more favourable tariff treatment than does the same bale woven into textiles, and more favourabl still than garments made with those textiles. Thus while Article XI may preclude the use quantitative based import restrictions, the use of import tariffs accomplish the same result.

The effect of tariff escalation policies has been to ensure that the value-added processing of resources harvested, extracted or mined in poor countries is carried out in the industrial and developed North. This in large measure explains why the economies of most developing countries are closely tied to primary commodities, which account for most of their export earnings - Latin America (67%) West Asia (84%) and Sub-Saharan Africa (92%){13}. To acerbate this dependence, the real price of commodities has been declining for much of period since 1980. This is turn has created more pressure to exploit natural resources as countries struggle to increase production in order to maintain export earnings.

However, in the world of market-driven and deregulated trade the ability of developed countries to maintain high tariffs is finally giving way, and under the WTO some progress has been made in easing the tariff escalation policies. But as competition for scarce resources increases, securing access to dwindling supplies, remains a high priority for the North.

Therefore as tariff walls come down, it appears that other means are coming to the fore to ensure continued access to the energy and raw materials needed to support northern processing and manufacturing industries{14}. Thus while the export control prohibitions of Article XI of GATT have been on the books for years, they are only now becoming the subject of international trade disputes. As developed countries have to abandon policies of tariff escalation, they are now turning to Article XI as the device for assuring the continued flow of raw materials to its manufacturing industries. For example the US has relied on this provision to challenge efforts by Argentina to control the export of unprocessed hides (to support its domestic tanning and leather goods industry), and has gone after Canadian raw log and fish export controls (see following discussion).

It is undeniable that these trade rules and practices have fundamentally undercut the development aspirations of developing countries. If sustainable development is to engender the goal of achieving a more equitable distribution of the world's resources - then current trade rules will need to be fundamentally recast or they will simply perpetuate the very patterns of development that have impoverished much of the world and laid waste to its resources. It seems readily apparent that if trade policies are to foster sustainable patterns of development, one key objective would be to encourage domestic processing and manufacturing of indigenous resources, rather than penalize such efforts.

Export Control as a Resource Conservation Tool

Several jurisdictions have historically banned the export of unprocessed resources in order to conserve those resources and to promote local economic development. Canadian examples include bans on the export of raw logs and unprocessed fish. Resource export controls can have an immediate and obvious impact upon the rate at which forests are logged, or fish stocks harvested. Historically however the more important rationale for such export controls was the desire by governments to promote economic development by ensuring that at least some processing took place before resources were exported.

For resource-based communities this meant a more dynamic and diverse economy, and ultimately a greater stake in sustainable resource management. For government, the result meant more tax revenue from the economic activity that now took place within its jurisdiction. This in turn meant having the fiscal resources needed to invest in resource enhancement and conservation measures, and a stronger rationale for doing so, because now such public expenditures would benefit processing, manufacturing as well as harvesting or extraction industries. From an environmental perspective there is one other important reason to support the notion of processing resources as close to their source as possible and that has to do with reducing the enormous energy and other environmental demands of transporting unprocessed resources over great distances. It is clear that the transportation impacts of global production and trade represents a very substantial and largely uncounted cost of the global economy{15}.

Conversely, without the ability to ban the export of raw logs and other unprocessed natural resources, the economies of resource-based communities become poorer and less diverse. Income becomes entirely dependent upon the rate at which the resource is extracted, and the viability of local economies becomes far more vulnerable to commodity price swings - fluctuations that have devastated the economies of many resource dependent countries. Furthermore, when commodity prices decline, and in the absence of other alternatives, enormous pressure is created to increase the rate of resource exploitation, however unsustainable those rates may be.

Export Controls and Article XI

Considered in this light, the ability to control resource exports is vital for any government seeking to implement sustainable resource management programs. Yet it is precisely this prerogative that free trade agreements remove. Clearly export bans provide no guarantee that governments will implement sustainable resource management strategies. Indeed the existence of resource export controls has done little to avert serious resource supply problems that are now common in virtually all resource sectors. However, without the authority to regulate exports, governments are simply without the power to implement sustainable resource management programs, no matter how compelling the environmental or economic imperatives for doing so, may become.

To put this another way, at the very moment when the need to change the course of resource management policies is clearest, the free trade agenda seeks to remove from governments the tools they will need to change direction. While certain large resource industries may benefit from such policies over the short term, we will leave our children very little, if anything, of the once abundant natural resource heritage we have too easily taken for granted.

FORESTS

Across Canada, environmentalists have struggled for decades to improve forest operations and establish representative protected areas. Despite the variations in forest ecosystems and operations nationally, common concerns include: unsustainable levels of logging; ecologically damaging forestry practices; lack of protection for biodiversity through protected areas and in logged areas; poor levels and quality of regeneration; and lack of settlement of First Nations claims to forest lands.

Canadian environmentalists are well aware that policies for use and conservation of natural resources are fundamental to environmental protection. They are also front-line tools for the integration of environmental and economic policies. But as we have seen trade rules dramatically curtail the availability of policy options that may be essential if conservation goals are to be realized. Moreover, it appears that the few remaining policy prerogatives may fall victim to what amounts to internecine warfare between US and Canadian lumber interests.

Canadian forest management practices have repeatedly come under fire from the US lumber lobby which has for years been unhappy about having to compete with cheap Canadian lumber exports. Several trade disputes have been initiated on behalf of US producers, challenging Canadian policies and low stumpage rates as representing unfair subsidies to Canadian mills. With some reservations environmentalists on both sides of the border have welcomed the attention these cases have given the "fire-sale" rates at which public forests have been assigned to large forest industry corporations. However, there is one important aspect of these trade disputes that hasn't garnered much attention, and which has to do with trade treatment of raw log export controls. The following case summary describes how Canadian raw log exports got caught in the cross fire of Canada-US lumber wars.

This case is also illustrative of the tactical use that can be made or trade disputes to keep governments from adopting resource export controls even when specific exemptions would ostensibly allow their use. While the case is one that proceeded under the dispute provisions of NAFTA, the principles of trade policy articulated by the Panel would have equal application to the WTO regime.

Notwithstanding these broader implications however, the most significant consequences of this interpretation of trade policy will be felt in the resource sector, where governments, including the US government, will have to assure foreign industries the same access to its resource base as is made available to its own citizens. Consider for example what this decision means should Canada decline inter-basin water transfers to the US - the argument would then be made that by prohibiting the export of water, Canada had conferred a countervailable subsidy on Canadian farmers and industry. The value of the subsidy being the difference in cost for US as opposed to Canadian users - moreover the extravagant and unsustainable water resource policies that might have given rise to those price differentials in the first place would be entirely irrelevant to the dispute.

This dramatic expansion of the reach of trade remedies into the resource sector firmly establishes the paramountcy of free trade policies to the exclusion of all other commercial (domestic processing) and noncommercial (resource conservation) policy objectives.


The Case of Canadian Raw Log Export Controls

Because of the contradiction between trade and resource management policies, and because of the importance of log export controls to several states and provinces, NAFTA explicitly exempts log export controls from the rules of free trade that apply to all natural resources. (see Annex 301.3). However the US Commerce Department (DOC) spurred on by the US lumber lobby initiated a challenge to Canadian log export controls under the US Tariff Act.

Because it could not go after these export controls directly, the DOC challenged Canadian log export bans as conferring a countervailable subsidy on the Canadian lumber industry. Subsidies are generally prohibited by the rules of free trade as representing unfair trade practices. Under the WTO and US trade law, a countervailing duty can be applied to imports to offset the advantage that a foreign subsidy provides.

In this particular case, the DOC argued that log export restrictions artificially inflate domestic supply, which in turn lowers prices. In this way Canada's export controls had conferred an "indirect subsidy" on its lumber industries. Under the rules of free trade embodied in NAFTA, the only allowable government subsidies are those for defence spending or oil and gas mega projects{16}. Therefore within the meaning of US trade law, the "indirect subsidy" created by log export controls was actionable. That is, it could be countered with an import, or countervailing duty, equal to value of the subsidy to Canadian producers.

Canada complained and a dispute panel was constituted under CUSTA. While it ultimately rejected the validity of the DOC determination on technical grounds, in the process it did accept in principle the argument that export controls could be treated as unfair subsidies to domestic producers. In doing so the panel endorsed a dramatic departure from past practice that extends the reach of countervail rules to a broad range of resource policies. Thus the same tactics might be used by the US, or another developed country, to assail a high export tariff on unprocessed resources that would otherwise be consistent with WTO rules.

But most important, by allowing countervail relief every time some action by government reduces the cost of production for domestic producers, a host of environmental programs would become vulnerable to challenge. For example, as alluded to in the dissenting opinion by two of the three Canadian members of the five person Panel, an emission trading program that would allow polluters greater flexibility in meeting environmental goals at lower costs would constitute a counter-vailable subsidy for the purposes of DOC's reading of the Tariff Act. Taken to its logical conclusion, all conservation measures distort supply and demand and may be vulnerable to attack as unfair trading practices.

The case is also important for what it reveals about the true value of exclusions or other exceptions that may be written into the provisions of trade agreements, but nevertheless run counter to the prevailing orthodoxy of trade deregulation. On the subject of the specific exemptions for raw log export controls the trade panel had little hesitation endorsing the view that "the Department's determination to countervail B.C.'s log export restrictions does not prohibit B.C. from continuing to implement and enforce restrictions; the Department is merely imposing a countervailing duty to offset the countervailable benefit enjoyed by the B.C. softwood lumber produces{17}." But of course the only reason to create an exception for log export controls would be to insulate them from just such trade challenges.


The Certification Option

The Canadian Standards Association Sustainable Forestry Management Certification

To take advantage of the internationalization of standard-setting and to promote trade in forest products, the Canadian Pulp and Paper Association and the Canadian Standards Association (CSA) have developed a voluntary certification system for sustainable forest management (SFM). Essentially an eco-labelling scheme, it purports to allow purchasers to identify products from sustainably managed forests controlled by companies whose practices will be assessed by independent certifiers.

However, this scheme has been roundly criticized by Canadian environmentalists{18}. It will certify management systems, without requiring actual environmental protection performance standards; it will not require a chain of custody to ensure that products actually come from certified forests; and it was developed in a flawed, industry-dominated process.

In 1995, the CSA attempted to have its approach adopted for international standard-setting at the ISO, but international environmental opposition prompted the withdrawal of the proposal. The issue is currently being "studied" by an ISO working group coordinated by New Zealand. If the Canadian forest industry succeeds in using these GATT-promoted processes to establish its eco-labelling scheme, further barriers to effective forest regulation in Canada will have been created.

The Forest Stewardship Council certification approach

The Forest Stewardship Council (FSC) is an international organization, including environmentalists, social justice groups, industry, and indigenous peoples. It has also established a voluntary certification scheme for forest products based on principles and forest standards environmentalists consider credible. Newly established in Canada, the FSC will require that standards be developed here on a regional basis, given the different forest types in Canada. The FSC "certifies the certifiers" but unlike the CSA process, it includes principles for performance, and a chain of -custody requirement to identify products that come from particular managed forests. Although still a small organization, it has become an important player in international forest trade, being a potentially potent force in providing markets for environmentally-preferred forest products.

The role of the Canadian government at the World Trade Organization (WTO)

The federal and provincial governments of Canada have supported the CSA certification scheme. At the WTO Committee on Trade and Environment, which studied policy issues including eco-labelling, the Canadian government representatives have promoted the view that voluntary non-governmental eco-labelling schemes, such as the Forest Stewardship Council, should be subject to the GATT rules. Because trade rules prohibit measures that would discriminate against "like" products, many aspects of the FSC would likley contravene WTO rules were they to apply. Such a position, which GATT members fortunately have no power to implement, involves a direct attack on the environmentally-preferred Forest Stewardship Council eco-label and further evidence of the extent of dominance of Canadian public policies by trade concerns.

Strategies for Environmentalists

"Deregulated trade," the goal of the trade agreements, has been accompanied by deregulation of many sectors in Canada, and has included the rollback of environmental laws in some provinces. Devolution of federal environmental powers to the provinces is reducing the potential for federal leadership in environmental lawmaking. Increasingly, environmentalists working for new policies are told that the trade agreements don't permit them.

