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Publications - Trade and Environment: WTO Experience, Lessons for Ukraine


Trade and Environment: WTO Experience, Lessons for Ukraine


The Ukrainian Journal of Business Law
Vol.8 #10 October 2010

Interest in the relationship between the environment and trade goes back at least to the early 1970s, when the linkage between both WTO policy areas was established. The issues were then more narrowly framed and discussion was focused on whether pollution abatement costs in industry would significantly alter the patterns of international trade and investment. The level of priority of trade and environment issues increased recently and now it is time for every WTO Member to address the crucial aspects of the trade and environment agenda. The construction of effective national policies should be based on having in view the experience of WTO institutions (CTE, Ministerial Conference) and best practice of the Appellate Body and Panels. Furthermore, environmental issues should be one of the top priorities in negotiations pending between Ukraine and the EU.

Environmental provisions in trade: brief overview

The role of the WTO in facilitating environmental protection is of fundamental importance as there is a substantial number of trade measures used for environmental purposes. The preamble to the WTO Agreement stipulates that expansion of production and trade must allow for “the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at the different levels of economic development”[1].
In its turn, Article XX of the GATT explicitly mentions the protection of the environment as a valid reason for a Member to deviate from its obligations under the Agreement due to certain conditions. Article XX is of relevance for any legal disputes concerning the compatibility of environmental policies with the multilateral trading system.
Article XIV (b) of the General Agreement on Trade in Services (GATS) contains a “general exceptions” clause, similar to GATT Article XX. Addressing environmental concerns, paragraph (b) allows WTO members to adopt policy measures that would normally be inconsistent with GATS if this is “necessary to protect human, animal or plant life or health” (identical to GATT Article XX(b)).
The WTO Agreement on Technical Barriers to Trade (TBT) seeks to ensure that product specifications, whether mandatory or voluntary (known as technical regulations and standards), as well as procedures to assess compliance with those specifications (known as conformity assessment procedures), do not create unnecessary obstacles to trade. In its preamble, the Agreement recognizes Members’ rights to adopt such measures to the extent they consider appropriate — for example, to protect human, animal or plant life or health, or the environment. Among the Agreement’s important features is harmonizing specifications and procedures with international standards as far as possible.
The WTO Agreement on Application of Sanitary and Phyto-sanitary Measures (SPS) deals with food safety, and human, animal and plant health and safety regulations. The SPS Agreement complements the Technical Barriers to Trade Agreement. It allows members to adopt SPS measures for environmental purposes, but subject to such requirements as risk assessment, non-discrimination and transparency.
The Agreement on Subsidies and Countervailing Measures (SCM), which applies to non-agricultural products, contains an exemption for certain environmental subsidies. Amongst the non-actionable subsidies that were provided for under Article 8 are subsidies used to promote the adaptation of existing facilities to new environmental requirements (Article 8.2(c)).
In the preamble of the Agreement on Agriculture Members’ commitment to reform agriculture in a manner that protects the environment is expressed Under the Agreement, domestic support measures with minimal impact on trade (known as “green box” policies) are allowed and are excluded from reduction commitments — they are listed in Annex 2 of the Agreement. They include expenditure under environmental programmes, provided that they meet certain conditions. Again, the exemption enables governments to capture positive environmental externalities.
Finally, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provides Members with the right to “exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary ... to protect human, animal or plant life of health or to avoid serious prejudice to the environment”[2].

Environmental chapters in regional trade agreements

The scope and depth of environmental provisions in regional trade agreements (hereinafter — RTA) vary significantly. Canada, the EU and the USA have included the most comprehensive environmental provisions in recent RTAs. The agreements by the US are unique in that they put trade and environmental issues on an equal footing.
Many agreements notified to the WTO in the past year included a reference to the environment among other exceptions to obligations under the agreement as the Parties understand that the measures referred to in Article XX (b) of the GATT 1994 include environmental measures necessary to protect human, animal or plant life or health, and Article XX (g) of the GATT 1994 applies to measures relating the conservation of living and non-living exhaustible natural resources. They provide a potentially important means of making trade and environment policies mutually supportive.
For instance, Canada-Jordan Free Trade Agreement (hereinafter — FTA) (signed in June 2008) contains a principle-based Environmental Chapter. The preamble of the FTA highlights the importance of environmental conservation and protection and the promotion of sustainable development. It also permits the Parties to take measures necessary to protect human, animal and plant life or health that may be inconsistent with trade or investment obligation.
The Agreement on the Environment between Canada and Peru[3], signed on 28 May 2009, in conjunction with the Canada-Peru FTA, commits both Parties to pursue high levels of domestic environmental protection, to continue development and improvement of their environmental laws and policies and to promote transparency and public participation.
The FTA also includes environmental provisions and an Environment Chapter that: recognize the need to implement the FTA in a manner consistent with environmental protection and conservation and the sustainable use of resources; require that the countries not weaken their domestic health, safety or environmental measures to encourage investment; allow the parties to take certain necessary measures to protect human, animal and plant life or health, which may be inconsistent with trade or investment obligations, provided that they are not done in an arbitrary or discriminatory fashion and do not constitute disguised restrictions on trade.
Environmental considerations are also included in the United States-Oman FTA, which came into force on 1 January 2009. Under the FTA each party must ensure that its environmental protection laws provide for high levels of protection, and must strive to improve those laws, provide appropriate and effective remedies and sanctions for violations of environmental protection laws, provide opportunities for public participation, and promote public awareness. Parties agree that trade or investment should not be encouraged by weakening or reducing domestic legal protection. Areas of cooperation selected for joint action include integrating ecotourism with protecting flora and fauna, promoting the growth of the environmental technology business sector, risk management etc.
Environmental provisions are also envisaged by the EU and South Korea FTA, the EU and Canada Economic Integration Agreement, Canada and CARICOM FTA.
With regard to Ukraine, the Agreement on Free Trade between the European Free Trade Association (EFTA) and Ukraine was signed recently. It is the first document of its kind since Ukraine joined the WTO. In addition to a preamble reference to the preservation and protection of the environment, it stipulates that it is an appropriate to encourage investment by relaxing health, safety or environmental standards.
Taking into consideration the increased recognition by the environmental community of the need to integrate environmental concerns in the FTA, we are of the view that environmental chapter should be included in the EU-Ukraine FTA as environmental issues influence trade liberalization and competitiveness. The provisions of the prospective agreement should not weaken domestic environmental laws to encourage trade or investment but, on the contrary, the use of voluntary best practices of corporate social responsibility by enterprises should be encouraged. Furthermore, the negotiators should ensure that proceedings are available to provide sanctions or remedies for violations of their environmental laws.

Conclusion

The international community has agreed to tackle and manage international trade collectively as part of the environmental problem. The development of trade and environmental agenda will be ongoing and demand continual concern. New trade and environmental conflicts are on the horizon, in particular in the areas of intellectual property, subsidies and food safety. Another important task facing the WTO members is developing environmentally friendly regional policies and protecting the access of developing countries to global markets. Relevant Ukrainian institutions are to continue monitoring developments at both multilateral and regional levels and pay special attention to the way in which regional trade agreements deal with environmental issues.

[1] WTO Agreement, 1st recital in the preamble.
[2] TRIPS Agreement, Article 27.2.
[3] Available at http://www.sice.oas.org/TPD/AND_CAN/Final_Texts_CAN_PER_e/index_e.asp


Iryna Polovets
is an attorney assistant with Volkov & Partners


Tetiana Kheruvimova
is an attorney assistant with Volkov & Partners

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