The World Trade Organization and sustainable development: A guide to the debate

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ENERGY, ENVIRONMENT AND DEVELOPMENT PROGRAMME EEDP BP 05/03
DECEMBER 2005
The World Trade Organization and
sustainable development:
A guide to the debate
Duncan Brack, Chatham House
As traditional tariff barriers have fallen everywhere, and as trade negotiators have turned
their attention to other government policies which may affect international trade in
products and services, the international trading system governed by the WTO has come to
affect more and more areas of government policy. Governments deciding environmental,
health and labour standards, rules for service provision or intellectual property rights
protection now cannot ignore the WTO.
The outcome of this process is to bring to the fore the disputed relationship between
sustainable development and the liberalization of international trade. It has been argued
that trade liberalization is essential to economic and social development and
environmental protection; and, conversely, that it is harmful to one or all of these three
pillars of sustainable development – or at least, that it gives a much greater focus to
economic growth at the expense of the social and environmental dimensions.
The purpose of this briefing paper is to provide a concise background to the main issues
at stake in the interaction between the WTO system and sustainable development. It
considers a series of ‘frequently asked questions’, including whether big business unduly
influences the WTO, how much developing countries benefit from world trading rules,
the WTO’s impact on environmental policy, including policies designed to regulate trade
in GM products and in illegal timber, the interrelationship between the WTO and
standards of labour standards and of animal welfare, and whether or not agricultural
liberalization will benefit sustainable development.
2
The WTO and sustainable development: A guide to the debate
The World Trade Organization:
the basics
The rapid expansion of international trade has been
one of the defining characteristics of the world
economy since 1945, and a key factor in the complex of
processes known as ‘globalization’. In 1970 one-eighth
of world product was traded internationally; now the
proportion is one-fifth. International trade is crucial to
every nation.
One of the principal reasons for this expansion has
been the steady removal of government-imposed
barriers to international trade, in terms of both tariffs
and non-tariff barriers such as quotas or administrative
requirements. Industrialized countries’ tariffs on
manufactured goods have fallen from about 50% in
1948 to an average of about 3.7% today. This removal
of trade barriers has been coordinated and promoted
under the framework of the General Agreement on
Tariffs and Trade (GATT). Originally agreed in 1947, this
international agreement was augmented through
successive rounds of negotiations, of which the
Uruguay Round, completed in 1994, was the eighth.
More ambitious and long-drawn-out than its
predecessors, it led to the creation of a permanent
rules-based body, the World Trade Organization (WTO),
which came into being on 1 January 1995. The WTO
oversees the implementation of the GATT and the
range of additional agreements that came into place
alongside it, together with a quasi-judicial system of
dispute resolution which requires consensus among
WTO members to overturn any decision – taken
together, a much more powerful and far-reaching
system of trade rules than had previously existed .
Interaction with other areas of
public policy
Because of the achievements of successive trade rounds
in reducing tariffs, particularly on manufactured
products, the attention of trade negotiators
increasingly turned to other factors affecting trade in
goods – for example, product standards imposed for
reasons of health and safety, or environmental quality.
This led to the creation of an array of additional trade
agreements, covering, among others, agriculture,
textiles, services, intellectual property, technical
barriers to trade and sanitary and phytosanitary
(health and plant health) standards.
In turn this started to generate concern among
some sections of the public in many countries. In the
e n v i ronmental field this was triggered in particular by a
number of dispute cases in the early 1990s which
seemed to imply that the GATT/WTO would quite
extensively limit national governments’ ability to
restrict imports of products that caused transboundary
or global (as opposed to purely national) enviro n m e n t a l
s t resses – such as those from unsustainable commerc i a l
fishing.
At the same time, campaigning non-governmental
organizations (NGOs) and development agencies had
long been calling for a better deal for developing
countries from the world trading system, and in
particular for better market access for their exports,
especially of agricultural goods and textiles. The
international trading system was steadily growing in
importance for international development: while only
11 of the original 23 signatories of the GATT had been
developing countries, by the end of 2004 the
proportion had grown to over three-quarters of the
148 members of the WTO. Yet despite this, even today
developed countries maintain higher tariffs against
many developing-country exports than they do against
those from developed countries.
Most people would accept that the liberalization of
trade plays a major role in promoting economic
growth. The removal of the distortions in the market
created by trade barriers results in lower prices and
access to a wider range of markets, extending choice
for firms and consumers alike. All economies develop
by exporting the goods and services they produce best
in exchange for other goods and services they need.
The various forms of trade protectionism – subsidies,
tariffs, dumping, etc. – distort markets, impede the
optimal use of resources and generally benefit elites
and vested interests while restricting choice and
opportunity. Alongside these economic benefits, there
are political arguments for trade liberalization; trade
can promote interdependence and a sense of
international community, building links between
peoples, communities and nations and rendering
armed conflict less likely.
Yet, equally, the expansion of trade can have major
drawbacks. The benefits from economic growth may
be inequitably distributed, both between and within
countries. The environmental costs of production and
consumption are hardly ever reflected in the prices of
goods in international trade, amplifying unsustainable
patterns of economic behaviour. The deregulation that
generally accompanies trade liberalization may weaken
countries’ abilities to regulate transnational
corporations (TNCs) and maintain high environmental
or labour standards. The globalization of lifestyles and
consumption patterns has led to fears of cultural
homogenization and a loss of independence and
identity. Many of these are side-effects of much wider
processes of globalization than trade liberalization, yet
in many eyes the WTO has come to embody them.
There are also arguments about the pace of trade
liberalization. As will be seen below, many poor
countries may well suffer from rapid exposure to world
markets before they have had time to develop
competitive industry or agriculture; this is a particular
problem for small farmers.
