Executive Summary
General Observations
The World Trade Organization (WTO) is barely two years old. It will convene its first meeting of the world's trade Ministers in Singapore in December 1996. That meeting will review progress of the implementation of the commitments made in the Uruguay Round. It will also consider the report of its Committee on Trade and Environment.
The idea of sustainable development is also in its youth. Spawned by the Brundtland Commission and the Earth Summit in 1992, sustainable development is included in the preamble to the Uruguay Round Agreement. The Ministerial session seems a good time to review the progress of the WTO in linking trade and sustainable development. Sustainable development touches on the work of the WTO in many ways, this report deals with the organization as a whole, rather than dwelling solely upon the work of the Committee on Trade and the Environment, the most important body for sustainability within the organization.
Linking Trade and Sustainable Development
Making the transition to sustainable development will require substantial amounts of capital. And it is clear that little of this money will come from parsimonious Northern parliaments.
For many countries, much of the new capital will have to come from increased trade revenues. In that sense, trade liberalization may be said to be a necessary, although not sufficient, condition for the achievement of sustainable development. Greater access (and quicker access) to Northern markets than that provided under the Uruguay Round would provide substantial sums to Southern economies. But trade liberalization without adequate environmental policies can be very damaging to the environment.
Committee on Trade and Environment
This Committee is the most crucial to the sustainability agenda. However, the working agenda which it has adopted is narrower than the task originally outlined: to address trade and sustainable development and to make recommendations on whether any modifications of the provisions of the multilateral trading system are required. Instead, the Committee has chosen to settle on a number of specific issues related to the trade impacts of environmental policies.
The CTE has addressed its essentially political task in a largely technical manner. Few of the issues on the agenda appear ready for action, so the most likely outcome of two years of work will be to recommend a renewed mandate for the Committee. The CTE has struggled with the conundrum that faces any environmental body: the issues it addresses are cross-cutting, affecting virtually every part of the WTO, and numerous organizations outside the WTO. Environmental issues occur explicitly or implicitly on the agenda of numerous other WTO bodies.
Dispute Resolution Regime
It is worth noting that the first dispute under the new regime to reach the stage of a complete panel report concerned an environmental issue. Venezuela complained against the impact of aspects of the implementation of the Clean Air Act in the United States on Venezuelan refineries.
The WTO Venezuela Panel addressed technical issues of environmental policy. Yet, there is no evidence that the use of experts was considered in this instance, by the panel or by any of the parties.
The panel report also entered territory which has long posed particular difficulties for GATT panels. The US argues that its regulation treated imported gasoline similarly to gasoline for "similarly situated" domestic parties. The panel rejected this view because "any interpretation of Article XX (g) in this manner would mean that the treatment of imported and domestic goods concerned could no longer be assured on the objective basis of their likeness as products" (emphasis added).
Making the System More Transparent
The main emphasis in the new WTO approach to openness is on providing information by derestricting documents and making them available on-line, although with an indefensible six month delay. The Secretariat is encouraged to be somewhat more active in its direct contacts with non-governmental organizations (NGOs). However, no formal submissions of NGOs to the WTO are envisaged at any stage. No process is created to give recognition to major international NGOs with proven competence in some or all areas of the work of the WTO. No access is provided to interested non governmental parties to the dispute resolution process.
The environmental agenda will become an instrument of change in the GATT/WTO system because it responds to different incentives. It has raised the problems of transparency and participation in the WTO, as it did within the UN system, the World Bank and in bilateral relations between countries, which are in fact issues which transcend the environmental agenda and stand at the center of important changes in contemporary international society. It is unlikely that the WTO will long be able to resist the pressure exerted by these changes.
The Politics of Trade and Sustainable Development
Few governments have shown much enthusiasm for the agenda of trade and environment. It is viewed as primarily a concern of the developed countries, yet it is difficult to identify any among these, with the possible exception of the Nordic countries, which have consistently urged forceful action within the WTO to address environmental concerns.
Many developing countries have sharply articulated their concern that environmental issues may be used to create new barriers to trade and thwart hard-won gains in market access. Experience with a number of prominent cases, shows that this may well be true - ranging from US measures to impose certain standards to protect dolphins on Mexican and other ships fishing for tuna in Mexican and international waters, to Austrian requirements to label tropical timber, to U.S. measures implementing clean air standards in a manner that disadvantaged Venezuelan and Brazilian refineries.
