Contrary to what some commentators might believe, the World
Trade Organization (WTO) can accommodate
measures focussed on protecting the environment. But it does
impose important disciplines on those measures when they impact
on international trade.
The balance may prove to be important as climate change
measures around the world begin to impact on the conditions of
competition between products from different countries.
In enunciating the objectives of the WTO when it was founded
at Marrakesh in 1994, WTO Members recognised the need to
protect and preserve the environment. Indeed, one of the
preambular paragraphs of the Marrakesh Agreement
Establishing the WTO observes:
"Recognizing that their relations in the field of trade
and economic endeavour should be conducted with a view to
raising standards of living, ensuring full employment and a
large and steadily growing volume of real income and
affective demand, and expanding the production of and trade
in goods and services, while allowing 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 different levels of economic
development…". (Emphasis added).
The 'trade and environment' discussion has
been a slow-moving but serious feature of the WTO ever
The increasing momentum of policies around the world to
address climate change, however, give rise to an increasingly
difficult balancing act between WTO rules designed to proscribe
discrimination in international trade, and climate change
measures that seek to promote production practices that reduce
greenhouse gas emissions.
The problem is that not all countries take the same approach
to regulating emissions. For producers in some countries,
carbon quotas and emissions trading regimes mean that
environmental costs of production are embodied in the goods
produced. Producers of the same or similar goods from other
countries that do not require such costs to be internalised can
enjoy a competitive advantage in markets where the two sets of
The answer to this problem could be to reach some degree of
universality in the way the world apportions the ultimate cost
of environmental measures.
In the meantime, however, some countries are exploring the
possibility of penalising imported goods to equalise the
conditions of competition between 'green'
domestic production and less green imports. In particular, some
countries, including the United States and the European Union,
have started to consider imposing border tax adjustments to do
Whether such measures can be crafted in a manner that is
consistent with WTO rules is an open question.
In principle, discrimination between different exporting
countries or between imported and domestic production runs
counter to WTO rules. On the other hand, certain environmental
measures can be exempt from these basic rules, so long as they
do not constitute arbitrary or unjustifiable discrimination or
disguised restrictions on international trade.
The complexity of this area, and the possibility that some
form of border tax adjustment may be compatible with WTO rules,
means that this is an area of risk for exporters. This is an
area that deserves close attention going forward.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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