Concerns about Planet Earth are increasingly being placed higher on the agenda of governments and multi-national corporations, both of whom have to respond to growing pressure from the “green” lobby. Certainly, as new scientific knowledge leads to greater awareness of the risks to the environment of global warming, the risks to endangered species, and the “cost” of the depletion of natural resources, there is a realisation that the respective calls for free movement of goods and services and for a “greener” environment must be addressed alongside one another.

A direct effect of greater awareness of the issue of global warming is that the world has, and will increasingly witness, a proliferation of environmental laws and agreements passed by legislators attempting, inter alia, to reduce carbon emissions, both nationally and internationally. For example, the Kyoto Protocol to the UN Framework Convention on Climate Change (UNFCCC) – which entered into force in February 2005 and has been ratified by 172 countries and other governmental entities – sets legally binding targets for industrialised countries to reduce or limit their emissions of six greenhouse gases by 2012. Importantly, it also creates flexible, market-based instruments to help these countries achieve their targets cost-effectively and to encourage the transfer of clean technologies to developing countries. There are currently ongoing talks on establishing a post-2012 framework to extend the Kyoto Protocol and on ways to bring countries as diverse as the US, Australia, China, and India into the fold of countries with national emissions commitments.

However, a major issue arises as to how the Kyoto Protocol, as well as other current and future international environmental laws agreements, EU laws, and national domestic legislation interact with international trade agreements, and, in particular, the WTO. The task of the WTO must be to draw the line between the legitimate use of national law to protect the state’s environment and unilateral and non-consensual protectionist trademeasures passed or applied under the cloak of environmental legitimacy. However, in practice this can be difficult to achieve. According to Timothy E Deal of the United States Council for International Business (USCIB), “[t]here is a crying need for WTO Members to come to grips with the intersection between multilateral environmental agreements like Kyoto and established WTO rules to liberalise trade. In particular, he believes that the issue regarding the Kyoto Protocol ‘’has the potential to cause an absolute trainwreck in the rules-based international trading system.”

Unless there are established rules it will remain unclear the extent to which WTO rules constrain countries’ abilities to address climate change through domestic regulatory policies such as standards, labelling, subsidies, and emissions trading systems. This creates inevitable uncertainty for business who, when planning ahead, need to have reasonable expectations about any foreseeable changes to the international trading system. Forthcoming issues of the International Trade and Investment Briefing will focus on particular areas of concern, including the following: 

  • If a conflict arose between a Multinational Environmental Agreement (MEA) and WTO rules, which body of laws would apply. 
  • The potential trade implications for countries, such as the US, that are Members of theWTO, but are not party to the Kyoto Protocol. 
  • Whether governments can impose regulations that have an effect outside of their own jurisdiction, in order to preserve the natural resources forming part of the global commons. 
  • The extent to which the current Doha Round negotiations on a new WTO deal are taking into account environmental/climate change concerns. For example, proposed new provisions on environmental goods and the importance of the conservation of natural resources may lead to a “greening” of the WTO. 
  • The extent to which countries can use border tax adjustments (ie, taxes imposed on imports or tax-relief granted to exports) to offset some of the international competitiveness losses that result from the imposition on their national companies of carbon taxes in order to mitigate carbon emissions – this could contravene parts of the GATT or GATS.
  • Whether governments can subsidise energy-efficient products or energy efficient industries – such subsidies might be inconsistent with the WTO Agreement on Subsidies if, for example, the subsidy favours domestic industry or requires the use of domestic goods over foreign ones. 
  • Whether, conversely, a WTO case be brought against a country that subsidises industries that have high carbon emissions, such as the coal industry, if this subsidy unfairly prejudices an energy industry in another country. 
  • Whether countries can impose distinctions (tax differentiation or import bans) in the treatment of products solely on the basis of their Production and Processing Methods (PPMs). 
  • To what extent countries can adopt energy standards that aim at reducing carbon emissions – in certain circumstances, thismay contravene the Agreement on Technical Barriers to Trade (TBT). 
  • Whether exempting certain (favoured) industries from energy taxes will contravene trade rules. 
  • To what extent eco-labels and energy efficiency certificates (issued by the government or from independent voluntary initiatives) can be used. If they have trade distorting effects, they may contravene the Agreement on TBT. 
  • Whether the EU’s use of incentives to implement the Kyoto Protocol through the use of the Generalised System of Preferences (which lowers tariffs for certain least developing countries) contravenes WTO law. 
  • Whether possible use by countries of their public procurement policies to influence suppliers to act in a manner that conforms to energy efficient standards would be contrary to the WTO Agreement on Public Procurement. 
  • Whether the emissions trading scheme under the Kyoto Protocol is compatible with WTO rules. 
  • Whether parties involved in Clean Development Mechanism (CDM) or Joint Implementation (JI) projects (whereby countries or their companies earn emission credits by investing in emission reduction projects in other countries) violate non-discriminatory rules on investments and services, or contravene the WTO Agreement on Subsidies. 
  • Whether countries can unilaterally raise their import tariffs for goods with a high carbon content – this might contravene parts of the GATT. 
  • Whether governments can eliminate tariff and non-tariff barriers to environmental goods and services: Peter Mandelson, the EU Commissioner for Trade, has suggested that certain goods specifically linked to reducing climate change, such as clean power generation and renewable energy, ought to be subject to a 0% tariff deal. However, there is currently little consensus as to what is encompassed by the term “environmental goods”. 
  • Whether there is a conflict between WTO provisions and the use by governments of the Precautionary Principle to justify passing trade restrictive measures when there is scientific uncertainty as to if there exists an environmental risk (according to the Precautionary Principle if there is reasonable threat of harmt o the environment or human heath, lack of scientific certainty or consensus must not be used to postpone preventative action). One such issuemay arise in trade in genetically modified organisms (GMOs) because current scientific opinion is divided about the possible environmental effects from the use of GMOs. 
  • Whether trade measures passed will actually lead to the desired result (for example, does trade in a particular biofuel actually have a net effect of reducing greenhouse emissions?).
  • Whether governments can pass trade restricting measures on the basis of an apparently minor environmental risk (eg, where a country imposes a ban or controls on imports of certain products because of a small risk from a toxic substance that is used in or forms part of the product).