More broadly, there is a growing concern over a
lack of balance in the international system. Any
functioning economy needs to balance the benefits of
free trade with wider public needs – a healthy natural
environment, the protection of local culture, safe
workplaces, public health, social infrastructure for
those suffering from ill-health or disability, and a
strategy to reduce poverty, all subject to democratic
accountability and redress. At the national level this
can be achieved with varying degrees of success.
The WTO and sustainable development: A guide to the debate
At the global level, however, the international
institution that governs trade – the WTO and its range
of trade agreements – is far more powerful and
effective, as a whole, than those that handle
environmental protection, health, human rights or
social development. International trade liberalization
has been pursued and developed to a much greater
extent than any other global policy objective. This has
resulted, many argue, in an unbalanced world
economy, where the interests of exporters and big
companies usually seem to be given a higher priority
than environmental protection, for example, or the
concerns of local communities.
The second section of this paper examines to what
extent many of these specific criticisms are justified in
relation to the WTO. Before that, however, we take a
brief look at how the WTO system works in practice.
How the WTO system works
The WTO agreements, now centred around the GATT,
the General Agreement on Trade in Services (GATS)
and the Agreement on Trade-Related Intellectual
Property Rights (TRIPS) essentially lay down general
rules for governments to follow in liberalizing
international trade; they cannot possibly deal with
every specific traded product or service, so they set out
broad principles which must be interpreted and
applied in particular dispute cases where one WTO
member believes that another is failing to comply with
them. The core principles are to be found in the
following articles of the GATT:
• GATT Articles I (‘most favoured nation’
treatment) and III (‘national treatment’) outlaw
discrimination in trade: WTO members are not
permitted to discriminate between traded ‘like
products’ produced by other WTO members, or
between domestic and international like
products.
• GATT Article XI (‘elimination of quantitative
restrictions’) forbids any restrictions other than
duties, taxes or other charges on imports from
and exports to other WTO members.
WTO members, in other words, are not permitted to
discriminate between other WTO members’ traded
products, or between domestic and international
production. Essentially the same principles are built
into all the other WTO agreements that have
developed alongside the GATT.
The WTO agreements do, however, permit
unilateral trade restrictions under particular
circumstances. These include measures, for example,
‘necessary to protect human, animal or plant life or
health’ (GATT Article XX(b)) and those ‘relating to the
conservation of exhaustible natural resources if such
measures are made effective in conjunction with
restrictions on domestic production or consumption’
(GATT Article XX(g)), both of which have been cited in
a series of dispute cases concerned with trade measures
3
taken in pursuit of environmental protection. The key
question at issue is whether the disruption to trade in
each case can be justified under these wordings – e.g.,
in the case of Article XX(b), is the measure really
necessary to the objective, or are there any alternative
measures available that could achieve the same ends
with less disruption to trade?
So dispute cases revolve around the interpretation
of WTO rules. The bodies that carry out these
interpretations are the dispute panels (generally
composed of trade experts) which issue an initial set of
findings, and the WTO Appellate Body (mostly
international lawyers), to which dissatisfied parties can
appeal. Since their decisions can only be overturned by
a negative consensus among all WTO members – which
has never happened – this quasi-judicial system is a
powerful means of resolving conflicts and ensuring
that trade rules are interpreted and applied
consistently around the world.
If the loser in any given case does not modify its
policy accordingly, the winner is entitled to take traderestrictive measures (e.g. apply tariffs) against the
losers to the estimated value of the trade lost because
of the loser’s action. So, for example, when the EU was
found against in a dispute with the US over trade in
bananas, in 1999, the US applied penal tariffs against a
wide range of European exports, including items such
as cashmere clothing. But because the effectiveness of
the sanctions in each case rests on the economic power
of the winner, the system is highly unbalanced – if the
US loses a dispute with Ecuador, for example, it is not
going to be deeply affected by Ecuadorian trade
sanctions, whereas US trade measures against Ecuador
would have a devastating impact.
It should be noted that interpretations can change,
even if the wording that is being interpreted does not.
Decisions in particular by the Appellate Body in recent
years have clearly helped to shift the way in which the
WTO system is applied, especially in environmentrelated disputes. It is this key role for interpretation
that often leads to uncertainty and disagreement over
what the WTO rules might mean in practice in
potential dispute cases that have not yet been ruled
upon – as we will see in the FAQs section.
The Doha Round
Only two years after the completion of the Uruguay
Round in 1994, pressure began to build for a further
round of trade talks. Four new issues – investment,
competition, government procurement and trade
facilitation – were proposed for negotiations, mainly
by developed countries, at the first WTO ministerial
conference at Singapore in 1996. From one perspective
this reflected a logical process of establishing
multilateral rules to govern policies which affected
cross-border economic activity. For developing
countries, however, more important was the
implementation of Uruguay Round commitments,
mainly on market access. It was these developingcountry concerns, much more than the well-publicized
NGO and trade union demonstrations, that torpedoed
4
The WTO and sustainable development: A guide to the debate
the third WTO ministerial, at Seattle in 1999, and
prevented the launching of a ‘Millennium Round’ of
negotiations.
The new round finally got off the ground at Doha
in 2001. The four ‘Singapore issues’ were included in
the agenda, along with further liberalization of
agriculture and services (envisaged in the Uruguay
Round agreement), implementation issues from the
Uruguay Round, and a new trade and environment
agenda. Dubbed the ‘Doha Development Round’ (with
the Doha Development Agenda, DDA) the negotiations
were supposed to focus in particular on the needs of
developing countries.