The pursuit of certification of sustainably produced forest products by the FSC and environmentalists has occurred partly because it is a strategy that does not run into the roadblock of the trade agreements. For this reason, it is important that environmentalists challenge the federal government's attempt to use the GATT/WTO against the FSC and any other private, credible certification schemes. Exposure of the Canadian position in Geneva would be a start. International cooperation among environmentalists stopped the CSA scheme from being accepted as an international standard. We need to monitor the next round of that process, as the "study" group proceeds.

We also need to inform our international allies of our opposition to the Canadian position on eco-labelling, and build international support for the critique. Forest protection will become even more difficult if governments continue to expand the scope of activities covered by the GATT.

FISHERIES:

Two important sets of international trade cases further illustrate the ways in which trade rules can undermine resource management and conservation initiatives. We have already highlighted one of these - the Tuna-Dolphin rulings that reveal the considerable impediments that GATT rules have created to a broad area of environmental policy and law directed at conserving extraterritorial resources.

The other set of cases concerned fisheries management off Canada's west coast, and in particular Canadian regulations and export controls for salmon and herring stocks. Of two US trade challenges to these export regulations, the first proceeded under GATT and the second under NAFTA{19}. However, the interpretation of GATT rules that is central to both cases applies equally to NAFTA and the WTO. Moreover, these cases illustrate how the two trade regimes work together, often to deliver a double whammy to resource conservation policies.

While the Tuna Dolphin decision creates serious impediments to the use of trade measures to implement international fishery agreements, the trade disputes concerning salmon and herring fisheries reveal how free trade has imported to domestic fishery management, some the problems that have plagued efforts to manage extraterritorial and straddling stocks.

Export Controls as a Domestic Fisheries Management Tool

In order to establish sustainable management regimes for coastal fisheries, governments must be able to impose effective controls upon all those exploiting marine resources within these zones. For the domestic fishing industry serving local markets, the exercise is reasonably straightforward, and governments have created a variety of regulatory mechanisms to control what, when, how, and how much is taken from coastal zones. While these regulatory regimes have failed dismally in many instances, sufficient authority did exist to establish sustainable management programs, if it had been properly exercised.

However, the activities of foreign fleets in coastal waters presents a more difficult challenge. It is the ability to regulate foreign companies, and in particular to restrict the export of fish caught within coastal waters, that free trade has intervened to undermine, as the following case note illustrates.

Salmon and Herring

In 1908 Canada passed a regulation under the Canadian Fisheries Act that prohibited the export of unprocessed salmon and herring. Because, salmon and herring fisheries represent such a large share of Canada's west coast fishery, and the export embargo had created a thriving processing and canning industry which has been an important part of the economy of British Columbia for most of this century. However in 1986, as part of its continuing efforts to secure a larger share of these valuable fisheries resources for its own domestic canning industry, the US used GATT rules to challenge Canada's Fisheries Act Regulations. The challenge appears to be the first ever taken under GATT rules concerning an export control measure.

In defence of its program Canada argued that its export limits represented an integral element of its longstanding fishery management regime, which included habitat protection, catch limits, international agreements, and the maintenance of monitoring and enforcement systems. The overall effect of this comprehensive regime was conservation.

However, Canada also readily conceding that its export prohibition was multi-purposed and intended as well to ensure the viability of Canada's fish processing industry. This objective was, it argued, entirely consistent with conservation goals because it allowed Canada to justify significant public expenditures on salmon enhancement programs with the expectation that benefits would flow to all sectors of the fishing industry not just the harvesting sector.

Unpersuaded by these arguments, the GATT panel found Canada's export controls to be contrary to GATT rules and indefensible under the "resource conservation" exception (Art. XXg) of GATT's general prohibition against export controls (Art. XI). In response Canada revoked the regulation that had been a cornerstone of its fishery management regime for the preceding 80 years, and substituted a regulation that required that all salmon and herring be landed in Canada for inspection, and biological sampling, before being exported. Canada insisted this measure was also essential if it was to ensure that foreign fishing boats respected regulatory limits set for the domestic fishing fleet - thus landing requirements were necessary to effective monitoring and management. However the landing requirement effectively meant that the US catch would have to be processed in Canadian canning factors before being exported. The US filed another trade complaint.

The dispute that ensued was the first to have been resolved under the Canada US Free Trade Agreement (CUSTA) and was decided in favour of the US. Undeterred by the fact that Canadian regulations applied equally to US and Canadian fishers, and ultimately set no limit on the export of fish to the US, the panel unhesitatingly found Canadian landing requirements to be in breach of Article XI of the GATT.

The Panel then went on to consider whether Canadian regulations might be justified under Article XX(g) as a measure "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption." It reasoned that a country could rely upon the "resource conservation" exception of Article XX(g) of GATT (to the general prohibition against the use of export controls) only where its export embargo was "primarily aimed at conservation." Apart from the absence of any textual support for such a test, one might be tempted to regard this precondition as a reasonable standard for meeting XX(g) requirements. However, "primarily" in the Panel's view, means that: I) "it would have been adopted for conservation reasons alone", and; ii) that the same purpose could not have been accomplished by other means. This is a test that few, if any, environmental regulations could hope to pass, particularly when administered by trade bureaucrats.

As was true of the GATT decision, the CUSTA panel refused to make any distinction between the rights of domestic and foreign fishing companies. While this is entirely consistent with the rules of free trade, it is fundamentally incompatible with the notion that the opportunity to exploit a resource must bear some relationship to the responsibility to manage and care for it. While not put in these terms, this was precisely the argument that Canada made in underscoring the need for domestic benefits if a rationale was to exist for spending public funds on fisheries management. By giving foreign fishing companies the same right to exploit coastal fish resources as those enjoyed by domestic producers - free trade has imported to the domestic sphere of resource management precisely the dynamic that has plagued the global commons - ie. the right of all to exploit, and the responsibility for no one to conserve.


The salmon and herring decisions run true to form in asserting the priority of trade policy objectives and letting natural resource impacts fall where they may. While GATT rules may look the villain here, it is really the combined effect of CUSTA (now NAFTA) and GATT (now the WTO) that together close off every avenue of trade regulation of resource exports. This is true because under the WTO countries are free to use price - ie. export taxes or royalties - to control the export of resources from its jurisdiction. In other words, while GATT Art. XI prohibits the use of quantitative export controls it allows a country to establish a two-price resource policy - one for domestic consumers and another for exporters. We will see (in the discussion of agricultural trade which follows) how tariffs represent a poor substitute for quantitative controls, nevertheless neither of the Salmon and Herring Cases would have arisen but for Canada's obligations under CUSTA and NAFTA to remove any differential taxation of its natural resources.

Before leaving the subject of export controls, it is also important to note that CUSTA and NAFTA go much further than GATT, in virtually eliminating the authority of governments to restrict exports even in times of critical shortage. This is because Art. 319 of NAFTA (Art.405 of CUSTA) establishes a regime of proportional access that would allow, for example, the US to have perpetual access to west coast fisheries resources in the same proportion that it had historically enjoyed, no matter how severe or permanent the depletion of natural resource stocks becomes.

Free Trade and Sustainable Resource Management

Ultimately the trade cases summarized above serves to underscore the fundamental problems of applying the principles of free trade to the resource sector. If governments are to establish sustainable resource management policies, they must have full control over foreign investment in the resource sector, and must also be able to control the rate at, and conditions under which, vital natural resources are exported. Under WTO rules of trade their ability to do either is significantly diminished.

For far too long, we have been mining our forests, fisheries, farmland and other resources as if these were limitless rather than the precious natural "capital" upon which future generations must depend. Critical shortages are now apparent in virtually every resource sector, including coastal fisheries, forests, water, and energy. At the very moment when the imperatives to change our course could not be clearer, the WTO and the free trade agenda seek to lock in the unsustainable resource management practices that have created our present predicament. If rules of trade are to serve rather than undermine the principles of sustainable development - they must be fundamentally overhauled to make a virtue, rather than a sin, of resource conservation.


2.3 AGRICULTURE

The tools with which we have transformed the modern farming industry - heavy machinery, mono-cultures, hybrid crop strains and chemicals - have caused enormous and often irreversible damage to soil fertility, water quality, public health and viable farm economies. Moreover the productivity of our farmland has become, year by year, ever more dependent upon massive infusions of energy, to produce and operate farm machinery, and in the form of petrochemical-based fertilizers and pesticides. In fact current estimates are that we expend more than 3 calories of energy to produce every calorie of food. When the energy associated with processing, packaging, transporting and marketing agricultural products is included, the equation becomes even more lopsided and roughly equals ten calories of energy in, for every calory of food energy out.

We have in this process of modernizing agricultural production actually tied the future of what should be a renewable resource, farmland, to a non-renewable resource, fossil fuels. Unfortunately the environmental consequences of these unsustainable patterns of agricultural production are largely unrecognized. Neither does there appear to be any recognition that at the root of these problems is the very economic and trade policies that we are now entrenching in the WTO.

Therefore, juxtaposed against this backdrop, is the free trade vision of an integrated global agricultural economy, in which all regions of the world are engaged in the production of specialized agricultural commodities, each supplying its needs by shopping in the global marketplace. Food is grown, not by farmers for local consumers, but by large corporations for global markets. The consequences of this global model for farmers in poor countries who have lost their subsistence farms to export producers, are of course disastrous (see Food Security below), but for the moment consider what this model means for the energy intensity of agricultural production.

Agriculture, Trade and Global Warming

The globalization of food production and trade necessarily requires that agricultural commodities be transported long distances, and be processed and packaged to survive the journey. In addition to sacrificing quality and variety for durability, this system of agricultural trade requires enormous inputs of energy and will substantially increase consumption and use of fossil fuels When account is taken of all of the energy inputs that support modern agricultural production (just as one example, nearly 50% of all consumer packaging is used for food products), agriculture is probably the world's biggest business, and in North America has historically used more energy and consumed more fossil fuel than any other industrial sector. It is clear then that by encouraging global food production, current trade policies will actually increase the energy demands of agricultural production.

The Climate Change Convention exhorts governments to:

take precautionary measures to anticipate, prevent or minimize the causes of climate change and mitigate its adverse effects [Art 3 Principles 3 . . . ] and to take "climate change considerations into account, to the extent feasible, in their relevant social, economic and environmental policies and actions . . . " [Art 4 (f)] all in an effort to "return by the end of the present decade to earlier levels of anthropogenic emissions of carbon dioxide and other greenhouse gases . . . " [Art.4 2(a)]

But while governments have come to recognize the imperatives of averting global warming, and have undertaken to stabilize greenhouse gas emissions at levels that will require substantial reductions in many developed countries, they have at the same time embraced agricultural trade policies that will make it far more difficult, if not impossible, to achieve those goals. That environmental and agricultural trade policies could be working at such cross purposes is a testament to our failure to take seriously the need to integrate environmental and economic policy.

If governments are going to live up to the commitments they have made to combat climate change they will have to seriously examine the energy consequences of resource, industrial and agricultural policies. If agricultural policies are to support less energy intensive production, it seems undeniable that they will have to promote self reliance in food production - not global dependence.

Food Security

These deals aren't about free trade. They're about the right of these guys (US multinationals) to do business the way they want, wherever they want . . .

Eugene Whelan - Former Federal Agriculture Minister


Another compelling reason to encourage policies of self reliant agricultural production can be found in the severe consequences of being entirely dependent upon global production. This has, to a great degree, become the plight of much of the third world.

For several decades now, the character of global agricultural production had been driven by US farm policies, and by the large agribusiness corporations that have been the major beneficiaries of those policies, which have sought to secure the largest share of global markets for US producers. To achieve this goal two primary strategies have been adopted. The first is to keep international markets flooded with cheap agricultural commodities that are often priced well below the cost of production. This has required substantial farm subsidy programs in the US, as well as in other countries that wish to compete with it for export markets. The result of this competition among heavily subsidized producers has been enormous surpluses that are then dumped onto international markets.

While many poor countries have occasionally benefited from this abundance, in the bargain they have had to abandon any prospects of establishing their own agricultural economies and many have become almost entirely dependent upon a continuing flow of subsidized grains and other food from the world's few exporters. In this vulnerable condition, supply disruptions, unstable currency rates and wild swings in agricultural commodity prices have often meant widespread hunger and starvation.

The other strategy that the US has used to achieve market dominance has been to assail attempts by other countries to pursue policies of self reliance in agricultural production that might close markets to US exports. A primary target of these efforts has been supply management systems such as Canada's which have for decades successfully moderated the impact of fluctuating commodity prices in part by restricting US access to domestic markets (see "supply management" below).

