GATT is composed of 37 articles and a number of explanatory understandings and addenda. This section reviews a few selected articles that are of key environmental importance.

Articles I and III: Non-discrimination, like products

Articles I and III of GATT are the legal home of the core principles: most-favoured nation and national treatment. These principles were described earlier as together constituting the critical WTO discipline of non-discrimination.

Article I establishes the most-favoured nation rule. This requires parties to ensure that if special treatment is given to the goods or services of one country, they must be given to all WTO members. No one country should receive favours that distort trade. This provision originated because states had different tariff levels for different countries, and it was designed to reduce or eliminate those differences. The principle has now also been extended to other potential barriers to trade.

This rule has two major exceptions. The first applies to regional trade agreements. Where these have been adopted, preferential tariffs may be established between the parties to these agreements. The second exception is for developing countries, and especially the least developed countries. GATT allows members to apply preferential tariff rates, or zero tariff rates, to products coming from these countries while still having higher rates for like products from other countries. This exception is designed to help promote economic development where it is most needed.

Article III establishes the national-treatment rule. This requires that the products of other countries be treated the same way as like products manufactured in the importing country. No domestic laws should be applied to imported products to protect domestic producers from the competing (like) products. And imported products should receive treatment under national laws that "is no less favourable" than the treatment given to like domestic products.

Defining "like products" has important environmental implications. This issue will be explored further, when we discuss process and production methods in chapter 5, but for now it can be highlighted with an example. Consider two integrated circuit boards, one produced in a way that emits ozone-depleting substances, and another produced in a non-polluting way. Are these products like? If they are, then environmental regulators cannot give preference to the green product over the other when both arrive at the border. Nor can they discriminate against the polluting product if it arrives at the border to compete against domestically produced clean versions.

Although the term "like" has not been specifically defined, the WTO's dispute settlement system has several times had to wrestle with whether certain products were like, and has developed some criteria to help it do so. These include the end uses in a given market, consumer tastes and habits, and the products' properties, nature and qualities. Most recently, the dominant criterion that has emerged in applying the like-products test is commercial substitutability: do the two goods compete against each other in the market as substitutes? For example, although vodka and gin are not identical, their physical properties (alcohol content) and end use (drinking) are similar enough that they could be substituted one for the other. They might therefore be considered like.

Article XI: Quantitative restrictions and licences

Article XI of GATT imposes another type of limit on measures that a party can take to restrict trade. It prohibits the use of quotas, import or export licences, or similar measures related to the import or export of goods. This prohibition stems from the fact that such volume-based measures are more economically distorting than are price-based measures such as tariffs and taxes. Agricultural products currently benefit from an important exception to Article XI.

Article XI might conceivably lead to conflicts with the trade mechanisms in some MEAs. For example, the Basel Convention and CITES impose licence or permit requirements for trade in the materials they control. To date these types of provisions in MEAs have never been challenged under trade laws.

Article XX: The environmental exceptions

Normally, when a national law is inconsistent with trade rules the state must withdraw or modify the law within a reasonable time—usually within 15 to 18 months. Article XX of GATT, however, allows for certain specific exceptions to the rules. The two exceptions most relevant for environment-related measures are the following:

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;

A country wanting to use the environmental exceptions in Article XX has two hurdles to clear. It must first establish the provisional justification for using Article XX by showing that sub-paragraph (b) or (g) applies. It must then establish final justification by showing that the measure in question does not contravene the lead paragraph, or chapeau, quoted above.

Paragraph (b) requires the state to show that the measure is "necessary" to protect the environment. In the past, this test has required the state:

1. To demonstrate the necessity to protect its own environment;
2. To demonstrate the need to use a trade-impacting measure to do so; and
3. If a trade-impacting measure is needed, to ensure it is the least trade-restrictive measure available to achieve the objectives.

The second and third parts of the necessity test seek to reduce the potential trade impacts from environmental measures, and to prevent environmental measures from being used as a disguised restriction or disguised barrier to trade. The hurdle they create can be difficult to clear, particularly if the measure under dispute is measured against purely hypothetical alternatives, rather than alternatives that may actually be available and practical for environmental regulators. The first part of the test had been traditionally applied to rule out environmental laws that protected the environment outside the enacting country's borders, though the 1998 WTO Appellate Body ruling in the shrimp-turtle case may have changed this by requiring merely a "sufficient nexus" between the law and the environment of the enacting state. Although the ruling did not fully explore what constituted a sufficient nexus, it appears that transboundary impacts on air and water, or impacts on endangered and migratory species, for example, might provide such a nexus.

A state claiming an exception under paragraph (g) must demonstrate first that its law relates to the conservation of exhaustible natural resources. The shrimp-turtle case made progress, from an environmental perspective, in defining exhaustible natural resources broadly, to include living and non-living resources (including other species) and renewable and non-renewable resources. Second, the law must have been accompanied by domestic-level restrictions on management, production or consumption of the resource to be conserved. Finally, the law must be "primarily aimed at" the conservation objectives; it must show "a close relationship between means and ends."

Once a law passes the tests described above it must then pass the tests in the chapeau, or opening paragraph, of Article XX, which address how the law is applied. The three tests in the chapeau to be met are whether, in its application, the measure is arbitrarily discriminatory, unjustifiably discriminatory or constitutes a disguised restriction on trade. The clearest statement to date on these tests in an environmental context comes from the 1998 shrimp-turtle case. Although the Appellate Body did not try to define these terms, it arguably defined a number of criteria for not meeting the tests including, for example, the following:

• A state cannot require another state to adopt specific environmental technologies or measures—different technologies or measures that have the same final effect should be allowed.
• When applying a measure to other countries, regulating countries must take into account differences in the conditions prevailing in those other countries.
• Before enacting trade measures countries should attempt to enter into negotiations with the exporting state(s).
• Foreign countries affected by trade measures should be allowed time to make adjustments.
• Due process, transparency, appropriate appeals procedures and other procedural safeguards must be available to foreign states or producers to review the application of the measure.

3.4.2 The key agreements: The Agreement on Technical Barriers to Trade