However, it became clear at the fifth WTO
ministerial, at Cancun in 2003, that developing
countries were still not convinced, and this conference
too ended in failure. Cancun was notable for the
emergence of more organized developing-country
negotiating blocs, in particular the G20, a group of
middle-income developing countries with significant
agricultural exports. Other groups which came into
being at Cancun or subsequently include the G33, led
by Indonesia and focusing on proposals for special and
differential treatment and special products, and the
G90, the least-developed countries together with other
developing countries from Africa, the Caribbean and
the Pacific. The creation of these groups helped to
highlight how diverse the ‘developing world’ is in
terms of trade interests.
In the wake of the failure at Cancun, many of the
more ambitious components of the DDA, including
investment, competition and government
procurement, were dropped or sidelined. The
overriding issue going into the Hong Kong ministerial,
in December 2005, is agriculture, the ‘last major
frontier for trade liberalization’, as one observer put it.
In contrast to manufactured products, trade distortions
in agriculture, including export subsidies, domestic
support and limitations on market access, remain
extensive. Although agricultural and related activities
are not of great economic significance to most
developed countries (their priorities lie in further
liberalization of services and non-agricultural goods),
farmers’ organizations and pressure groups still retain
considerable political power. The EU, one of the two
major negotiators alongside the US, is itself internally
split over reform of the Common Agricultural Policy.
If significant progress is not made at Hong Kong, then
WTO members will be under severe pressure to reach
final agreement in 2006, before the expiry in summer
2007 of the US administration’s fast-track authority,
which enables it to put the agreement through
Congress as a single item. The final shape of the deal,
which is bound to focus on agriculture and nonagricultural market access (the main priority for
developed countries) but may include a disparate
range of other issues, is still far from clear.
The WTO: frequently asked
questions
This section provides a brief guide to some of the most
frequently asked questions about the WTO and the
system it oversees, concentrating particularly on issues
relevant to sustainable development. As noted above,
in the absence of dispute cases dealing with some of
these questions, it is often impossible to say for sure
how the WTO would deal with a particular issue; we
aim here primarily to explain the background.
One other point should be noted. Partly because of
the success of trade liberalization, and the priority
afforded to it by most governments, the psychological
power of the WTO system is huge. Even when it is not
at all clear that WTO rules would in reality prohibit any
given policy which might interfere with trade, there is
often now an automatic assumption among policymakers throughout the world that it probably would,
and a resulting ‘chilling effect’ on regulation.
Is the WTO dominated by big
business?
The WTO is an intergovernmental agreement;
negotiations take place between government officials
(and, ultimately, ministers) and only governments may
bring dispute cases, and only against other
governments. The investor-state provisions of the
North American Free Trade Agreement (NAFTA), under
which corporations may directly challenge
governments, have no parallel in the WTO.
The key question, then, is how much business
lobbies affect national government positions – and the
answer, certainly in most developed countries, is ‘quite
substantially’. Unsurprisingly, companies which export
and import, and their trade associations, are keen to
see trade restrictions lowered. They also have the
resources to maintain sophisticated lobbying
operations, both in national capitals and in Geneva.
Corporate influence on government positions is
probably greatest in the US, where corporate
donations to politicians are far greater in importance
than in most other countries. In virtually all countries,
however, trade ministries possess greater political clout
than, say, environment or development departments.
Nevertheless it would be an exaggeration to say
that corporate interests will win out in all
circumstances. For example, in the light of public
concern over the prohibitively high cost of patented
pharmaceuticals to the poorest countries, WTO
members agreed at Doha in 2001 that the TRIPS
Agreement ‘can and should be interpreted and
implemented in a manner supportive of WTO
members’ rights to protect public health and in
particular to ensure access to medicines for all’.
Agreement on the right of countries to import cheaper
generic drugs if they were unable to manufacture the
medicines themselves was finally reached in 2003.
The broader agenda of the Doha Round has
brought many other interests into the arena, including
many NGOs, trade unions and consumer groups, and
The WTO and sustainable development: A guide to the debate
also seen a greater degree of press and public
attention than in previous trade rounds. In fact, many
major corporate lobbies seem, if anything, to have
been relatively less active than in previous rounds, and
in many countries it is the agricultural and farmers’
interest groups that have made the running. In the
final analysis, it is not the WTO system itself that tends
to give priority to corporate interests, but the balance
of competing interests within the governments of the
WTO’s members.
Are developing countries’ needs
ignored in the WTO?
Developing countries need the access to international
markets that allows their economies to develop and
diversify; no country has ever been lifted out of
poverty through development aid alone. Yet the
process of trade liberalization has been deeply uneven,
benefiting rich economies more than the poorest, and
the gains from trade have not been distributed evenly
throughout the global economy. Industrialized
countries still maintain higher trade barriers against
many developing-country exports than they do against
one another’s – though this is offset to some extent by
the various preferential schemes available to
developing countries. ‘Tariff escalation’, in which
industrialized states place higher tariffs on processed
goods than on raw materials in order to protect their
own industrial sectors from competition, is less
extensive than in the past but still helps to lock poor
countries into reliance on a small number of primary
commodity exports liable to wide price fluctuations.
Although some developing countries, particularly
in South and Southeast Asia, and most notably China
and India, have in recent years seen their economies’
ability to participate in trade develop enormously,
many of the poorest nations lack the capacity fully to
benefit from trade liberalization, which needs effective
governance structures such as a lack of corruption,
trade-friendly customs agencies, access to foreign
currency, an independent judiciary, a tax system that
does not need to rely on import and export duties, and
so on. Even where developing countries have enjoyed
good market access – for example through the EU
preferential schemes available to former European
colonies –they may lack the competitive ability to
benefit. Furthermore the deregulation and
privatization that often accompany trade and
investment liberalization open developing-country
economies to new stresses as well as new requirements
for government regulation and enforcement for which
they often lack adequate capacity. Finally, while the
international movement of goods and financial capital
has been liberalized, movement of labour – a major
export of poor countries – has not (with the exception
of skilled professionals).