In large measure these US strategies have succeeded in garnering for US-based agri corporations the position of dominant players in global food markets. For example in 1994 US exports accounted for 36% of the wheat traded globally, 64% of the corn, barley, sorghum and oats, 40%of the soybeans, 17% of the rice and 33% of the cotton. Moreover, in many cases only a handful of US corporations accounts for this global dominance. For example 50% of US grain exports in 1994 were accounted for by just two corporations{20}.

However, if these large corporations are the big winners, there are many more losers including: farmers, who have in the hundreds of thousands lost their farms in both the North and the South; taxpayers in developed countries who have spent billions supporting the profits of the big agri-corporations, and; hundreds of millions of poor people who have been the victims of malnutrition, and hunger.

The other important factor that has undermined food security for much of this planet's population has been very low commodity prices for the third world exports. Thus as real prices for many commodities fell during the 1980s, pressures grew to increase production particularly for developing countries dependant on agricultural exports to earn foreign exchange. Caught in this squeeze between declining commodity prices and increasing debt loads, poor countries have been forced to engage in a cycle desperation production. As prices fall, more and more land is appropriated for export production, production for local markets is displaced, farming practices become increasingly intense, and the ranks of landless peasants, no longer able to feed their families, continue to swell.

In response to this crisis developed countries and large agri-corporations have cast the problem in terms of a shortage of food supplies and have offered to fill the breach with more intensive production, biotechnology, pesticides and fertilizers. Ignoring, as always, the fundamental question of distribution, free trade is again offered as the magic bullet that will bring the prosperity people need to buy food in the global market. But there is no evidence to support a positive relationship between trade growth and food security. Indeed as we have seen the root causes of global food insecurity can in large part be found in the unregulated international marketplace, which has allowed wholesale export dumping by countries able to underwrite surplus food production in order to maintain global market shares, and which in turn has created downward pressure on commodity prices for third world exports.

Describing how export agriculture can worsen the position of poor farmers, a document prepared by the FAO put it this way:

"Because small-scale producers often lack the resources necessary to grow export-oriented crops, they may not be able to participate in this growth. On the contrary, they may find that commercial expansion has an inflationary effect on production costs and on land rent that may even make their traditional production less feasible. Small producers may abandon their land or be bought out by larger commercial interests.{21}"

In fact according to a recent OECD/World Bank study much of the third world will be net losers under new GATT rules, with the GDP of African studies actually dropping by 0.2 to 0.5 per cent. Conversely two thirds of the expected increase in "global income" attributable to GATT will accrue to OECD countries which represent about one third of our planet's human population{22}.

There are however ways in which agricultural policies can promote food security, and the most important of these would simply be to make food security the primary goal of agricultural production, rather than some neo-liberal theory of deregulated trade. Food policies would then encourage food production first for local consumption and then only secondarily for international markets. International trade and the activities of transnational corporations would also have to be closely regulated to ensure that they served rather than undermined the goal of a secure food supply.

Finally, food security would be defined as a basic human right. An objective, the US stood alone in opposing at the recent World Food Summit organized by the United Nations Food and Agriculture Organization (the FAO){23}.

The WTO Agreement on Agriculture

For the past 50 years agricultural trade has not been subject to most GATT disciplines and several GATT rules specifically exempt agricultural policies, including supply management and import controls. This situation reflected the interests of many countries that wished to keep their domestic policies free from GATT scrutiny, not the least among these being those countries that were providing domestic producers with massive subsidies to underwrite domestic production and export dumping - practices that are clearly at odds with GATT rules. Moreover, for poorer countries, the imposition of export driven agricultural policies was accomplished through structural adjustment programs, which effectively denied those countries the opportunity to develop the self reliant agricultural policies that GATT would have otherwise allowed.

However, as agricultural subsidies continued to escalate in the war to secure export markets, they began to represent a serious drain on public finances of food exporting nations. Determined to extricate themselves from this ascending spiral, the US seized upon Uruguay Round negotiations as the venue to resolve the subsidies imbroglio. In fact agricultural trade reform became such an important issue during the negotiations that it singlehandedly threatened to scuttle the entire negotiations on more than one occasion.
Agreement was only reached when the US and the European Union were able to hammer out a deal to reduce agricultural subsidies over a number of years.

However, the quid pro quo for tariff reduction was the removal of exemptions for import controls and supply management regimes. Moreover, as several developing country NGOs have pointed out, the reduction of Northern price supports will mean little for several reasons, because under the WTO agreement on agriculture:-

Rich countries will still provide direct subsidies to producers for many years to come. Current commitments only foresee a 36% reduction in subsidies over the next six years, and some tariffs may be reduced by as little as 15%.-

There is no limit on the use of indirect subsidies to farmers as long as these are not linked to actual production.-

Without the resources to subsidize farmers, the only way poor countries could support local agricultural production was to use import quotas. WTO rules now prohibit import controls.-

While poor countries can replace import controls and quotas with tariffs, unstable monetary values and sudden currency fluctuations can easily make those tariffs meaningless.-

Finally, tariffs represent a much less precise or reliable way to balance local production with imports, and that balance can be easily disturbed by the same macro-economic factors that poor countries can rarely foresee let alone influence{24}.

It is difficult then to regard the commitments to reduce farm subsidies as likely to meaningfully impact the enormous market distortions that current practices have created. Furthermore, developing countries have lost one of the few tools that did allow them to support domestic producers. Finally given the overall impacts of the new WTO regime, which includes seed patent protection, and the removal of foreign investment controls, it is likely that the brave new world of agricultural trade reform will, for poor countries, simply mean another large dose of the medicine that ails them.

Supply Management

When environmentalists have taken an interest in agricultural production, it has largely been to draw attention to the impacts of pesticide use. Rarely has attention focused on the economic and structural underpinnings of agricultural policy that has made the continued and increasing use of pesticides inevitable. The impacts of trade rules on agricultural production forces us to examine the underlying economic and trade policies that have given rise to, and now seek to entrench, the unsustainable agricultural practices that are laying waste to farmland, causing ground and surface water pollution on a massive scale, and substantially accelerating our use of fossil fuels.

If we are to establish sustainable forms of agricultural production, we must find ways to reshape economic and trade policies so they will support rather than undermine these efforts. An important place to begin is with the realization that there is no sustainable agricultural production without farmers. While restoring a stable and viable rural agricultural economy is obviously not a sufficient cause of sustainable agricultural production, it is definitely a necessary one. To further understand what WTO rules will mean for efforts to maintain viable rural farm economies we have to understand what those rules will do to supply management systems in Canada.

As explained by Lise-Anne Delorme, an Ottawa Valley Dairy Farmer;

The supply-management system is the very foundation of rural Canada. Abandon the system that makes farms like ours viable, and the underpinnings of the entire rural economy are destroyed.{25}


As we have seen is the case in the international context, price instability has been an inherent feature of all commodity markets. Unpredictable commodity price fluctuations have made farmers captive to international commodity markets, and market speculation. To acerbate this vulnerability, farmers must also negotiate commodity prices with large food processing and distribution companies that represent their primary markets. Their relative bargaining in this relationship is negligible.

In this way, many of the dynamics of international agricultural trade that have wreaked such havoc on third world agricultural economies, have also had an impact on the farm landscape in developed countries as well. The result has been hundreds of thousands of farm bankruptcies, highly exploitative and unsustainable farm practices, and the wholesale use of public funds to underwrite the profits of large agri-corporations. But in Canada, we have been able to significantly moderate the impact of global market forces by adopting and guarding a successful supply management system for several agricultural commodities.

Under supply management, farmers must sell to marketing boards which negotiate a collective price for those products with domestic and foreign buyers. In order to create stable prices, marketing Boards also regulate supply to avoid situations of overproduction. Hence the appellation - supply management. The viability of domestic supply management in turn depends upon being able to control imports so as not to disrupt the domestic balance of supply and demand, and there is the rub. Imposing quantitative import restrictions is of course at odds with general GATT principles that prohibit such import controls.

Until the conclusion of the Uruguay Round negotiations however, the special circumstances of agricultural production meant that supply management was recognized as a valid exception to GATT rules. However, for many years the US has been an outspoken critic of supply management and on numerous occasions US politicians and agencies have declared their intention to see Canadian supply management programs dismantled and several trade challenges have been made to that end. It is not surprising then that as the driving force behind the new agricultural trade agreement, the US was able to write protection for supply management programs out of the new WTO rules.

The loss is clearly a significant blow, but as yet not fatal to supply management in Canada because of our ability to substitute high tariffs for import controls. Unfortunately these tariffs will have to be reduced over time, and campaigns by free trade proponents, both within and outside Canada, continue to pressure governments to abandon these programs.


Intellectual Property Rights and Pesticides Standards

In addition to the impacts of deregulated trade on our hopes for achieving sustainable resource management goals there are two other important aspects of the WTO agenda that need to be understood. The first has to do with the impacts of the WTO agreement on intellectual property rights which is discussed below under its own heading. The second concerns the impact of trade rules that will weaken pesticide and food safety regulations, these are considered in the "standards" section of this guide.

Strategies for Environmentalists

We have over the years displaced farmers with pesticides, energy, heavy machinery, and biotechnology. And have done so at a fabulous cost to the environment, food security and to the viability rural communities. If an ecological recovery of agricultural lands is to be brought about, three basic objectives must be accomplished. First, the economic viability of farm communities must be revitalized. There is no better paradigm for the notion of one generation holding resources in trust for the next, than the family farm. Secondly, agricultural policies and practices must seek to reduce the energy required to support every facet of agricultural production, processing, packaging distribution and sale. Finally the overall policy goal of sustainable farm production must be food security and not more trade.

If we are to reverse present trends we must as environmentalists find ways to build alliances with farmers and farm organizations to confront the onslaught of global corporations with grand ambitions. We can begin by identifying those policies that will begin to restore agricultural production and trade to a sustainable footing by:

*reducing the distance between farm and consumer (between garden and table) which would in turn reduce the need for food processing and packaging and transportation;

*recycling organic wastes, adopting integrative pest control programs and otherwise substituting organic for chemical inputs;

*applying ecologically derived cropping patterns, and other management techniques to conserve soil;

*using renewable sources of energy;

*creating stable agricultural economies to keep farmers on the land, and by

*embracing food security as the primary goal of agricultural production.

In other words by making the transition from global dependence to self reliance.


2.4 ENERGY

When it comes to trade in energy resources, the provisions of NAFTA are far more important for Canada than those found in the WTO Agreements. This is the case because NAFTA provisions go much further in reducing the scope for government regulation of international energy trade, and include three important trade provisions that cannot be found under the WTO. These NAFTA rules have such far reaching implications for North American energy development that they deserve at least brief description.

NAFTA Revisited

The first is the proportional sharing provision of NAFTA which entitles the US to a proportional share of Canadian energy resources in perpetuity, or until those resources are entirely exhausted{26}. The exact proportion of Canadian resources to which the US can lay claim, is equal to the relative share being exported at the time that export constraints are imposed - or in other words - by the unregulated market. There is no equivalent rule in any of the WTO agreements, and in fact this proportional sharing clause does not apply between our other NAFTA partners.

The second unique feature of NAFTA rules for energy trade, prohibits the imposition of export taxes that exceed those applicable to domestic consumption{27}. In contrast, WTO rules allow countries to establish two-price energy or resource policies. When coupled with the quantitative control prohibitions of Article XI of the GATT, this ban on export taxation effectively and entirely removes government control of energy exports.

The third significant departure from generally applicable trade rules that is found in NAFTA exempts government subsidies for oil and gas exploration and development, from trade challenge{28}. Again nothing in the WTO Agreement on Subsidies or in any other WTO agreement resembles this astonishing inducement to use public funds to support of the extravagant fossil fuel appetites that Canada and the US share.

Global Trade's Energy Appetite

This is not to say however that WTO rules are not important to energy trade. They are, and for several reasons. To begin with, all GATT rules relating to trade in goods also apply to energy resources trade as well, and as we have seen, these rules impose serious constraints on government regulatory options for environmental and resource conservation purposes. However, the most important energy related impacts of WTO rules are probably those that arise from the enormous transportation demands of a global economy.