Conclusions
The successful conclusion of the Uruguay Round and the launching of the WTO have come to symbolize a new era in international relations. The trading system has finally begun to deal with a number of issues which were previously taboo, such as agricultural subsidies. Progress has been made on dealing with services and intellectual property rights and a new system for resolving disputes has been put in place. Most important of all, the temporary, Northern dominated GATT, has been replaced by a soon to be universal trade organization which consolidates the results of Uruguay and previous rounds in the text and under one roof. But the accolades for the WTO may well be premature.
A period of unrivaled wealth in much of the world is being accompanied by rising levels of insecurity even in affluent societies and growing inequality between those who succeed and those who do not. Continuing support for liberalization and globalization depends vitally on the ability of government at all levels to ensure that the benefits are widely distributed, and that the legitimacy of the trade regime is widely accepted.
They must also persuade an increasingly skeptical public that liberalization can contribute to environmental improvement. The WTO has failed to recognize the central message of sustainable development -- that the world's economy and its environment are joined at the hip like Siamese twins. Progress in one area depends upon progress in the other. Trade liberalization without adequate environmental safeguards will lead to environmental deterioration, often on a massive scale. And trade liberalization and the increased revenues which it brings is an essential condition for the achievement of sustainable development.
Will the WTO be able to respond to these essentially political challenges? The first two years have not been encouraging. The dominant theme has been continuity from the GATT to the WTO. A culture of closed decision-making has persisted, inefficient internal structures have carried over without reflection, and the dispute settlement process still resembles the rules committee of a club. The Committee on Development has achieved nothing notable and the Committee on Trade and Environment may continue a record of futility which now dates back 24 years to the first creation of the abortive environment committee of the GATT. The Councils on Intellectual Property Rights and Trade in Services have spent most of their two years on mundane housekeeping tasks.
Reform of the WTO
Sustainability must be built into the mandates of the Councils and Committees of the WTO. The Committee on Trade and Environment could play a key role in defining the relationship between the trading system and the environment if it begins to treat the issue as a vital part of the integrity of the trading system and not just as an annoyance imposed from the outside.
The TRIPS regime is critical to the shift to new, more eco-efficient technologies. Trade in services, from the more narrowly defined environmental service industries, to consulting services, finance and banking, will be critical to the achievement of sustainable development. The reform of the notification procedures under the TBT agreement will be important to help insure against protectionist capture of the environmental agenda. TBT is also at the centre of the discussion about ecolabeling.
The key to ensuring the support of many developing countries for the sustainability agenda in the WTO is a renewal of some elements of the Rio Bargain. This renewal will need to be built on guarantees of increased market access and further progress on the reduction of market distorting subsidies in the North. The Committee on Trade and Development could take on some of these responsibilities within the WTO structure if it is given a new mandate and renamed the Committee on Trade and Sustainable Development.
Further progress must also be made on reform of the dispute resolution mechanism. The US/Venezuela Panel Report demonstrated the same kinds of eco blindness displayed by panels under the old system. But the Appellate Panel decision gives some cause for hope that the system can become more even handed.
It seems inevitable that further difficult environmental disputes will soon reach the panel process. Controversial panel reports are less likely if future panels take advantage of the new rules which allow them to hear expert environmental advice. Efforts should also be made to ensure that the panel reports are released as soon as possible and not restricted to everyone but the cognoscenti and readers of insiders' newsletters as they have been in the past. A somewhat bolder step, which would do more to reinforce the legitimacy of panel reports, would be to permit the filing of "amicus" briefs by concerned parties from civil society.
Transparency and Participation
Sustainable development depends upon open decision-making. The WTO has a long way to go to meet basic criteria for access to information and scope for participation. The processes of globalization must also extend the rights which traditionally counterbalance the risks of abuse of public authority and the unfettered exercise of private power. The WTO must shed the habits of a club and become a global forum for trade policy. The two approaches to decision making are fundamentally incompatible. Increased transparency and scope for participation are also essential to the attainment of the basic goals of trade policy. The ratification of the Uruguay Round agreements was a close run thing in many national parliaments. The success of future agreements will at least partly hinge on the public perception that these agreements have not been arrived at by special interests operating behind veils of secrecy.