The WTO system itself is difficult for poor countries
to participate in fully. Quite apart from their general
lack of institutional expertise and access to
information, most of the negotiations take place in
between ministerial conferences at WTO headquarters
in Geneva, where representatives of wealthy countries
5
are supported by teams of experts, which many poor
countries cannot sustain. Indeed, 37 WTO members
cannot afford a permanent office in Geneva.
Involvement in dispute cases is easier for those
countries with the best access to legal expertise and
advice (or those backed by TNCs); once again, this
tends to discriminate against small and poor countries.
This is increasingly not the case, however, for middleincome developing countries, which are increasingly
making use of the dispute settlement system.
Argentina, Brazil, Korea and Thailand are among the
ten most frequent complainants in the WTO and have
so far won almost all of the cases they have initiated.
As above, this shows the danger of treating the
developing world as a single group.
Developing countries do, furthermore, enjoy some
special recognition within the WTO. The WTO
agreements include various provisions giving
developing countries special rights or extra leniency —
‘special and differential treatment’. Among these are
provisions that allow developed countries to treat
developing countries more favourably than other WTO
members, mainly implemented through the various
Generalized Systems of Preferences (GSPs). Some WTO
agreements allow extra time to be given for
developing countries to fulfil their commitments, and
some require WTO members explicitly to safeguard the
interests of developing countries when adopting
particular measures. The DDA contains a commitment
to review all special and differential treatment
provisions ‘with a view to strengthening them and
making them more precise, effective and operational’,
and the principle is incorporated into every part of the
current negotiations; some extensions have already
been agreed.
In general, the least-developed countries benefit
from the maximum flexibility in applying WTO
agreements – though they do not always have the
capacity to utilize them fully – and in addition some
WTO members have unilaterally scrapped import duties
and import quotas on all exports from least-developed
countries. These countries, of course, tend not to be
important competitors in trade with the developed
countries.
Some assistance is also available through WTO
training and capacity-building. The WTO Secretariat
has special legal advisers for assisting developing
countries in WTO disputes, and the least-developed
countries are automatically eligible for advice from the
Advisory Centre on WTO law set up in 2001. More
importantly, donor countries are increasingly making
aid available for capacity-building for trade; Tony Blair
announced in November, for example, that UK aid for
trade would treble to £100 million a year by 2010, and
the World Bank and other international agencies are
similarly paying more attention to this issue.
Beneficial though all this is, no one pretends that it
is enough to redress the systemic imbalances from
which the poorest countries suffer in the world trading
system. Addressing these kinds of issues was supposed
to be a key priority for the Doha Development Round.
After Seattle and Cancun, it is clear that the needs of
at least the richer and larger developing countries have
6
The WTO and sustainable development: A guide to the debate
to be taken into account in any final settlement;
whether this is true of their smaller and poorer
counterparts remains to be seen.
Does the WTO force developing
countries to liberalize their markets
before they are ready?
For most countries, and particularly the poorest, there
is no real alternative to joining the WTO. Weak though
their position may be within the WTO, the option of
trying to arrange bilateral or regional deals with
neighbouring countries is usually even more difficult,
if it is available at all. The option of staying out of
international trading arrangements altogether is even
less credible, particularly as progress towards
membership of the WTO is generally required as a
precondition of World Bank and International
Monetary Fund (IMF) assistance. And in any case, there
are real advantages in WTO membership, including
access to a multilateral rules-based structure which
includes a dispute resolution system that can force
much bigger and richer countries to dismantle – at
least some – trade barriers. The dispute case taken in
2004 by Brazil against US cotton subsidies produced a
ruling against the US, of potentially major importance
to cotton-exporting countries in Africa, which include
some of the poorest developing countries. The dispute
case taken in 2002 by several countries against EU
sugar exports, where the ruling went against the EU, is
another example.
Nevertheless, for many of the reasons outlined
above, most developing countries, particularly the
poorest, do less well out of the WTO than do most
developed countries. Trade is more liberalized in
sectors where developed countries are more
competitive. Some developing countries apply much
higher tariffs to industrial goods and services than do
rich countries – a legacy in part of a development
strategy based on import substitution. Such tariffs can
be important to shield infant industries from
competition, and they can also represent an essential
source of state income (much higher proportionately
than in developed countries). The eventual reduction
and removal of these tariffs would be beneficial in the
long run, encouraging greater competitiveness and
welfare, but in the short run there may be a strong
case for their retention; as argued above, developing
countries are generally less well equipped than
developed countries to cope with the shocks
consequent upon trade liberalization.
The UN Conference on Trade and Development
(UNCTAD) has described this as the ‘policy space’
needed to nurture dynamic domestic industries that
can compete internationally. There is a strong
argument, therefore, for the special treatment
afforded to developing countries in the WTO (see
above) to be extended to allow them to liberalize at
their own pace – through lengthened transitional
stages, reduced reciprocity obligations, and so on. This
is particularly – though not only – true of the leastdeveloped countries.
Will the GATS force developing
countries to privatize public
services?
Services represent the fastest growing sector of the
global economy, accounting for two-thirds of global
output, one-third of global employment and nearly
one-fifth of global trade. The General Agreement on
Trade in Services is the arm of the WTO agreements
covering internationally traded services. Countries are
encouraged to make commitments to liberalize trade
in services; GATS’ core principle is that if a country
allows foreign competition in a sector, equal
opportunities in that sector must be given to service
providers from all other WTO members.