In fact, the entire edifice of global production and trade depends in large measure upon an unlimited supply of cheap energy that can move an ever increasing international flow of goods and materials. But for the capacity to externalize a large share of the true costs associated with energy use, the global model would likely unwind under the enormous real costs of moving more and more, further and further.

As noted, the globalization of agricultural production and trade has and will continue to increase the energy intensity of agricultural production and distribution. And it is important to note again that food production processing, packaging, transportation and marketing is arguably the world's largest industry and likely its largest user of fossil fuels. Exposing this critical relationship between agricultural policies and energy use provides a compelling illustration of the importance of developing a much broader and holistic strategy for confronting such problems as global warming. It is also revealing of the enormity of the problems that can result from failing to integrate environmental analysis with economic, industrial and resource policies. Unfortunately no government has been willing to submit its trade policies to a meaningful environmental assessment. It is obviously critical for them to do so.

A Carbon Tax as a Border Tax Adjustment

Another important dimension of the WTO regime has to do with its potential impact on efforts to implement carbon or energy taxes as part of a strategy to reduce greenhouse gas emissions, or for other environmental reasons. As noted, the Framework Convention on Climate Change contemplates the use of energy charges or taxes as tools for combatting global warming. Given the multitude of causes that have given rise to excessive greenhouse gas emissions, it seems inevitable that economic instruments will play an important role if reduction goals are to be achieved.

Because of its pervasive impact on most industrial inputs and processes, a significant carbon tax could have a substantial impact on the international competitiveness of many sectors of the economy. Over the long term there is probably no better prescription for a competitive economy than forcing it to become a more efficient user of energy and other resources. Over the short term however, significant price disadvantages can be created for domestic producers by increasing energy costs in the absence of international agreements to implement like increases. It is these competitiveness impacts that presently stand as an important impediment to the implementation of such tax regimes{29}.

It is apparent then, that if the use of energy taxes is to become feasible, governments must find effective ways to ensure that such measures not present domestic producers with the choice of either going out of business, or moving to the nearest pollution haven. One obvious way to ameliorate the adverse trade impacts of a carbon tax would be to apply import taxes and/or export rebates to level the playing field as between domestic and foreign producers.

Under WTO rules, the imposition of such taxes would probably be authorized under the heading of "border tax adjustments" as defined in Articles II, 2(a) and III, 2 of the GATT agreement. A GATT working group that explored the meaning of these trade provisions, adopted the following definition for such measures:

any fiscal measures which puts into effect, in whole or in part, the destination principle (ie. which enables exported products to be relieved of some or all of the tax charged in the exporting country in respect of similar domestic products sold to consumers on the home market and which enables imported products sold to consumers to be charged with some or all of the tax charged in the importing country in respect of similar domestic products{30}.

In addition, under these GATT rules, governments can impose border tax adjustments not only goods, but on the materials used to make these goods.

What all of this means for a prospective carbon tax is this - governments can impose import taxes on energy goods, if the same tax is applied to energy goods produced locally and sold into domestic markets. Conversely a government is free to provide a tax rebate on energy goods sold onto international markets which may equal the tax applied to the same goods sold to domestic consumers. From an environmental perspective, this option makes sense only when energy exports are destined to a jurisdiction with a reciprocal system of import taxation.

These same border measures could also be applied to goods that incorporated energy products, such as plastics. In this case, the border tax adjustment would reflect the value of the energy contained in the product, not the value of the product itself - so far so good.

The problem arises however, with respect to the treatment of taxes that relate to energy inputs that are not incorporated in the final product eg. energy used to harvest, extract, transport, produce, process and package the product. For most products, these tax effects will have the largest impact on product price. Here trade rules raise serious problems and according to the GATT Working Group that considered this issue, the use of border tax adjustments to address the competitiveness impacts of taxes on energy and other inputs, is unresolved.

To illustrate the potential problems that would confront such an initiative, consider the use of a border tax measure that intended to reflect the energy used to transport goods to market. Such a border tax adjustments would necessarily discriminate against goods that must travel further. In most cases these will be goods produced in other countries. From an environmental perspective this is precisely the signal that a carbon tax should provide. From a trade perspective such a measure would offend the "national treatment" requirements of Article III to treat "like goods" in a like manner.

As we have seen, according to trade panel rulings, no distinctions may be made between products having the same physical characteristics. In this way trade rules would force governments and consumers to ignore the enormous differences that may exist between identical products when account is taken of the environmental impacts associated their production and transportation.

Therefore if a carbon tax border adjustment is to be considered consistent with GATT restraints, it is imperative that a broader reading be given to "like product" so that account can be taken of all
environmental impacts of making and moving that product. This would give governments and consumers the power to favour those products that reflect environmentally sound production, and discriminate against products that fail to meet sustainable standards. There should only be two relevant trade considerations that would apply to such import or export taxes:

Is the measure part of a bone fide domestic program intended to accomplish environmental objectives, and;

Is the calculation of the border tax adjustment a reasonable estimate of the taxes that would be applied to goods produced locally, and for domestic markets?

Pending such interpretations or reforms, it is incumbent on governments to ensure that real or perceived trade impediments not stall much needed action to address pressing ecological problems. For example, parties to the International Convention on Climate Change need to make clear their intention to have the provisions of the Convention prevail, in the case of conflict with WTO rules. They can accomplish that goal by declaring that intention as part of any Protocol they may negotiate.

Similarly, should such a multilateral consensus not quickly emerge, it will be important for governments, particularly in countries with extravagant energy habits such as Canada, to proceed on its own with domestic measures needed to reduce greenhouse gas emissions. If needed to address the competitive disadvantages that such measures might create, border tax adjustments could be levied on the premise that a bone fide measure will be sustained by the WTO should a trade dispute arise.

Should such measures raise concerns for our trading partners, then we will simply have to address them. In that process we will contribute to the ultimate narrowing of the chasm that currently divides environmental and trade policy. Simply acceding the primacy of trade rules, without even testing them, is simply not a feasible response in light of the potentially catastrophic consequences of inaction.

2.5 ENVIRONMENTAL STANDARDS


Environmental Standards and Other Barriers to International Trade

There are many ways in which trade rules limit options for establishing regulatory initiatives for environmental or conservation purposes. The following assessment hi-lights the more important points of contradiction between trade rules and environmental policy goals.

Subsidizing Competitiveness at the Expense of the Environment: To the Lowest Common Denominator of Environmental Protection

Under the WTO Agreement on Subsidies and Countervailing Measures, governments are not to subsidize domestic producers in ways that enhance their competitiveness internationally. Such subsidies are regarded as distorting true competition, and therefore at odds with the free market model. Some subsidies are prohibited under this WTO Agreement while others are 'actionable" and may justify the imposition of counter measures, eg. countervailing duties, by a country whose producers are prejudiced by the subsidy.

Over the years trade rules have been used on numerous occasions to challenge a wide variety of government programs and practices as representing unfair subsidies. However, trade officials have been steadfast in resisting the notion that the absence of environmental regulations be treated as an unfair subsidy, and no trade complaint has ever raised this challenge.

Nevertheless, it is demonstrable that the absence of environmental or resource conservation regulations can make domestic producers more competitive in both domestic and international markets. Because such producers are free to externalize the environmental costs of production, they are in a very real sense being subsidized at public expense. It should not matter that the currency of that subsidy is a public natural resource, such as a national forest, or a community's clean air or water, rather than a public fiscal resource, tax revenue.

In fact, as the Raw Log Export case illustrates, trade panels have not had great difficulty accepting rather ingenious arguments about government regulations (export controls) conferring indirect, but actionable subsidies. Yet no government has initiated a trade complaint to challenge another jurisdiction that has neglected or abandoned environmental regulation in order to attract or keep investment. Because trade complaints are almost always made at the urging of corporations, it isn't surprising that no country has been keen to challenge government inaction on the environmental regulatory front.

Because environmental regulation can often represent a significant cost of doing business, corporations often weigh the presence of such regulations as a significant factor when deciding where to establish operations. Therefore when trade rules ignore the competitiveness effects of absent environmental regulation, governments are encouraged to compete for investment by offering to become havens for polluters. Conversely companies are free to whipsaw one jurisdiction against another in an effort to drive both down the lowest common denominator of environmental protection.

Environmentalists have described the practice of exporting goods from such havens as "ecological dumping." And under Article VI of the GATT, dumping is "condemned" as the practice "by which products of one country are introduced into the commerce of another country at less than the normal value of the products" and normal value is defined as including "the cost of production." Thus environmentalists have argued that exports from pollution havens are "dumped" onto international markets at prices below the real costs of production. The difference in price being the value of environmental externalities. However, notwithstanding Article VI, GATT officials have been no more receptive to this argument than they have been to the notion that absent environmental regulations be considered subsidies.

The Big Chill

It would be difficult to identify an environmental regulatory initiative that was not opposed, often vigorously, by the business sector that would be subject to the new law. At times industry resistance is motivated by a desire to avoid having to make substantial investments in pollution prevention or control. On other occasions liability issues, reporting requirements, or accountability mechanisms are the targets for corporate lobbyists. Even where the environmental program will ultimately reduce the costs of production, or actually improve the competitiveness of the industry over time, efforts to head-off new regulations are often no less determined.

Whether the costs of environmental regulation are real or merely perceived, they are inevitably front and centre when business groups lobby governments about environmental law reform. A ubiquitous feature of these efforts is the claim that the costs of environmental regulation will put the industry at a competitive disadvantage and force it to relocate or close. These are claims that are notoriously difficult for governments to evaluate, and it is usually impossible for public officials to assess their validity. For these reasons, threats of disinvestment or capital flight have always been potent weapons in the arsenal of corporate lobbyists seeking to defeat regulatory initiative.

In the new global economy, where corporations can establish or relocate operations and trade freely throughout the world, arguments about the costs of regulation have been made significantly more powerful. Moreover for reluctant politicians and public officials, trade constraints (often more perceived than real), become the convenient excuse for not tabling environmental initiatives at all. The overall impact of this WTO spectre hovering in the shadows is to cast a chill over incipient environmental regulations and it is no coincidence that since the advent of free trade regimes, environmentalists now spend almost as much time defending existing laws, as they do fighting for new ones.

"Technical Barriers to Trade"

While the absence of environmental regulation is off limits under the WTO regime, the presence of environmental standards and other "technical regulations" is considered a real impediment to free trade, and an entire WTO Agreement on Technical Barriers to Trade (the TBT Agreement) is devoted to making sure that no environmental regulation interferes, even indirectly, with the realization of trade policy goals. It is of course telling of the purpose of this Agreement that it defines environmental laws as technical barriers to trade.

Harmonizing Environmental Regulations

From the perspective of multinational corporations, if environmental regulations must be endured, it is critical to the viability of global production and trade, that such standards are homogeneous from one jurisdiction to another. Thus, the essential thrusts of the TBT Agreement are two-fold. First, to create substantial impediments to the introduction of environmental regulations. Second, to force the international harmonization of environmental regulation when public demand for these measures cannot be resisted.

Under Article 2.4 of the TBTAgreement, where international standards have been established, governments that can demonstrate the need for regulatory initiative, are directed to adopt them. Further, under this rule, when international standards exist, a regulation that adopts that standard is presumed to be in accord with WTO rules. While this would not prevent a trade challenge to the regulation - it does shift the burden of proof to the challenger to show that the regulation is in breach of WTO rules. However, even where an international consensus exists, governments must still be prepared to demonstrate under Article 2.2 that their environmental standard is "necessary" and "the least trade restrictive" way to achieve the conservation or environmental goal it is seeking. As trade dispute panels have interpreted these requirements, this burden of proof has become so onerous that no environmental initiative has ever survived the challenge.

Creating a Ceiling but no Floor for Environmental Regulation

While the TBT requires no minimal level of environmental regulation - and in fact discourages it - it does create very substantial obstacles for governments that are willing to regulate where no international standard exists, or go further than international norms. For governments that have the courage to proceed in these circumstances, onerous administrative hurdles must be overcome.

These include the duty to: notify other WTO members of its initiative; provide copies and supporting documentation when requested; provide an opportunity for comment, and; demonstrate how those comments have been taken into account. Should governments still be determined to proceed with their initiative, they must then provide "a reasonable interval" so foreign producers can adapt. Moreover the TBT agreement extends these obligations to cover Provincial regulatory initiatives, and even seeks to bind some municipal and even non governmental measures as well.