No-one is suggesting that NGOs and business groups should sit around the table while trade agreements are actually being negotiated. That is still the business of sovereign states. But the WTO is no longer simply a club of contracting bodies and there are plenty of ways of involving civil society in its work. The WTO should learn from the wide range of experience in other international organizations that pragmatic solutions can be found, that increased transparency and participation do not endanger the effectiveness of an organization and that a step by step approach is feasible. Obviously, the WTO should not simply adopt the practices of other organizations without considering whether they suit its particular needs. It should, however, recognize that its performance in this area will be judged by whether adequate transparency and participation are achieved, rather than by whether the WTO has done as much as it believes it can.
A WTO Implementation Gap
Whatever rules emerge in the coming years to address the complex relations between trade, environment and sustainability, it is important to ensure from the outset that they are not only equitable but also equitably implemented. Experience has shown that the most important steps towards the implementation of international agreements frequently occur long before these are signed or enter into force. Most of the necessary measures will be taken at the international level so that the need to ensure accountability for national measures is one of the most important functions of the WTO.
There is some evidence that the GATT adopted notification requirements as a no-cost alternative to more stringent international measures with little thought given to their effectiveness or to ensuring that they were forcefully implemented. The existence of more than 200 such requirements suggests that their implementation was never seriously considered. The result is a potential implementation gap as serious as in any other international regime. There is no evidence that these notification requirements have been effective in the trade regime. Notification systems between states do not function unless they are linked to strong incentives or are subject to public scrutiny.
The new WTO procedures for the circulation and derestriction of WTO documents should, in theory, provide an opportunity for public scrutiny of the notification experience within the trade regime. Experience in other regimes, however, suggests that states dislike the exposure to public criticism, and even on occasion ridicule, which such scrutiny can bring with it and may therefore seek to curtail opportunities for it. The credibility of the WTO, and possibly the future of the trade regime, depend on the willingness of all concerned to tolerate such scrutiny.
An Agreement on Trade and Environment: Addressing PPMs
Sustainable development requires that producers move away from the old approach of react and cure to the anticipation and prevention of environmental problems before they occur. This approach places a premium on the redesign of production processes and the promotion of 'eco-efficiency', in the words of the Business Council for Sustainable Development.
The ability to distinguish between sustainably and unsustainably produced goods in international trade is vital to ensuring that trade liberalization does not undermine essential environmental protection but contributes to sustainable development. This is particularly true when no other measures, such as patents, provide manufacturers with protection within the trading chain, (i.e., for commodities and commodity manufactures).
Distinguishing between like products on the basis of their contribution to sustainability could open the door to new forms of protectionism. Protectionist interests in all countries have always proven adept at using trade rules to their advantage. And they are perfectly capable of forming alliances with environmental groups to clothe their traditional concerns in more fashionable green clothing.
The answer to this dilemma does not lie in an amendment of the existing trade rules. It will require the development of an Agreement on Trade and Environment, (essentially an agreement on the use of PPMs to promote sustainable development). This agreement would be analogous to the agreements on Trade and Services and TRIPS. It would set out principles for the necessary balancing of goals and would establish institutional procedures which can enjoy widespread support to implement them.
The WTO cannot negotiate such an agreement on its own. Indeed, it will need to reach out to those responsible for environmental management at all levels, certainly national and international but probably also subnational, in an attempt to generate the necessary consensus and acceptance of the solutions which may emerge. Therefore relations between the WTO and other organizations are of central importance to the future of sustainability in the trade regime.
Singapore and Sustainability
It is critical that the Singapore Ministerial recognize the limitations of the WTO and reach out towards other appropriate organizations to seek an understanding on an approach to the issues. Just as the WTO must find ways to relate to environmental bodies, the national ministers of trade who are its masters must meet with their counterparts from the environment side.
Trade and Environment Ministers should meet in the year between WTO Ministerial meetings to ensure that there is appropriate focus of the agenda of trade and sustainability in all the international fora for which such a group of ministers bears responsibility. Such a meeting should not take the form of a general get acquainted chat. Rather, Singapore will need to set in motion a careful preparatory process, leading to the preparation of specific draft decisions for discussion.
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