National governments retain the right to choose
whether or not to open up particular sectors to
competition – though once a decision is taken it is
effectively irreversible – and derogations from full
market access and non-discriminatory treatment are
permitted, based on the number of suppliers,
operations or employees in the sector, the value of
transactions, the legal form of the supplier, or foreign
capital. Despite an active NGO campaign against GATS,
nothing in the agreement directly compels
governments to privatize public services (defined as
those that are not supplied commercially and do not
compete with other suppliers). Examples of detrimental
privatizations in developing countries often cited by
critics of GATS generally have nothing to do with the
agreement; they are much more likely to be an
outcome of IMF or donor conditionality connected to
the provision of financial assistance.
Despite the safeguards written into the agreement,
however, there is unease about the likelihood in
practice of developing-country governments being able
to impose conditions – for example, for high
environmental standards or local employment
requirements – on foreign service providers, and
developing countries have indeed come under
pressure, not least from the EU, not to implement such
derogations. This concern is reinforced by the high
costs of reversing sector liberalization (compensation
has to be paid), and the difficulty in projecting exactly
what is likely to happen. It is also true that the
privatization of important service sectors, such as water
or energy, requires a level of monitoring and
regulation by government that may well be beyond
the current capacity of many poorer countries.
Although WTO members are being encouraged to
widen the list of services for which they are prepared
to offer market access and non-discriminatory
treatment to foreign providers, in practice the range of
services put forward for liberalization has been much
smaller than anticipated. This is probably because
developing countries have difficulty in projecting
exactly what will happen, see little direct advantage in
opening their service sectors, and may also wish to use
potential opening as a bargaining chip to achieve
greater progress in agricultural liberalization. This
situation is not helped by developed-country
recalcitrance in offering freer movement of labour
from developing countries to provide services on a
The WTO and sustainable development: A guide to the debate
temporary basis within their borders (GATS ‘Mode 4’
negotiations). Despite the initial intentions, it seems
unlikely that major expansion of services liberalization
will be a feature of the Doha Round.
Do WTO rules force down labour
standards?
The interrelationship between trade liberalization and
labour standards is a controversial one. On the one
hand, in general trade helps economies to grow and
develop, creating new employment opportunities
under the right conditions. On the other hand, poor
countries, exploiting their competitive advantage of
cheap labour, invariably experience lower wages and
poorer working conditions than those of the richer
countries.
The spread of trade and investment makes it much
easier for transnational corporations to move their
operations to take advantage of these lower labour
costs, sometimes with severe impacts on
unemployment and local prosperity in their former
host countries. The activities of TNCs in poorer
countries can be positive: they usually pay higher
wages than local firms and can provide valuable
training and technology transfer. Further, working
conditions in paid employment are usually better than
alternatives in the small farming and informal sectors.
Nevertheless, some TNC operations do not contribute
to sustainable development, and relocation of their
activities to countries lacking strong regulatory systems
may be pursued simply to enable them to drive down
wages, avoid decent health and safety provisions and
boost their profits.
Occasionally there are calls for minimum global
labour standards, enforced through trade
discrimination. The GATT does already contain a clause
(in Article XX) allowing WTO members to discriminate
against products produced with prison labour, but it is
difficult to move further than this and protect workers
from exploitation without at the same time impeding
the process of development, or providing an excuse for
protectionism against developing-country exports. The
International Labour Organization, which oversees a
wide range of conventions setting various international
standards of employment, has not called for trade
discrimination in support of its standards.
The growing corporate social responsibility and
ethical trade movements seek to tackle these questions
with a different approach. Initiatives such as the Ethical
Trading Initiative and the Fair Trade Foundation aim to
increase the share of products’ purchase price which
flows back to the producers (generally small companies
and individuals in poor countries). Socially responsible
investment policies ensure that investors choose
companies with good records of corporate
responsibility, and a series of UN initiatives, including
the UN Global Compact, seek to advance good
corporate citizenship by encouraging companies to
work with UN agencies, governments, labour
organizations and civil society to advance a number of
universal principles in the areas of human rights,
labour and the environment.
7
Do WTO rules prevent countries
from adopting high national
environmental standards, or
weaken their implementation?
Trade liberalization impacts on the environment both
positively and negatively. It can help to ensure that
resources are used efficiently, it can spread the use of
more efficient and less polluting technology and it can
generate the wealth to pay for it. On occasion, trade
liberalization has been used directly to reduce
environmentally harmful activities, such as the
reduction in agricultural subsidies stemming from the
Uruguay Round. Conversely, however, trade can also
amplify problems of pollution, resource depletion and
biodiversity loss caused by unsustainable economic
activity – and in addition, transporting goods has direct
environmental costs, in terms of fuel use and
infrastructure (roads, airports, etc.).
With the exception of transport costs, however,
environmental problems are at base caused by
environmentally unsustainable patterns of production
and consumption, not by trade itself, which is
essentially a magnifier. A reduction in overall levels of
trade will reduce the environmental impact of these
levels of economic activity, but will also lose any
environmental benefits. The aggregate impact will
therefore depend on the sectors, products and
countries involved – a conclusion supported by the
series of sustainability impact assessments
commissioned by the EU.
A key determinant of overall environmental impact
is the environmental policies adopted by countries, but
the current trade rules administered by the WTO have
often been criticized as insensitive to these policies.
The WTO Committee on Trade and Environment was
established, when the WTO was founded, to review
the relationship between environmental protection
and trade rules and to identify possible reforms but,
ten years on, has reached no conclusion on anything.