The administrative costs associated with these obligations are obviously beyond the capacity of all but the most affluent developed nations, yet the failure to comply with them would be grounds for trade challenge.
It is also noteworthy that the rights of notice and comment that these rules provide foreign governments and corporations, are rarely available to local citizens.

Finally, because international standards require a consensus among governments, they often reflect a lower common denominator of environmental regulation. Yet it is this standard that then becomes the de facto ceiling for domestic initiatives.

Following the Leader

By trying to make an international consensus an effective precondition to regulation, the TBT Agreement threatens the underlying "follow the leader" dynamic of law reform which has for years provided a critical impetus to regulatory initiative.

Thus as soon as one jurisdiction is persuaded to blaze a trail, others are then encouraged to follow. In this way environmentalists can point to California's auto exhaust standards, Sweden's air pollution laws for waste incinerators, Ontario's curbside recycling programs or Germany's packaging laws as demonstrable evidence that tougher environmental laws are possible and practical. The effect of WTO harmonization rules is to stop, or substantially slow, jurisdictions that might otherwise be willing to establish internationally precedents.

For corporations that oppose environmental regulation the importance of preventing the trend setting initiative is well understood - as the following case study illustrates.


Canadian Asbestos Exports

In 1989, the US Environmental Protection Agency announced that it was introducing regulations to phase out the production, import and use of asbestos. The ban represented the culmination of more than ten years of struggle that had involved several Congressional investigations, and thousands of lives{31}. The EPA estimated that the ban on this cancer causing material could save 1900 lives by the turn of the century{32}. No sooner was the program announced than it was angrily denounced as insincere and politically motivated. Leading the charge was the government of Quebec, which has a substantial stake in asbestos mining. A Quebec labour leader went so far as to warn other countries "not be duped by the phoney concerns" of the US administration{33}.

Intervening to assert the interests of the Quebec asbestos mining industry, the government of Canada joined in a legal challenge to the US EPA initiative. In its brief to the US Court of Appeals, Canada argued that the US asbestos regulations violated its obligations under GATT and FTA. Repeating the proscriptions of international trade agreements, Canada argued that because the EPA had banned asbestos when no international scientific consensus supported the need to do so, that it must therefore be taken to have done so for trade protection reasons rather than for a legitimate domestic objective.

Even more significant however was the motive that inspired Canada's challenge to regulations in a jurisdiction that did not represent an important market for Canadian asbestos exports. As explained by the Minister of Mines for the Province of Quebec:

" (the) biggest fear is that other countries will follow the US example. The European Community . . . could following the US decision, adopt analogous regulation. We also fear the impact of the EPA decision on development projects in countries receiving American economic aid"{34}

The US Court of Appeals ultimately upheld the challenge to the EPA ban on the grounds that the Agency had rejected alternatives less burdensome to the industry, and failed to observe proper rule-making procedures.

More recently similar concerns have been expressed by Canada and Quebec about the decision by the French Government last year, to follow the lead of several other European nations and implement a ban on the use of asbestos. Again Canada was quick to respond by launching a campaign to persuade the French Government to reconsider its decision{35}. In fact the Federal Government is funding these efforts to ensure that European initiatives not spread to the developing countries that represent Quebec's most important export market for this hazardous and carcinogenic substance{36}.

Thus the TBT Agreement sets out detailed rules for eliminating any constraint that regulatory initiatives might create to free trade. In doing so, it consistently betrays an utter indifference to the administrative, economic or political realities of environmental regulation. As do all elements of the WTO regime it unquestioningly assumes, the priority of trade policy objectives, even when on rare occasions it reveals some awareness that other public policy objectives might exist.

Food Safety and Pesticide Regulation

Unlike other regulations, food safety and pesticide standards are subject to the special provisions of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures.[SPS]. Again trade jargon obscures the fact that this agreement primarily deals with food safety, biotechnology, pesticides and other regulations concerning plants and animals. While in some ways the SPS mirrors the provision of the TBT Agreement, it goes much further in constraining the scope for federal or provincial regulation.

To begin with, the SPS places much greater emphasis on the need to harmonize food safety and pesticide regulations internationally and includes several provisions compelling governments to adopt such standards on the one hand, while dramatically circumscribing the scope for national or local initiatives on the other. While the development of an international consensus around environmental standards may be a desirable objective, the effect of SPS harmonization rules (as we have seen with respect to the TBT Agreement) is to create a ceiling but no floor for such regulations.

Another unique feature of the SPS regime that is very problematic can be found in several articles that explicitly seek to reduce food safety, and pesticide standards to scientific propositions to be determined by international science panels. A consensus of international scientific opinion then becomes the necessary precondition for environmental regulation. As we have seen in the Asbestos case, the absence of such a consensus can then be asserted as prima facie proof that trade protection motives must underlie a purported concern for the environment or food safety. Not only are such rules fundamentally at odds with the precautionary principle, but they attempt to exclude ethical, social, and economic considerations from the equation. Furthermore, by assigning the task of standard-setting to international technical bodies, such as the Codex Alimentarius, the prerogatives of elected and accountable institutions are greatly diminished.

Strategies for Environmentalists

As the case notes reproduced here reveals, governments at the behest of large corporations have increasingly resorted to trade challenges to assail environmental and resource conservation initiatives. Unfortunately the TBT and SPS Agreement will now provide substantial new grounds upon which to launch such complaints. It is clear then that the establishment of these trade rules represents a significant step backwards for environmental protection and resource conservation. It is imperative that we work to expose the environmental consequences of these trade rules, and expand the scope for environmental initiatives even in the face of these apparent constraints.

It will be helpful in this regard, that language in both the TBT and SPS Agreements speaks of the rights of countries to pursue "legitimate domestic objectives" including the "protection of human health or safety, animal plant life or health, or the environment." If given broad reading, these provisions allow greater scope for the exercise of sovereign and democratic decisions making when it comes to public health and environmental protection. Unfortunately, as we have seen, the interpretation that has been given to similar language and terms in Article XX of GATT has rendered these exceptions all but meaningless. Therefore we must pressure our governments to support a much broader and more balanced reading of WTO rules, and to act accordingly in their sphere of domestic regulation.

In addition, for Canada, it is provincial constitutional authority that is most important for environmental and resource conservation initiatives, and the Federal government does not have the power to unilaterally amend Canada's constitution simply by signing an international trade agreement. We must ensure therefore that provincial government's stand their constitutional ground and reject the purported limits of WTO rules.

2.6 THE FIRST WTO TRADE RULING

The following case study has been left to this point because of its complexity. However, given the fact that the very first case to be resolved under WTO rules involved a successful challenge to an important environmental program, it seemed appropriate to describe the trade panel ruling in some detail. While it repeats many of the conclusions of earlier trade panel decisions concerning environmental or conservation initiatives, it is unfortunately likely to be given greater weight in light of having the benefit of the WTO imprimatur.


Reformulated Gasoline

In the first decision to be handed down by the WTO{37}, US Clean Air Regulations were ruled to be inconsistent with GATT rules, and the US "requested" to amend its regulations or face retaliatory trade sanctions - in the order of $150 million per year. At issue in this landmark case were regulations developed by the US Environmental Protection Agencies for tackling the serious air quality problems, including excessively high levels of ground level ozone, that persist is certain areas of the US. As part of that strategy the EPA developed regulations intended to reduce pollution by going after a primary cause of air quality problems - gasoline combustion.

Known as the "Gasoline Rule" these regulations established certain compositional and performance specifications intended to reduce VOC and Nox emissions from gasoline combustion in "non-attainment" areas, where levels of pollution exceeded air quality objectives. In searching for an effective, and economically feasible regulatory approach, the US EPA had opted for a program that required gradual improvement based on past performance{38}. In this way it had sought to create the flexibility needed to allow an orderly transition by domestic and foreign producers that would avoid supply disruptions and other economic distortions. The difficulty of this approach arose in having to determine reliable baseline levels for both domestic and foreign sources of gasoline products.

To do so, various approaches were authorized for determining these baselines that reflected the degree to which information was available about the performance and composition of gasoline sold in the baseline year. Where reliable information was not available, the industry would have to sell gasoline no more contaminated than the industry average for 1990. For corporations that could produce accurate records a more precise determination was allowed. However, in light of the difficulties associated with trying to elicit accurate information from all of the potential foreign sources of US gas imports, the Gasoline Rule held all imported gasoline to the 1990 industry average. In the result, some domestic and foreign producers was treated identically, some domestic producers were held to higher standards than foreign suppliers, some to a lower one.
Predictably, some foreign refiners objected to the costs associated with upgrading their refineries in order to produce cleaner gasoline. Those corporations complained and prompted their governments to file a trade complaint taking issue with the methodology established by the Clean Air Regulations for establishing baseline performance. Thus in early 1995 Brazil and Venezuela filed a formal trade complaint with the WTO claiming that their gasoline products were being held to a higher standard than was being applied to US refiners.

The decision of the trade panel convened to hear the dispute, and subsequently of the WTO's Appellate Body concluded that US Clean Air Regulations were in violation of the national treatment provisions set out in Article III of GATT. Furthermore the US could not rely on the environmental and resource conservation exceptions set out in Article XX to sustain its regulatory approach.

Before getting into the details of the panel's decision, it's important to make an important preliminary point. This is to underscore the fact that the regulations at issue in this case were not established to regulate gasoline trade, nor were they created to improve the competitive position of US fuel refiners. Rather Clean Air Act initiative clearly represented a bone fide effort to achieve important domestic environmental policy goals by addressing serious air quality problems caused by gasoline combustion, particularly in regions of the country suffering from significant levels of air pollution. Whatever the impacts of these Clean Air Act Regulations on foreign gas producers, it is undeniable that those effects were incidental to the environmental goals the EPA was endeavouring to achieve. It is important to keep this context in mind when considering the esoteric reasoning of this trade case.

Because the US declined to appeal several of the findings of the initial trade panel convened to hear the case, it is important to read its decision together with that of the Appellate body. The first finding of the trade panel was that the EPA's Gasoline Rule violated GATT Article III which requires all countries to treat imports no less favourably than "like" domestic products. This requirement of "national treatment" is as we know, one of the cornerstones of GATT law. Thus notwithstanding the fact that the Gasoline Rule applied in precisely the same manner to at least some domestic producers, the Panel had no difficulty in finding the US to be in breach of Article III. Having found this fundamental breach of GATT rules, the panel declined to consider a number of other potential violations that might also have spelled disaster for these Clean Air Act Regulations.

Once it had been found in breach of its obligations under GATT, it was then necessary for the US to demonstrate that its regulations fell within one of the exceptions to GATT rules that are set out in Article XX, which provides in part:

General Exceptions

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:
(b)necessary to protect human, animal or plant life or health;
(g)relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

As to the application of these exceptions, both the decisions of the Panel and the Appelate Body are quite lengthy and filled with convoluted and often contradictory reasoning. Deducing the common and essential conclusions from this murky logic is difficult, but some points clearly emerge. On the essential point there was no disagreement - US EPA regulations did not qualify for protection under Article XX exceptions. As to precisely why Article XX was of no avail, the Panel and Appelate Body had somewhat differing views.
According to the Panel, to qualify under the umbrella created by Article XX (b) a country seeking to defend environmental or resource conservation measures as "necessary to protect human, animal or plant life health", must pass a threefold test and establish:

1. that it had reviewed all reasonably available alternatives for accomplishing its environmental or resource policy objectives and determined that none was consistent with GATT provisions;

2. that it had "adequately" explored the possibility of negotiating multilateral agreements with all of its trading partners that might be affected by the regulatory initiative, in order to find some consensual resolution, and that failing which; .

3. it had chosen the least trade restrictive measure for achieving its goals.

The Panel concluded that these were tests the US had failed to meet, and as was true of the Panel's ruling on violation of Article III, the US chose not to appeal from these findings.

As for the requirements of Article XX(g), the Panel and Appelate Body agreed that a party seeking to rely upon this exception must be able to demonstrate that its regulations were "primarily aimed at" the conservation of exhaustible natural resource. On this point the Appellate Body parted company with the dispute panel and found that the Gasoline Rule did meet this criterion. However it then went on to find that, in any even, Article XX(g) was of no avail in this case because the Gasoline Rule failed to meet the additional burden of satisfying the requirements engendered by the Preamble to Article XX. Moreover, in reading the Preamble as imposing burdens additional to those set out in the subparagraphs, the Appellate Board actually imported the "necessity" test used to evaluate XX(b) claims. In the result, the rigour of proving "necessity" now qualifies recourse to any of the sub-categories of Article XX even though no other subparagraph actually articulates this threshold requirement.

