By EST Ambassador Johannes Tropper.

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The relationship between trade and environment has always been fairly contentious. Preserving the environment and mitigating climate change while guaranteeing free trade seem to be incompatible goals. While some countries wish to limit the production, exportation and importation of specific goods, which are not produced in an environmentally friendly way, other countries fear the negative impact on free trade, economic growth and the employment sector. Broadly speaking, two legal tools have been used to achieve the protection of the environment at the expense of free trade. Multilateral treaties like the Paris Agreement are one option. They are consensual in nature, but negotiations to sign such treaties are cumbersome. The common standards are also comparatively low and some countries fail to fulfill their obligations without incurring any significant sanctions. The alternative to such treaties is unilateral measures like import bans on certain products. Such measures can be implemented quickly and are suitable to national preferences with regards to protection standards. However, they can also be more disruptive and are not necessarily applied for purposes of protecting the environment but rather for political and economic reasons. The danger of protectionism is inherent in such unilateral trade policies. However, are these unilateral trade restrictions designed to protect the environment even legally available under international law or do they constitute a violation of international law?

This article discusses the legality of unilateral trade measures for environmental protection under the international trade law regime. Firstly, basic obligations of international trade law which need to be observed by members of the international community are briefly explained. In the second section, the article addresses possible exceptions to these obligations in order to impose unilateral trade-restrictive measures to preserve the environment and shortly outlines the WTO-tribunals stance on the issue. The final part includes a summary of the necessary criteria that a unilateral restriction on trade has to fulfill to be legally warranted.

In order to properly answer the question whether the EU can impose any form of import restriction to promote environmental protection, we need to primarily understand that these trade policy measures are in principal illegal. When a country is a member of the World Trade Organization −the institutionalized community of global trade− it has to uphold its legal norms, which aim at establishing non-discriminatory, reciprocal trade relations and a reduction of barriers to trade.[1] The rules intend to provide equality of opportunity in trade relations. Following a period of protectionism before World War II, the development of a non-discriminatory trade regime was viewed as one precondition for political and economic stability. National trade policies should not disrupt the global trade system and the trade relations among individual countries. The potential for economic instability caused by individual states and ensuing political confrontations between states, should be avoided according to this underlying rationale. Therefore, the pivotal principles enshrined in various WTO-agreements are the ‘Most-Favoured Nation’- Principle and the ‘National Treatment Principle’. The first one prescribes that privileged trade relations or market access granted by one WTO member state to another have to be awarded to all other WTO members.[2] Hence, discrimination between countries is prohibited. The latter principle stipulates that foreign products shall not be treated less favourably than domestic products.[3] Hence, discrimination against similar products originating abroad is in principal illegal. Exceptions exist for developing countries and free trade areas/ customs unions (special and differential treatment)[4]. The overall objective of non-discrimination (with regards to the origin of a product or service) has been quite successfully pursued in trade in goods, where trade barriers have been gradually reduced. In other sectors such as agriculture and the trade in services the interests of the parties largely prevented the attainment of that objective.

Despite the fact that countries have conferred some of their sovereign powers to an international trade regime, these rules do not prevent member states of the WTO to impose certain limitations on the flow of trade. Even the trade in goods can be regulated by setting up certain trade barriers, but the means that are legally available are limited to tariffs and not quotas or similar measures.[5] The general elimination of quantitative restrictions implies that import bans (zero quotas) are prohibited. Therefore, as a general principle import bans by one WTO member, like the EU, are inconsistent with its obligations under international law.

Nonetheless, there are exceptions to this general rule, which allow any WTO-member state to deviate from their commitments.[6] In respect of environmental protection, quantitative restrictions on trade in goods such as import bans can be justified under Article XX of the GATT. Article XX includes various specific exceptions, which could allow the EU to impose an important ban for environmental purposes. Two are of utmost importance in this context: measures ‘necessary to protect human, animal or plant life or health’[7] and measures ‘relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption’[8]. Whenever a WTO member intends to impose an import ban, it needs to be able to justify its actions under Article XX of the GATT. Firstly, it is necessary to subsume the national restriction under one of the specific exceptions. Secondly, the measure must also be in accordance with the requirements of the introductory clause (‘the chapeau’) of Article XX of the GATT.[9] The chapeau states that the restrictions shall not be applied in an arbitrary way or amount to an unjustifiable discrimination between countries where similar conditions prevail or act as a disguised restriction on trade. Hence, the design and application of any form of restriction has to be in accordance with the core principles of non-discrimination and equal treatment. For instance, imposing an import ban on tropical wood shipped into the EU from one particular region, while not imposing the same prohibition on importation of tropical wood from all the other regions would hardly be justifiable since this amounts to discrimination between countries where the same conditions prevail. It is also important to note that an abusive exercise of the rights established in Article XX in order to circumvent obligations under the GATT runs contrary to the principle of good faith, which is essentially embodied in the opening paragraph of Article XX of the GATT according to the WTO-Appellate Body.[10]