The trade and environment components of the DDA,
though generally welcome, are quite limited, and
NGOs have questioned whether the WTO really has the
environmental competence within the WTO to address
them sufficiently. However, recent dispute settlement
cases have led to a number of significant
reinterpretations of WTO rules – including the
applicability of the commitment to sustainable
development in the preamble to the WTO agreements
and the relevant paragraphs of Article XX of the GATT
– which have helped to resolve some tensions between
trade and environment.
WTO rules are relevant where environmental policy
affects markets, for example in the area of product
standards. The WTO encourages the use of
international product standards – e.g. for health and
safety, or labelling requirements – in order to reduce
unnecessary barriers to trade. It has consequently
sometimes proved difficult for countries to set higher
standards – such as on the presence of hormone
residues or GM products in food – without providing
compelling scientific justification, which is often
difficult or impossible to obtain for new technological
8
The WTO and sustainable development: A guide to the debate
developments. This seems to run counter to the
precautionary principle embodied in much
environmental regulation, which justifies preventive
action without full scientific certainty, particularly
where the costs of action are low and risks of inaction
high.
The current dispute over trade in genetically
modified (GM) products is likely to affect future
developments. The complainants – the US, Canada and
Argentina – have argued that the EU’s failure to
approve any new GM products between 1998 and
2004, together with its marketing and import bans,
were not scientifically justified and thus contrary to
WTO rules. Many see the dispute as a test case for how
the WTO will deal with precautionary decision-making.
The panel was originally expected to present its report
in September 2004; having missed several subsequent
deadlines, it is now scheduled to do so in January 2006.
It should also be recognized that the adoption of
higher standards in developed countries may create
barriers to developing-country exporters unless
significant assistance is made available to enable them
to improve their product standards and to submit them
to the necessary testing and certification procedures.
The Sustainable Trade and Innovation Centre (STIC)
was established in 2002 to help developing-country
producers to benefit from growing market pressures by
integrating environmental and social factors into their
export strategies, although its impact to date has been
limited.
One of the most contentious trade–environment
debates has centred round process and production
methods (PPMs). Many current PPMs are
environmentally unsustainable, because, for example,
they generate transboundary pollution or deplete
natural resources such as timber or fish. A series of
GATT dispute cases in the 1990s, including the
infamous tuna-dolphin dispute (over the US embargo
on imports of tuna caught with methods that killed
dolphins), seemed to imply that trade discrimination
could not be applied on this basis, but more recent
WTO dispute settlements, with new interpretations of
the GATT text, suggest that in the right circumstances
such discrimination could be allowed.
Most importantly, the final outcome of the shrimpturtle dispute saw the US permitted to maintain its
embargo on imports of shrimp caught in ways which
killed endangered species of sea turtles (a PPM). This
long-running dispute embodied a number of decisions
with important implications for future PPM-based
trade discrimination. The original form of the US
embargo prohibited all shrimp imports from countries
which did not require the fitting of turtle-excluder
devices to their fishing fleet’s trawl nets. This was
modified, after an initial dispute finding, to apply on
a shipment-by-shipment basis – so individual
consignments of shrimp caught in turtle-friendly ways
were allowed entry. A crucial point was the fact that
the US did not treat imports differently from its
domestic production, where turtle-excluder devices
were compulsory; thus the core WTO principle of nondiscrimination was maintained.
Will WTO agreements override
environmental agreements, for
example over trade in GM products?
Another major area of disagreement in the
trade–environment arena concerns the WTO treatment
of multilateral environmental agreements (MEAs) or
treaties. Several important agreements, such as the
Montreal Protocol on ozone-depleting substances, the
Convention on International Trade in Endangered
Species (CITES), or the Cartagena Protocol on Biosafety,
which regulates trade in GM products, contain trade
measures, such as a requirement for licences before
trade can be permitted, or complete bans on trade in
controlled products with non-parties or non-complying
parties to the agreement. Such trade measures have
proved essential to the success of treaties where trade
is a major cause of environmental damage or where
there is no alternative compliance mechanism, yet they
could, at least in theory, still be challenged at the
WTO. Resolution of this issue was an explicit
component of the DDA, although – along with most
other trade–environment items – no progress has yet
been made on the issue.
It is worth noting, however, that no complaint has
yet arisen within the GATT or WTO with respect to
trade measures taken in pursuit of an MEA, and this
may continue to be the case; in instances such as the
Montreal Protocol, where the trade provisions were
designed to encourage countries to accede, this
approach has been so successful that there are in any
case virtually no non-parties left against whom trade
measures could be taken. On the other hand, the
threat of a conflict with WTO rules has been raised in
many recent MEA negotiations, generally by those
opposed to the principle of the MEA and/or its
effective enforcement, and there have been various
attempts to write ‘savings clauses’ into them, ensuring
that they remain subordinate to WTO disciplines. The
lack of clarity on the issue, and the uncertainty about
the outcome of any WTO dispute, have thus led many
to call for some kind of resolution.
The GM dispute referred to above may also affect
future developments in this area. Although the EU
restrictions were not put in place pursuant to the
relevant MEA (the Cartagena Protocol), as it was not
yet in force, the provisions of the Protocol were cited
by the EU in defence of its measures. At base, however,
there is nothing in international law to state that the
WTO agreements override MEA trade measures – or
vice versa. It would therefore seem sensible not to let
the possibility of a hypothetical WTO challenge inhibit
the development of further MEA trade measures if
MEA negotiators find them necessary for the
implementation of the agreement.
Do WTO rules disallow certification
and labelling schemes for
sustainable products?