Finally the appellate tribunal concluded that in order to satisfy the requirements expressed in the preamble to Article XX a country must also be able to demonstrate that it had taken into account the cost of compliance for all foreign producers that may be affected by its regulations.

As is now the practice of dispute panels in these cases, Panel members had no hesitation in second guessing environmental officials on the details of complex administrative, economic and policy matters related to their regulatory agendas. Neither did these trade panels have any reluctance to articulate ill defined, subjective and open-ended criteria such as "least trade restrictive" or "reasonably available" alternatives as the necessary preconditions for compliance with Article XX. Nor did they hesitate to impose administrative burdens, such as determining the cost of compliance for foreign corporations, that are clearly impossible to meet.

As preposterous as these interpretations are from an environmental policy perspective, they are almost as questionable as exercises in judicial interpretation. Often guilty of logically flawed reasoning that ignores the plain meaning of GATT provisions, these panels have established compliance tests and other obligations without any textual support from the GATT text, whatsoever. For example, there is nothing in Article XX or in any other GATT provision that speaks of the need to seek international agreement, in order to establish that a bone fide environmental regulation represented a justifiable exception to GATT strictures. Neither is there any GATT language to support several of the other tests that trade panels have articulated to determine whether a measure is "primarily aimed" at conservation, or that it is the "least trade restrictive" of "reasonably available alternatives." Nor have the trade panels that have enunciated these tests felt under any obligation to reveal the authority upon which they relied in developing them.
In consequence, if an environmental or resource conservation regulation is to survive the gauntlet of a trade dispute challenge, it must be able to negotiate its way through a shifting minefield of highly subjective criteria and tests. Moreover the absence of consistent, or logically sound interpretation has meant that the trip must be taken blindfolded. It is very difficult to imagine any environmental initiative surviving this challenge - and none have.

After all of this then, it is important to remember that what was a stake here was the right of foreign gas refiners to export gasoline to the US that is more contaminated than the 1990 industry average. The costs then of this victory for trade policy goals will be measured in increased levels of ground level ozone and other hazardous air pollutants in already polluted urban and industrial areas. The other casualty is the enormous investment of time, resources and political capital that were needed to establish this regulatory regime in the first place, and that must now be arduously repeated.



Strategies for Environmentalists

We must pressure our government to recognize the need to challenge the myopic reading given WTO trade provisions and to proceed with domestic law initiatives that would challenge this status quo. While trade dispute panels have shown a great resistance to such arguments, the positions they have expressed are quite vulnerable to challenge. Not only have these panels betrayed a sublime indifference to environmental policy, but their conclusions often rest on questionable and often unsupported interpretations of trade rules. Fortunately future trade panels are under no formal obligation to adopt the reasoning of these dispute panels, and can come to their own conclusions about the ambit of the GATT subsidies code, or proscriptions against export dumping, or indeed about what constitutes a "like product." It would be a great mistake then for governments to feel constrained by the excessively narrow interpretation that has to this point been given to the scope for environmental regulation in the WTO context.


2.7 INTELLECTUAL PROPERTY RIGHTS

At law, property ownership can be described as the right to exclude others from use or enjoyment. Accordingly intellectual property rights [IPRs] allow authors, inventors and others to monopolize the fruits of their creative efforts, and many countries have established domestic regimes for creating intellectual property by way of patents, trademarks or copyright. In granting these rights of exclusive ownership, society seeks to reward invention in order to foster further innovation. By denying others in society the right to take immediate advantage new products, technologies or ideas, society is seeking to create a balance with the rights of innovators that will ultimately serve societal goals by assuring the continued flow of new products and processes from which all will benefit.

Historically the extent to which intellectual property rights were recognized and protected was considered to be entirely the prerogative of domestic policy. Seeking to establish the appropriate balance between the rights of innovators and of other citizens was considered best left to those who could judge the particular and often unique needs of their communities.

With the advent of globalization, and the introduction technologies (VCRS, drug manufacturing techniques) that allowed intellectual products to be easily copied or reproduced - the originators of those products, and in particular US based pharmaceutical and media corporations, began to exert pressure on other governments to adopt US style patent protection laws. A principal device for exerting that pressure was the threat of unilateral trade sanctions against governments who were seen to be turning a blind eye to the "unauthorized" use of intellectual products within their jurisdiction.

The next logical step of course was to establish an intellectual property rights regime in GATT, where it would benefit from the powerful compliance mechanisms engendered in trade agreements. Thus these same corporations spearheaded an international campaign that culminated with the inclusion of the Agreement on Trade Related Aspects of Intellectual Property Rights [TRIPS Agreement] as part of the WTO. In the simplest terms the TRIPs Agreement requires all WTO parties to adopt, as their own domestic law, a system of intellectual property rights protection based on the US model.

Accordingly the TRIPs Agreement sets out comprehensive rules for copyright, trademark and patent protection. Of these intellectual property rights, patent protection is the most important from an environmental perspective. Patent rights for example apply to virtually all technological innovation including environmentally sound technologies and many forms of biotechnology. As we will see, the implementation of this global patent protection regime will have considerable impact upon our ability to achieve the environmental goals relating technology transfer, and biodiversity protection.


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Under the IPR rules of the WTO:

*All countries must establish domestic IPR legislation, as well as the administrative and judicial mechanisms that are necessary to give them effect.

*Patent rights must be made "available for any invention, whether products or processes, in all fields of technology provided that they are new, involve an inventive step and are capable of industrial application."

*Patent rights must also be made available for micro-organisms and for the protection of plant varieties, however, plants and animals may be excluded from these patent regimes.

*The minimum period of patent protection is to be 20 years.

*Various judicial and border inspection rights must exist to allow patent holders the effective means to enforce their IPRs.

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TRIPS vs Free Trade

Before examining the impacts that this new trade regime is likely to have on environmental policy and law, there are two general observations that are worth making.

The first is that the essential thrust of the TRIPS agreement stands in stark contrast with the ideology of free markets and deregulated trade. Where virtually every other aspect of the WTO regime seeks to limit the regulatory prerogatives of governments, this regime imposes a positive obligation to legislate, and to do so in very precise terms. This is strong evidence that while the ideology of free trade is important, it is at root, little more than a rationale for the growth and profit maximization imperatives of large corporations. When those corporate interests conflict with the ideology of unregulated markets, the latter will give way.

The second noteworthy aspect of the TRIPS agreement is that, notwithstanding the qualification that it is about "trade related" IPRs, the provisions of this agreement apply to all products and processes whether these are traded or not. In fact in very large measure this "trade agreement" will apply to goods that are entirely produced and consumed locally. In this way the TRIPS agreement extends the reach of international trade rules directly into a critical sphere of domestic policy and law. In doing so to it represents an unprecedented incursion into the sovereign authority of nation states to determine the conduct of affairs within their national borders.

With this introduction, there are two aspects of the TRIPs agreement that are particularly relevant to environmental policy.

Biodiversity, Farmers Rights and IPRs

Under the provisions of the TRIPs agreement, governments may exclude various inventions from patentability. These include "plants and animals other than micro-organisms, and essentially biological processes for the production of plants and animals other than non biological and microbioligal processes." But countries must provide "patent protection for plant varieties either by patents or by an effective sui generis (of their own kind) system."{39}

The likely impact of these provisions on biodiversity and third-world agricultural production has raised considerable concern. In fact, several non-governmental organizations have assailed these rules as authorizing the wholesale piracy of genetic resources from developing countries and the appropriation, without compensation, of traditional and indigenous knowledge. Thus Southern NGOs point to the practices of certain pharmaceutical and agri- corporations which have taken out patents on products and processes derived from genetic resources they have simply appropriated from developed countries. Having thus acquired a global mandate to monopolise the use of these "innovations", those same corporations can then enforce their new proprietary rights even in those countries from which the genetic resources were originally taken.


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The New Frontier

Because traditional or indigenous knowledge is not recognized as intellectual property, and because the collective innovation of generations of farmers is similarly alien to the technological and industrial model inherent in modern patent law, multi-national corporations feel free to appropriate such genetic resources without any recognition of the rights of communal, but non-proprietary ownership. In important ways this exploitation of the genetic frontier parallels the process of colonization and conquest of the Americas that similarly disregarded the collective or communal character of "ownership" in cultures that have not defined the world entirely in terms of proprietary interests.

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It is also apparent that in practice, the innovation for which patent protection is acquired is often the product of very modest investment or effort. For example the HR Grace company has been granted a process patent for extracting the active ingredient of the Neem tree which has provided a source of medicine and other products to indigenous cultures for millennia{40}. In fact it is unlikely that the process it has patented represents any real innovation of indigenous extractive techniques. However by virtue of having acquired this patent, and because of the TRIPs agreement, this corporation can acquire a global monopoly that can be worth truly astronomical sums and for the twenty years for which protection is guaranteed. If the policy rational for patent protection is creating some balance between the interests of society and those of inventors, that balance would appear to be wildly out of proportion in many of the cases where patents have been issued.

Another area of concern relates to the adverse impacts these rules will have on the diversity of cultivated crops and on farmers in the developing countries. Because informal innovation is not accorded any protection, the genetically diverse resources of wild germplasm or "land races" are excluded from the proprietary regimes of the TRIPS agreement. Not only does this mean that these resources can be appropriated without compensation but it also means that no financial incentive exists to conserve these resourse{41}. This is but one, but nevertheless an important, factor in hastening the abandonment of traditional plants in favour of hybrid varieties that are very much part of the high yield, and even higher input, model of modern agricultural production.

Finally on this subject, it is important to note that this provision of theTRIPS agreement actually requires that it be reviewed in four years. While all aspects of the WTO are amenable to further negotiation and amendment, the potential enormity of the impacts associated with these types of patents were considered sufficient to warrant mandatory review.

Technology Transfer

The need to ensure the transfer of environmentally sound technology [EST] is a particularly important priority for the goals of sustainable development. That is why for example, the provisions of the Montreal Protocol, the Biodiversity Convention and the Climate Change Convention each include provisions that make technology transfer a critical element of the strategies those agreements establish{42}. It is easy then to see how the provisions of the TRIPs agreement would interfere with this objective, because by its very intent it seeks to constrain the availability, and increase the cost, of using new products and innovations which might for example provide better pollution prevention techniques, improve the efficiency of technology, or represent breakthroughs in solar energy, or photovoltaics.


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Mandatory Patent Licenses
Under Section 308 of the US Clean Air Act

On occasion, a party attempting to comply with a standard of the Clean Air Act [CAA] may be unable to meet the standard without resort to a patented technology. CAA section 308 provides a mechanism by which such a non-complying party may obtain a patent license where it has been unsuccessful in its attempts to obtain a license on its own. Under CAA section 308, the United States may require the owner of the patented technology to grant the non complying party a patent license in exchange for a reasonable royalty if the patented technology is necessary to meet the requirements in certain sections of the CAA.

The North American Free Trade Agreement (NAFTA) imposes certain limits on the ability of the United States to force patent owners to grant licenses under their patents [as does now the WTO TRIPS Agreement]. Therefore the EPA issued this rule to ensure that implementation of CAA section 308 conformed with the requirements of NAFTA article 1709(10) [WTO TRIPS article 31]. The rule established the policies and procedures that EPA would follow prior to applying to the Attorney General for a mandatory license under a patent covering a technology necessary to enable compliance with the new stationary sources standards, hazardous air pollutants standards, or motor vehicle emission standards of the CAA. [Environmental Protection Agency 40 CFR Part 95, [FRL-5131-5]

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Thus, the TRIPS agreement will likely slow the transfer of environmentally beneficial technologies to developing countries. However, there is one important way in which these adverse impacts can be ameliorated because of an important exception to IPR protection that can be found into Article 31of the TRIPS agreement. Under this rule, governments can license the use of patented products and processes without the consent of the patent holder for use either by government or by third parties (ie. individuals and corporations). In order to issue such compulsory licenses, governments must observe certain conditions. The most important of these is the obligation to ensure that the patent holder is "paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization," in other words, royalties.
In fact just such a compulsory licensing regime has been established under the US Clean Air Act which is described the box above.