A number of trade disputes related to this exception have been taken to WTO tribunals and have caused considerable controversies inside and outside the WTO. Contrary to common beliefs among environmental groups, the WTO judicial system− panels and the standing Appellate Body− is not intrinsically biased against the environment and concerns about climate change. While this could be argued for past disputes, such a claim does not take into account the reversal of legal reasoning of the WTO tribunals that occurred. The trade-favoured bias seemed to have been revealed in one of the key rulings of the newly established WTO on Article XX GATT. In the so called Shrimp-Turtles Case, the WTO tribunals ruled that the US measure banning imports of tuna not harvested in a dolphin-friendly way was inconsistent with the US obligations under the international trade laws.[11] While its forerunner the GATT, a set of rules that gradually developed into a quasi-organization, certainly had a bias in favor of trade in its ruling on similar matters (Tuna-Dolphin Cases[12]), the newly established Appellate Body under the WTO did not categorically reject environmental considerations in Shrimp-Turtles. It is true that the Appellate Body found the US import restriction on shrimp harvested by ships of a country that does not require the same tuna-friendly methods to be a violation of international law. Hence, to outsiders the outcome of the ruling essentially appeared to imply that any WTO member was prevented from limiting free trade in order to protect endangered sea turtles. On the contrary, the conclusion was much more comprehensive and the regulatory autonomy of a country not inappropriately constrained by the ruling. Not examining the legal reasoning reveals very little about why a ruling may seem to run contrary to environmental prerogatives. Unlike the old GATT-panel, the Appellate Body had actually strengthened the environmental considerations in principle and actually constituted the beginning of a significant change in WTO-adjudication. Firstly, it acknowledged that the exception in question (‘measure relating to conservation of exhaustible resources’) was not restricted to non-living things.[13] It also identified that it is up to the member state to decide the level of protection desired as long as the intended measure can be reasonably expected to somehow help reach that level of protection. Also, the Appellate Body implied that a territorial nexus to the member state is not indispensable in order to apply Article XX.[14] In the Tuna-Dolphin Cases the tribunals argued that measures under Article XX can only be applied in order to protect the exhaustible natural resources within the areas of territorial jurisdiction of the respective state.[15] While there might not be an inherent territorial limitation in the provision as a whole, the clause referring to this specific exception protecting exhaustible natural resources requires that a measure is ‘made effective in conjunction with restrictions on domestic production or consumption’ in order to satisfy the national treatment principle. The measure by the US fulfilled these specific requirements, but failed to meet the standards of the opening clauses (‘chapeau’-test). The application of the exception constituted an unjustifiable discrimination between countries where essentially the same conditions prevailed. The Appellate Body agreed with the arguments of the complainants for several reasons related to the application of the exception.[16]  Whilst having negotiated a multilateral agreement with several others on the harvesting techniques of shrimp, the US refrained from such negotiations with the complainants. An obligation to negotiate with the complainants in good faith can be inferred- not, however, an obligation to actually conclude an agreement as argued by Malaysia.[17] Also, the US failed to take into account the different conditions in the different exporting countries. Alternative policies might have served the same objective of protecting dolphins very well, but were disregarded by the US. Furthermore, the registration scheme for trawlers operating with dolphin-friendly harvesting methods that were similar to those required in the US were disadvantaged since they were registered in these states that lacked the same policies as the US or a treaty with the US[18]. In other words, due process concerns of individual companies were not properly taken into account by the US. In sum, the US failed to apply justifiable measures of Article XX relating to the protection of exhaustible natural resources, in that case dolphins, in a justified non-discriminatory manner. The ‘cumulative effect’ of the different factors led to overall unjustifiable discrimination.[19] The core aspect of the ruling is the American failure ‘to treat the complainants as well as the US had treated the western hemisphere countries’[20].

The US measures failed to pass the test in order to be applied in conformity with international law because of their inconsistent design and application.  The problem was not the objective of limiting trade to protect the environment but the discriminatory implementation of this trade policy.[21] WTO tribunals have not necessarily curtailed the regulatory autonomy of a member country in an excessive manner. On the contrary, the level of protection can be chosen freely, but the measures to achieve the objective have to be linked so as to serve the intended purpose. A less trade restrictive approach is not forced upon member states if it does not lead to the achievement of the intended purpose. Moreover, non-discrimination between different exporting countries as well as between the exporting country and domestic producers needs to be adhered to. The balance between the rights of the importing country to impose restrictions and the exporting country to enjoy an unimpeded trade flow need to be and ultimately can be reconciled within these principles. From an environmental perspective it is not plausible why some countries or domestic producers should be able to continue environmentally detrimental practices, whereas exporters have to bear the burden of economic disadvantages. Only economic and political concerns, not environmental ones can explain an inconsistent, discriminatory application of unilateral trade restrictions.