The WTO treatment of certification schemes, such as
the Forest Stewardship Council (FSC) certificate for
The WTO and sustainable development: A guide to the debate
sustainably harvested timber, and ecolabels – indicating
energy consumption, for example – is another area of
disagreement, identified for discussion under the DDA.
The use of such labels is becoming increasingly
common, providing concerned consumers with
information on the impact of the products they buy.
Many of these schemes are voluntary and can be
applied for by manufacturers, importers and retailers;
the WTO treatment of voluntary measures such as
these is still debated. Its treatment of mandatory
labelling requirements – for example, for GM products
(see above) – is similarly controversial and, as with the
MEAs debate, it is difficult to reach any clear
conclusion. The arguments identified above with
respect to product standards and PPMs – whether the
labelling requirements can be scientifically justified, or
whether they are discriminatory – will be important in
reaching a resolution of the debate. There has been
only one GATT dispute to date involving ecolabels: the
tuna-dolphin case, where the US label indicating
‘dolphin-friendly’ tuna was found to be acceptable as it
did not lead to unfair discrimination between domestic
and imported products.
Will WTO rules prevent action being
taken against imports of illegal
timber?
Much public and governmental attention has been
paid in recent years to the extent to which consumer
demand for timber helps to drive illegal logging in
producer countries. In October 2005 the EU agreed a
new regulation establishing a licensing scheme for
imports of timber and timber products from producer
countries participating in bilateral agreements (it is
hoped that the first of these will be signed in 2006). All
such imports will be checked for legality of production
and export, and only verified legal products will be
allowed into the EU. The hope is that by denying
external markets to illegal products, this initiative will
reinforce producer-country efforts to control illegal
logging and the environmental, economic and social
damage it causes.
This timber licensing system is similar in principle to
other licence or permit schemes in existence under
MEAs, such as CITES or the Montreal Protocol (see
above). The major difference is that as no multilateral
agreement exists in this area, the system has to be built
up through bilateral agreements. It seems highly
unlikely that any WTO dispute would arise in this case;
the countries participating in the scheme are clearly
not going to raise one, and although countries not
directly affected could do so, there would be no
benefit to them.
WTO rules are likely to be of more relevance if a
consumer country were to impose a blanket
prohibition on the import of illegal timber. If this took
the form of a border measure – a requirement to
provide proof of legality at the country’s border – it
could be found to be in breach of WTO rules, though
GATT Article XX could provide a justification. However,
if the requirements on imports were different from
those on domestic production, a WTO case could
9
certainly be made, on the grounds of discrimination.
This kind of issue is currently the subject of discussion
within the EU, though there are other means, such as
the use of criminal law, which may achieve a similar
aim.
It is true, however, that the whole area of trade in
illegal products – which can be encouraged by the
scaling down of border checks consequent upon trade
liberalization – has hardly ever been discussed within
the WTO. Given the growing importance of measures
designed to exclude undesirable products from world
markets (for example, illegal goods or, in the case of
the Kimberley Process, conflict diamonds), this may
change in the future.
Do WTO rules prevent countries
from adopting high animal welfare
standards?
Concerns have been raised that WTO rules could be
used to challenge established animal welfare
legislation, such as regulations governing slaughtering
or rearing procedures for farm animals, or the EU law
banning imports of fur caught in leghold traps. WTO
regulations apply only to traded products, so products
produced solely for domestic markets would not be
affected directly – though they might of course be
undercut by cheaper imported products produced with
poorer standards of animal welfare.
Under threat of a WTO challenge, the EU did
indeed suspend its import ban against fur caught in
leghold traps from the US and Canada, and instead
signed agreements with them – widely criticized by
NGOs as too weak – to reduce the use of such traps.
The vulnerability of the EU measure to a WTO
challenge derives from the fact that it would benefit
domestic fur producers, using fur farms, at the expense
of trapped-fur importers.
Since a WTO dispute case was in fact never
brought, it is not clear whether the WTO would
actually have ruled against the EU ban. This is a good
illustration of the psychological power of the system:
the fear of a WTO challenge may lead policy-makers to
modify their actions even when such a challenge may
have been neither likely nor successful. The exceptions
listed in Article XX of the GATT provide potential cover,
and all the arguments about PPM-based trade
measures (see above) are also relevant. The key
question on which a dispute panel would have to rule
is whether the distortion in trade following from the
ban could be justified by the benefits of the measure
to animal health and welfare.
Will liberalization of trade in
agriculture be good or bad for
sustainable environment?
Three-quarters of the world’s poor live in rural areas.
Agriculture accounts for about 27% of GDP and export
earnings in developing countries, and half of
employment. Yet at the same time, agricultural
markets around the world are the most heavily
10
The WTO and sustainable development: A guide to the debate
protected; in OECD countries, the average tariff rate
for agricultural products is 60%, twelve times the rate
for industrial products. Developed countries also
protect their agricultural sectors through subsidies
worth $1 billion a day, more than the entire GDP of
sub-Saharan Africa. This structure of tariffs plus
subsidies has resulted in a hugely distorted world
market for agricultural products. Developing countries
are prevented from benefiting from their comparative
advantages of cheap labour and land; many potential
food exporters in fact rely on cheap imports because
their domestic production has been destroyed by
subsidized exports from OECD countries.
This helps to explain why, as noted above, the key
item at the Hong Kong WTO ministerial will be
agricultural liberalization, particularly in terms of
export subsidies, domestic support and limitations on
market access. Success in this area will clearly benefit
the big developing countries of the G20, such as Brazil,
India or South Africa, which have large and
competitive agricultural sectors. It will be of much less
immediate benefit to the poorer developing countries
of the G33, which are most interested in retaining their
right to protect their own farmers, for example by
defining a group of special products that developing
countries would be allowed to protect, and using
special safeguard mechanisms to defend their products
from increased imports. Poor countries currently
enjoying trade preferences may in fact lose out if trade
barriers come down and other countries gain similar
access to the same markets – as well as suffering from
any rise in food prices associated with the ending of
export subsidies. Poor countries thus tend to favour
less liberalization, introduced over a longer period of
time, in order to protect their preferences for as long
as possible.