Strategies for Environmentalists

It is very likely that the compulsory licensing provisions of the TRIPS agreement will be tested as governments take advantage of the opportunity to issue such licenses, and the assessment of what represents "adequate compensation" in this context will largely determine the extent to which the IPR rules interfere with technology transfer objectives. For these reasons it will be important for environmental and development groups to pressure governments to establish compulsory licensing rules to aid technology transfer, and to support a liberal interpretation of this exception to the monopoly protections accorded under the TRIPS agreement. Moreover, compulsory licensing rules should also become the subject of protocols to the MEAs that include technology transfer provisions.

In the context of Parliamentary Committee Hearings on Canadian drug patent protection legislation, the government has taken the position that NAFTA and the WTO preclude the adoption of compulsory licensing regimes, such as the one maintained by the US EPA. Indeed many other countries have and maintain compulsory licensing systems for patent medicines{43}. The protests of powerlessness by Canada's federal government provided an unfortunate example of how imaginary trade constraints can serve as a smoke screen for politicians to hide behind.

Developing literacy in trade matters seems to be the only sure way to know whether governments are bluffing or not. The provisions of the TRIPS agreement are not particularly lengthy or obtuse, but the government is betting that no one will make the effort to see whether its claims of powerlessness are justified. Environmentalists must prove them wrong.

The Trips Agreement as a Prototype

Finally, perhaps the most noteworthy aspect of the TRIPS agreement has to do with what it reveals about the extent to which a trade regime can be used to accomplish key priorities. Imagine if environmental goals were taken as seriously as patent rights. When one does consider using the TRIPS Agreement as a prototype for international agreements for protecting biodiversity, or for confronting climate change, it becomes easy to understand the enormous potential those trade agreements have for accomplishing the goals of environmental protection, and resource conservation.

For example, if the WTO was transformed into an organization that was as concerned about the impacts of climate change, as it is currently about the profits of multinational pharmaceutical companies, then we would have an Agreement on Trade Related Measures for Combatting Climate Change. Such an agreement would require all WTO members to:-

Adopt domestic laws (which would be delineated with some specificity) to stabilize greenhouse gas emissions at 1990 levels; -

Provide for customs inspection, seizure and even the disposal of goods that have characteristics or that were produced in ways that violate the provisions of the Agreement;-

Establish administrative, civil remedies and criminal sanctions with respect to any breach of the legislation or regulations mandated by the Agreement, and; -

Authorize the use of trade sanctions, including cross-retaliatory measures such as prohibiting the export of energy or energy products to any jurisdiction that was in breach of its obligations under the Agreement.

If these provisions seem rather ambitious, it is important to recognize that each merely translates the actual requirements and rights that have been established by the TRIPS Agreement into terms that are relevant to confronting climate change. It is an important measure of how much work is ahead of us, that a proposal to treat the goal of addressing climate change as seriously as pharmaceutical patents would no doubt be greeted with great incredulity by the WTO.

Environmentalists can take important steps toward overcoming this resistance by demanding that government's publicly explain why they consider patent protection a much higher priority than global warming, biodiversity loss, or any number of other pressing ecological crises.



PART III: TRADE RELATED INVESTMENT MEASURES


A Bad Dream?

Imagine, if you can, the Government of Canada tabling legislation that would give corporations a new legal right to challenge Canadian environmental laws and regulations, whether Federal, Provincial or Municipal in origin. Oh yes, this new legal right would only be available to subsidiaries of foreign corporations and foreign investors.

According to the rules of this proposed legislation, when a foreign owned corporation challenged a Canadian environmental law, the claim would be decided by an international arbitration panel, not by a Canadian court. Moreover, unlike Canadian judicial processes, no notice would be given of this litigation other than to the Federal Government, and proceedings would take place without any opportunity for public or media access.

Furthermore, no other party would have any right to participate in the case - that means no right to be joined as party if the interested party might be for example, a Provincial government whose laws were actually the subject of the challenge, or a domestic corporation with a direct interest in the environmental statute. Nor would any opportunity be allowed to intervene as a friend of the court or to file an Amicus Brief, if for example the interested party happened to be and environmental or public interest group, with an established record of advocacy on the environmental initiative at stake.

In addition, this new legal right of action accorded under this proposed law, would allow a foreign-owned corporation to assert a claim for compensation simply on the basis that it has suffered a loss in profits, real or potential, because of some action (regulation) or inaction (a refusal to issue a permit) that had been taken by government. Nor would it be necessary for a corporation launching such a challenge to demonstrate that the environmental initiative was unjustified, taken in bad faith, or applied in some discriminatory manner. Rather to succeed with its claim, such a corporation would need only to demonstrate that regulation of regulatory decision, had the effect of taking away, if only indirectly, some aspect of its business or prospective business - ie. that it was tantamount to having expropriated some aspect of, or all of its business activity.

Should the corporation's complaint be upheld, the tribunal would have the authority to order the Federal Government to pay compensation to the foreign corporation in an amount that would represent the value of the business (assets, plus present and future profits) that was effected by the environmental regulation. That order would be enforceable, as if an order of the highest Canadian Court .......

As preposterous as such a scenario may seem, these are precisely the rules set out under the Investment Chapter of NAFTA. And the hypothetical corporate litigation sketched above, isn't hypothetical at all, but rather the real life circumstances of Ethyl Corporations challenge to a ban by the Federal Government on the importation and interprovincial transportation of MMT, a controversial manganese fuel additive that has been linked to adverse human health effects (see case notes below). Whether that claim succeeds will depend upon an international arbitration process that secretive and non-participatory.

In any other context, a proposal that represented such a profound departure from virtually every tenet of democratic legislative or judicial process, would be completely unthinkable. But cloak the proposal in the mystique of international trade, and the unthinkable becomes enshrined as a super-jurisdictional constraint on the legislative prerogatives of all Canadian Governments. It is truly a testament to the effectiveness of international trade negotiations as a vehicle for asserting the interests of multi-national corporations that such a regime could have been established.

On the Road to the WTO

In what arguably represents the ultimate ambition of multi-national corporations, international agreements on foreign investment, based on the NAFTA model, are currently and actively being pursued under the auspices of the OECD and APEC. The choice of these venues was largely dictated by the fact that concerted resistance by developing countries prevented the incorporation of a NAFTA styled investment agreement as part of the WTO regime. Therefore the current strategy is to extend the NAFTA precedent to OECD and APEC countries, and then incrementally from there, until incorporation within the WTO becomes irresistible{44}.

While the nomenclature varies somewhat, these multi-lateral investment agreements (MIAs) literally represent an international bill of rights for transnational corporations. In summary terms, the purpose of these agreements is to open all sectors of a nation's economy to foreign investment, prevent governments from favouring domestic corporations, establish the pre-eminence of corporate property rights, and allow foreign investors to enforce their new rights directly. It is also significant to note that the investment rights established under these regimes, accrue only to the benefit of corporations that operate multi-nationally. In other words, there is, under these investment agreements, an enormous advantage to foreign ownership, and corporations that are owned by domestic investors are at a distinct disadvantage.

In at least two fundamental respects these agreements go much further than do any of the provisions of the WTO in establishing the primacy of the interests of multi-national corporations. The first, elevates multi-national corporations to the same status as nation states in so far as foreign owned corporations are accorded the right to enforce investment rights under the MIA directly. In contrast, under the WTO, only another national government has the right to invoke binding dispute resolution. If the rules of liberalized trade can be considered a concerted assault of the prerogatives of sovereign governments, the MIA takes this agenda the next step by establishing the status of private investors as equivalent to that of elected governments.

The second, prohibits an extensive list of regulatory measures, that would require foreign owned corporations to meet certain performance requirements, such as technology transfer, local sourcing, domestic processing or content, or export quotas. And these prohibitions apply, even when the very same obligations are imposed on domestic investors and corporations. Yet while foreign owned corporations may not be required to meet the same responsibilities as domestic corporations, they are entitled to all of the privileges - such as R&D allowances or employee training programs - that are available to domestic businesses. Such proscriptions of course, go far beyond the national treatment and MFN obligations of the WTO.

Finally, and notwithstanding the characterization of these agreements as "trade related", they in fact have little, if anything, to do with trade. They do however, have a great deal to do with asserting the paramountcy of the rights of international investment in any contest that might arise with virtually any public policy goal.



Ethyl Corp vs. The Government of Canada

Ethyl Corp, a US multi-national corporation, is the only North American manufacturer of MMT, a controversial manganese fuel additive. MMT causes irreparable damage to automotive pollution control systems, thereby increasing emissions of VOCs, CO2, and Carbon Monoxide. Like other heavy metals, MMT is also a neurotoxin, and its impacts on human health have not yet been adequately assessed. All of which explains why, most other OECD countries ban the use of MMT as a fuel additive.

For these and other reasons, Environment Canada introduced legislation in April of 1996 that banned the importation and inter-provincial transport of MMT. In September of 1996, Ethyl, which has a manufacturing facility in Canada, filed notice of intent to take Canada to arbitration under NAFTA for hundreds of $millions if the bill were passed. Ethyl claims that the bill violates national treatment by barring the import and transport, but not manufacture, of MMT; that the bill is a forbidden performance requirement because it would force Ethyl to build a facility in every Canadian province; and that the bill is an expropriation of Ethyl's Canadian investments{45}.

True to its threat, no sooner was the Bill proclaimed by Parliament than Ethyl Corp. filed a claim with the Justice Department claiming $350 million in damages{46}. In its claim Ethyl asserts that Canada's regulations could effectively force it out of business and is therefore tantamount to expropriation under the investment provisions of NAFTA. Ethyl will now have the opportunity to makes its case behind closed doors before an international arbitration panel convened under NAFTA rules. No environmentalists will have notice of or be given any opportunity to participate in these proceedings. Nor will Canadian automobile manufacturers, which have strongly supported the MMT ban as being critical to their ability to meet Federal pollution standards.

If the arbitral panel accepts this claim, every time a country bans a toxic substance, a foreign owned corporation in the business of manufacturing that substance, may claim compensation. In fact, Ethyl has raised an even more insidious argument: claiming that by introducing and debating the bill, Canada has effectively expropriated some portion of its future business by harming ots international business reputation.

According to a trade lawyer, who represents large corporations, Canadians should regard the Ethyl suit as a harbinger of things to come, as corporations make more frequent use of investment treaties to "harass" governments contemplating regulatory initiatives those corporations oppose{47}. Because there is no threshold for invoking dispute resolution, and because corporations need not persuade governments to argue a case on their behalf, as is true with respect to all other "trading" rights, corporate challenges to state initiative under the rubric of asserting investment rights should become popular vehicle for warding off environmental and other regulations.



Metalclad vs. the Government of Mexico

Metalclad is a US corporation which owns Mexican subsidiaries engaged in the business of waste treatment and disposal. In 1993, one of these subsidiaries bought a Mexican hazardous waste disposal facility in the state of San Luis Potosi. That Mexican disposal facility had a long history of serious pollution problems and environmental impacts. Not suprisingly this has caused serious conflict with the local community. Because of persistant concerns over the safety of the site, Metalclad did not receive federal government approval to operate until December of 1995. However, the state government continues to block the project. Metalclad dismisses local environmental concerns about the site, and attributes the State's reluctance to grant it a permit, to corruption.

Unable to convince local regulators that its operations would be environmentally safe, Metaclad filed investor-state claim under NAFTA's investment chapter, seeking damages on the grounds that Mexico had expropriated Metalclad's investment by not granting it a license to operate the hazardous waste facility. However, Metalclad is not claiming that its investment has been permanently expropriated, but rather is seeking damages related to delays in the approvals process, fully expecting that it will ultimately obtain the approvals it is seeking. The case will therefore require an arbitration panel to decide whether environmental concerns about the site are valid, and whether regulatory or procedural delays operations amount to expropriation.

Again the dispute will be resolved behind closed doors, and without the benefit of public input. While the arbitration panel may wish to have the benefit of independent expert evidence, it can seek out such evidence only with Metalclad's consent. Anything short of an unequivocal rejection of Metalclad's arguments would surely have a profound effect on regulatory approvals processes in all NAFTA countries. Any willingness of the part of the arbitration panel to consider such a claim will put all regulatory officials under enormous pressure, not only to grant approvals applications, but to do so very quickly. The ease with which a foreign controlled corporation can threaten,or invoke binding arbitration, should intimidate any public official inclined to think twice about the wisdom of granting regulatory licenses, in precisely the terms sought. Becoming embroiled in an international trade dispute that might assess $millions in damages against their employers, will not be regarded by most civil servants as a good way to further their careers in the public service.