In conclusion, unilateral trade restrictions in the trade in goods to protect the environment and taking specific action against climate change can certainly be legal, even for members of the WTO. The prerequisite is the justification under the general exception of Article XX of the GATT. It will be easier to prove that such measures fall within the scope of these exceptions, but applying them in non-discriminatory manner vis-à-vis all other WTO members requires considerable effort. The Appellate Body acknowledges that this is a much more difficult task[22], but given the different interests of the trading partners it is inevitable. International law attempts to reconcile the divergent interests and principles, both in international trade law and international environmental law. The preamble of   the   Marrakesh   Agreement   Establishing   the   WTO lists sustainable development and environmental protection as explicit objectives for the trading system.[23] This has been taken into account in settling disputes by the WTO panels and the Appellate Body. However, agreements related to environmental protection also cite the necessity of ensuring that trade restrictions are non-discriminatory and completely disrupt the trade flow, for instance the Rio Declaration on Environment and Development: “Trade policy measures for environmental purposes should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. Unilateral actions to deal with environmental challenges outside the jurisdiction of the importing country should be avoided.” Striking a balance between trade and environment is not an easy task, but a feasible one and best achieved with multilateral treaties.[24] Even the existing trade law does not inherently prevent the implementation of environmentally friendly measures, even if they run contrary to the main goals of trade law. WTO tribunals have unequivocally affirmed that.

Hence, to answer the initial question whether the European Union could impose a restriction on the import of certain products for environmental purposes: yes, this kind of unilateral restriction by the EU can be legal if it measure falls within the scope of a specific exception of Article XX and is not applied in an arbitrary or discriminatory way. In other words, any product, which the EU as a whole would like to see on a ‘black list’ of environmentally unfriendly products not welcome in the EU, can only be banned if the prohibition is either necessary to achieve the intended level of environmental protection or if the prohibition at least relates to the conservation of exhaustible natural resources. In such a case any product from this prohibited category has to be prevented from being imported irrespective of origin. Enforcing an outright import ban against some countries and not others would constitute an unjustifiable discrimination and be determined as an illegal measure by a WTO tribunal. Any unilateral restriction will be less favourable than a consensual multilateral solution. However, where no agreement can be found it may serve as quick tool to deal with the issues of environmental protection and climate change.

[1]Peter van den Bossche, The Law and Policy of the World Trade Organization: Text, Cases and Materials (CUP, 2013) 32-35

[2] Article I of the General Agreement on Tariffs and Trade 1947 (GATT 1947), 55 U.N.T.S. 194
Article II of the General Agreement on Trade in Services (GATS), 1869 U.N.T.S. 183

[3]Article III of the GATT 1947

[4]Article XVIII of the  GATT 1947, Article XXXVI:A of the GATT 1947, Article XXXVII of the GATT 1947;
Article XXIV of the GATT 1947

[5]Article XI of the GATT 194: ‘No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures (…)’

[6]Michael J. Trebilcock, Understanding Trade Law (EE, 2011) 22

[7] Article XX (b) of the GATT 1947

[8]Article XX (g) of the GATT 1947

[9] United States – Standards for Reformulated and Conventional Gasoline(1996)WT/DS2/AB/R page 22

[10] United States – Import Prohibition of Certain Shrimp and Shrimp Products (1998) WT/D 58/AB/R, para 156 and 158

[11] United States – Import Prohibition of Certain Shrimp and Shrimp Products (1998) WT/D 58/AB/R

[12] United States – Restrictions on Imports of Tuna (1991) DS21/R-39S/155
United States – Restrictions on Imports of Tuna (1994) DS29/R

[13]Trebilcock (n 6) 165

[14] Ibid. 165

[15]Robert Howse, ‘The Appellate Body Rulings in the Shrimp/Turtle Case: A New LegalBaseline for the Trade and Environment Debate’ (2002) 27 Colum. J. Envtl. L. 491, 492

[16]Trebilcock (n 6) 166

[17] United States – Import Prohibition of Certain Shrimp and Shrimp Products: Recourse to Article 21.5 of the DSU by Malaysia (2001) WT/DS 58 AB/RW, para 122

[18]Howse (n 15) 509-514

[19]United States – Import Prohibition of Certain Shrimp and Shrimp Products (1998) WT/D 58/AB/R,supra note 15, at para. 176.

[20]Howse (n 15) 509

[21]Howse (n 15) 492

[22]United States – Standards for Reformulated and Conventional Gasoline (1996) WT/DS2/AB/R, supra note 14 at 20

[23] Marrakesh Agreement Establishing the World Trade Organization,1867 U.N.T.S. 154

[24] UN Doc. A/CONF.151/26 (vol. I) / 31 ILM 874 (1992)

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