The impact of trade liberalization on the
environment is similarly mixed. Subsidies for
agriculture in developed countries have often had
significantly damaging environmental impacts through
the intensive cultivation they support, with
accompanying high use of energy and chemicals.
Conversely, however, support for farmers is increasingly
delivered through assistance with explicit
environmental and countryside management goals,
such as protection for local habitats or water quality,
or support for declining rural communities – the socalled ‘multifunctionality’ of agriculture. In the EU,
these schemes now account for 3–4% of the
agricultural subsidy budget, but while they play a
crucial role in addressing environmental and rural
problems, many WTO members fear that these
measures are protectionist in effect if not in intent.
The EU’s sustainability impact assessment of the partial
liberalization of agriculture thought to be a probable
outcome of the Doha Round suggested that while the
overall economic and social impacts would be positive
(though not for the poorest developing countries or
small island states), the environmental impact would
be negative, increasing stress on natural resources and
raising transport levels.
Do WTO rules prevent consumers from
choosing locally produced food?
Agricultural liberalization may also affect the ability of
consumers to purchase locally produced food, which
they may prefer to do in order to help support the
local economy, and particularly small producers and
retailers, and in response to an awareness of the
environmental impact of transporting food over long
distances, particularly by road or air. As discussed
above, the removal of subsidies and trade barriers will
help countries with large and efficient farm sectors, at
the expense of those with smaller, less efficient and
more expensive agriculture. This may well make locally
produced food in the richer countries less competitive
and drive local farmers out of business.
This is a complex area with multiple conflicting
objectives: demand for affordable food versus the
need for food prices to reflect environmental
externalities and to deliver decent wages to
producers); access for (at least some) developing
countries versus support for local production; desire to
protect the environment versus uncertainty over real
environmental costs. As with ecolabels and fair trade
marks, the use of labelling to indicate local production
is becoming more common, as is support for farmers’
markets and an increasing tendency for local
purchasing bodies – schools or hospitals, for example –
to try to source food products locally. It seems clear,
however, that further trade liberalization in agriculture
will reduce the ability of small local producers in
developed countries to compete on the basis of price,
forcing them to try to do so more on the basis of
brand, quality or simply the fact that they are local.
Conclusion
The discussions in each of the twelve questions
examined above help to highlight the sheer complexity
of the interrelationship of trade with sustainable
development – and its importance. As traditional tariff
barriers have fallen every w h e re, trade rules increasingly
affect areas of government policy, such as health,
environmental, or labour standards, which they have
never affected before. Similarly, the WTO has come to
play a much greater part in international politics than
the GATT ever did – for example, EU support for Russian
accession to the WTO influenced Russia’s decision to
ratify the Kyoto Protocol on climate change, bringing
that agreement into force. Trade and trade policy are
now at the centre of national and international politics.
That is not to say that the WTO is responsible for every
aspect of globalization, although it is sometimes
perceived in this way.
T h e re is no doubt that international trade can play a
vital role in promoting sustainable development acro s s
the world (though its interrelationship with the
diff e rent pillars of sustainable development – economic,
environmental and social – is both complex and
diff e rent in each case). There is equally little doubt that
c u rrent trade rules need to be reformed to better
s u p p o rt environmental and developmental objectives.
But whether the Doha ‘Development Round’ will do this
remains an open question.
The WTO and sustainable development: A guide to the debate
11
Guide to further reading
• Tom Crompton and Pete Hardstaff, Eat This: Fresh Ideas on the WTO Agreement on
Agriculture (Royal Society for the Protection of Birds, 2001):
www.rspb.org.uk/Images/Report%20-%20Eat%20This%20Fresh%20Ideas%20on%
20the%20WTO%20AoA_tcm5-45199.pdf.
• The International Centre for Trade and Sustainable Development (ICTSD) publishes a series of
papers on all aspects of this debate, together with two regular means of keeping up with the
latest developments: Bridges journal (print) and Bridges Weekly Trade News Digest
(electronic). All available from: www.ictsd.org.
• International Institute for Sustainable Development (IISD)/UN Environment Programme
(UNEP), Environment and Trade: A Handbook (2nd edn, 2005):
www.iisd.org/trade/handbook.
• ICTSD/IISD, The Doha Briefing Series of briefing notes:
www.iisd.org/trade/wto/doha_briefing.asp.
• Joseph E. Stiglitz and Andrew Charlton, Fair Trade for All – How Trade Can Promote
Development (Oxford University Press, 2005).
• Sustainability Impact Assessment: independent assessments of the impact that trade
negotiations may have on sustainable development, commissioned by the European
Commission and conducted by the University of Manchester: www.sia-trade.org/wto.
• Third World Network, Trade Issues/Rules and WTO (portal website):
www.twnside.org.sg/trade.htm.
• UK Department of Trade & Industry, Making Globalization a Force for Good – Trade and
Investment White Paper 2004: www.dti.gov.uk/ewt/whitepaper.htm.
• The WTO website now it includes the text of the WTO agreements, lists of dispute cases and
the texts of their findings, and basic primers: www.wto.org.
Duncan Brack is an Associate Fellow of the Energy, Environment and Development Programme
at Chatham House, where he works on trade and environment issues and international
environmental crime.
12
The WTO and sustainable development: A guide to the debate
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