Finally while Metalclad's action is against the Mexican national government, its real dispute is with local state authorities. In a federal system this of course may raise serious constitutional issues as it would in Canada. Moreover, the local Mexican state government has no right to participate in the proceedings that will determine the viability of its regulatory decision. It will have to rely upon the Federal Government (which in this case appears not to share its views) to defend its position{48}. It is no wonder that the case appears to have inspired a new willingness on the part of local authorities to rethink their commitment to protecting the interests of residents living near this hazardous waste disposal facility {49}.



The investment provisions of NAFTA, and of proposals that are now being discussed in the context of the OECD and APEC are detailed and complex. A full assessment of the implications of these rules on our prospects for achieving the goals of environmental protection, resource conservation and sustainable development, is beyond the scope of this guide. However, one way to expose the likely consequences of these new international investment regimes is simply to outline the types of measures that it would be necessary to incorporate into such an agreement, if the intent was to have international investment foster, rather than destroy, or prospects for achieving environmental goals. Unfortunately, the provisions of Investment Chapter of NAFTA, and of present MIA proposals represent the antithesis of the following principles.

*Require all foreign investment to comply with the highest standards prevailing in either the home or host jurisdiction.

*Require that all claims arising under an investment agreements proceed only at the instance of nation states.

*Require that disputes concerning international investment be conducted in a manner that respects the norms of notice, participation and accountability, that attend judicial dispute resolution in democratic societies.

*Stipulate that in the event of any conflict with between the provisions of an MIA and those of multi-lateral environmental agreements - the latter will prevail.

*Provide that in no case are the rights of foreign investors to take precedence over the public policy goals of environmental protection, resource conservation, and sustainable development - including requirements concerning environmental performance guarantees, bonding requirements, domestic processing requirements and technology transfer.

This list is intended to be illustrative, rather than exhaustive of the types of measures that it may be necessary for government's to adopt in order to achieve environmental policy goals. Each is impossible under the investment provisions of NAFTA, and the proposed elements of the investment agreements being pursued at the OECD and APEC.

Strategies for environmentalists.

Because the investment provisions of NAFTA were truly unprecedented, because Canadians were weary of debates about free trade, because of the esoteric and technical character of these agreements, and because our own government was determined to keep the implications of these arrangement obscure, we must now ensure that no public policy initiative interfere, even if indirectly, with prerogatives of foreign investors to maximize returns from their Canadian investments. However, we now have an opportunity, which is quickly closing, to defeat proposals to extend these draconian investment regimes throughout the world.

The Canadian Federal government is a leading proponent of the MIA proposals that are proceeding at the OECD and in APEC, we must expose its position and make clear to Canadians what the consequences of these regimes are likely to be.

PART IV: TERMS AND REFERENCES

Decoding trade speak - a glossary of trade and environment terminology


GATT General Agreement on Tariffs and Trade, originally negotiated in 1947, and now included as part of the WTO.

TBT s
Technical Barriers to Trade, this is GATT speak for all types of government regulation, from labelling standards to workplace health and safety regulation. Because such regulations can interfere directly, or indirectly with trade, under the WTO all regulations, including all environmental regulations, are characterized in this way!

SPS
Sanitary and Phytosanitary Measures, this is GATT speak for agricultural standards that includes all pesticide and food-safety regulation.

PPMs
Production and Process Measures, this means standards that address how things are made, rather than to their physical characteristics. Most environmental standards fall into this category, as do all workplace health and safety regulations.

Countervail
Duties or tariffs that are imposed on imports to compensate for foreign subsidies that have provided imports with an unfair competitive advantage.

MEAs
Multi-lateral Environmental Agreements, such as the Montreal Protocol on Ozone Depleting Substances, the Basel Convention on the Transboundary Shipments of Hazardous Waste and Convention on International Trade in Endangered Speicies.

TRIPs
Trade Related Intellectual Property Righs - these include trademarks, copyright and patents.

==========================

NGOs working on international trade


The following groups and organizations maintain Web sites which often provide easy access to publications and other useful materials.

The Canadian Environmental Law Association (CELA), Toronto Canada.

The Sierra Club of Canada, Ottawa Canada.

Rural Advancement Foundation International (RAFI), Brandon Manitoba.

World Wildlife Fund for Nature, Gland Switzerland.

Public Citizen, Washington, D.C.

Centre for International Environmental Law, Washington D.C.

International Forum on Globalization, San Francisco California.

Third World Network, Penang Malaysia.

Foundation for International Environmental Law and Development (FIELD), London England.

Institute for Agriculture and Trade Policy, Minneapolis Minnesota.

Greenpeace International, Amsterdam, Netherlands.

Community Nutrition Insititute, Washington, D.C.

Friends of the Earth, both the International (London England) and US (Washington D.C.) Offices



Other Organizations and Resources


International Institute for Sustainable Development, Winnipeg Manitoba

United Nations Environment Program, Nairobi Kenya.

The World Trade Organization, Geneva Switzerland.

The United Nations Centre on Trade and Development, New York, New York.


FOOTNOTES
********************************

{1} See, the WTO, The Results of the Uruguay Round of the Multilateral Trade Negotiations: the Legal Texts.

{2} Among the various trade agreements for which the WTO has responsibility is the original General Agreements on Tariffs and Trade (GATT) as that agreement has been amended, and a number of other agreements that are specific to various aspects of international trade such as agriculture, technical regulation, investment, services and intellectual property.

{3} See for example, Robert Reich, The Work of Nations: Preparing Ourselves for the 21st Century Capitalism 113 (1992).

{4} See "Reformulated Gasoline" case note under 2.6 below.

{5} The Federal Minister for International Trade in response to a question posed on the House of Commons Order Paper, see Frank Tester, "Free Trading the Environment," in Duncan Cameron, ed., The Free Trade Deal (Toronto: Lorimer and Company, 1988).

{6} The exception to this rule is the Agreement on Intellectual Property Rights which actually mandates a number of legislative and procedural measures that all countries must establish..

{7} Supra fn. 1, Ministerial Decisions adopted by Ministers at the Meeting of the Trade Negotiations Committee in Marrakesh on 14 April 1994: Decision on Trade and Environment.

{8} Para 197 "Report of the Committee on Trade and the Environment, Nov.8 1996.

{9} Cite See for example Articles 3.5 of the United Nations Framework Convention on Climate Change, and Article 16.2 of the Convention on Biological Diversity (1992).

{10} See United States - Restrictions on Imports of Tuna, GATT Doc. DS21/R, B.I.S.D. (39th Supp.) and United States - Restrictions on the Imports of Tuna, GATT Doc. DS/29R (June 1994), unadopted.

{11} . 16 U.S.C. 1361-1421 (1994)

{12} Those familiar with the circumstances of this dispute will know that concerns have been raised about the motivation or appropriateness of the US embargo.Like most resource conservation or environmental laws the MMPA is an imperfect instrument for achieving its environmental / conservation objectives. For example, the MMPA still allows the "incidentally" killing of dolphins by the US fleet. For this and other reasons the case is regarded by many third world
However, and perhaps unfortunately, the GATT panel expressed no reservation about the intent or effectiveness of US marine mammal protection laws. Had the panel done so, and resolved the dispute on that basis, then the case would have little relevance to other environmental initiatives. Instead, the panel embarked on a broad ranging interpretation of GATT rules that would, if followed, create an onerous series of obstacles for environmental or resource conservation initiatives to overcome, several of which has particular relevance to MEAs.

{13} Fortin,c.(1991) Commodity Issues at UNCTAD VIII. Paper given at UNCTAD/NGLS consultation on UNCTAD VIII. Geneva, Dec. 1991.

{14} See Raw Log export case, infra.

{15} See agriculture below.

{16} See NAFTA, Articles 608.2 and 2102.

{17} See US Federal Register, FR 57 2261(On).

{18} See for example, " An Environmentalist and First Nations Response to the Canadian Standards Association Proposed Certification System for Sustainable Forest Management", October, 1995, issued by twenty-five groups, available at the Canadian Environmental Law Association.

{19} See Canada - Measures Affecting Exports of Unprocessed Herring and Salmon, GATT Doc. L/6268, B.I.S.D. (35th Supp.) 98 (adopted Mar. 22, 1988).

{20} Lehman and Krebs, "Control of the World's Food Supply" in The Case Against the Global Economy 1996, Sierra Club Books, San Francisco.

{21} United Nations, Food and International Trade, World Food Summit, 1996/TECH, Section 3.28.

{22} Goldin Knudsen and van der Mensbrugghe "Trade Liberalisation: Global Economic Implications, OECD/World Bank, Paris, 1993.

{23} Mark Ritchie; "Reflections on the World Food Summit", Dec. 1996, The Institute for Agriculture and Trade Policy.

{24} GATT and Third World Agriculture; the Ecologist, Vol.23, No.6, Nov/Dec 1993.

{25} Globe and Mail (Aug.12, 1995).

{26} NAFTA Article 605.

{27} Idem.

{28} NAFTA Article 608.2.

{29} See Arden-Clark, Environmental Taxes and Charges and Border Tax Adjustment - GATT Rules and Energy Taxes, World Wildlife Fund for Nature, Gland Switzerland, 1994.

{30} The Working Party on "Border Tax Adjustments" 1968-1970.

{31} Wall Street Journal, Johnathan Dahl, "Perilous Policy: Canada Promotes Asbestos Mining, Sells Carcinogenic Mineral Heavily in Third World", Dec.9, 1989.

{32}. Globe and Mail, Report on Business; Andre Picard and Harvey Enchin, "Quebec planning to fight US asbestos ban", July 7, 1989:

{33}. Idem.

{34}. Mines Minister Raymond Savoie, supra fn. 25.

{35} French asbestos ban blow to Quebec - Chain reaction in other countries feared" Globe and Mail July4, 1996]

{36}Government fo Canada Stepping up Action to Fight French Asbestos Ban, McLellan and Eggleton say, Natural Resources Canada & Foreign Affairs and International Trade, October 8,1996.

{37} United States - Standards for Reformulated and Conventional Gasoline, WTO Doc. WT/DSR/R (Jan. 29, 1996), 35 I.L.M. 274

{38} The Gasoline Rule prohibited the sale of conventional gasoline in these areas and mandated a 15% reduction in VOC and Nox emissions from reformulated gasoline products, as measured against a 1990 baseline year. For conventional gasoline sold elsewhere, levels of contaminants needed to be held at levels no worse than 1990 baseline levels.

{39} Agreement on Trade-Related Aspects of Intellectual Property Rights, Article 27.

{40} Vandana Shiva and Radha Holla-Bhar, Piracy by Patent: The Case of the Neem Tree, in the Case Against the Global Economy, Ed. Jerry Mander and Edward Goldsmith, Sierra Club Books, San Francisco, 1996.

{41} Aaron Cosbey, The Sustainable Development Effects of the WTO Trips Agreement: A Focus on Developing Countries, the International Institute for Sustainable Development, Feb. 1997.

{42} See for example the Convention on Biological Diversity (1992) Article 16: Access to and Transfer of Technology.

{43}. Laura Eggerton, Ministers Reject use of Loopholes to Cut Drug Patents, Globe and Mail, Mar. 6, 1997.

{44} Tony Clarke, The Corporate Rule Treaty: A Preliminary Analysis of the Multilateral Agreement on Investments (MAI) which Seeks to Consolidate Corporate Rule, Canadian Centre for Policy Alternatives, Ottawa 1997.

{45} The Federal government explains its approach to effectively banning MMT as being necessary given the limits of the Canadian Environmental Protection Act, which was at the time in the process of being over-hauled.

{46} Laura Eggerton, "Ethyl sues Ottawa over MMT law", Globe and Mail, April 15, 1997.

{47} Idem.

{48} Mark Vallianatos, Analysis of the Draft Multilateral Agreement on Investment Negotiated by the OECD, Friends of the Earth US, April 20, 1997.

{49} Idem.





Canadian Alliance on Trade and the Environment
c/o Sierra Club of Canada

412-1 Nicholas Street, Ottawa, Ontario K1N 7B7
Tel: 613-241-4611
Fax: 613-241-2292
e-mail: sierra@web.ca