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Early years emerging environment debate in GATT WTO

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TRADE-RELATED    ENVIRONMENTAL                                   MEASURES:              ISSUES          OF
COMPATIBITY WITH GATT/WTO RULES

                                         Sunil Kumar Agarwal



I.       Introduction: TREMs

Trade measures have been defined in a trade policy context to mean “any policy
instrument that attaches requirements, conditions or restrictions on imported products or
services themselves, or the process of their production or exportation. The MEA trade
measure can range from trade ban to product standards, from notification procedures to
labeling requirements. Only a few MEAs contain trade related environmental measures
(TREMs). TREMs are important economic instruments for the protection of environment.
Use of TREMs may in certain circumstances be the most effective way to ensure that
environmental objectives are achieved. This insight is reflected by the evolution of
international trade law from a set of traditional rules of ‘command and control’ towards
increasing use of economic instruments and trade measures. However, with this
evolution, a potential for conflict emerged between international trade rules established
by the GATT and the WTO, on the one hand, and the rules of MEAs on the other side.
The WTO compatibility of the implementation of the trade-related measures prescribed
by MEA may be challenged in a WTO dispute settlement body, and a penal could
conclude that such a MEA conflicts with obligations pursuant to WTO. Thus unless there
is a clear understanding of the relationship between trade rules and MEA , a significant
potential for conflict exists. In the clarification of the relationship between MEas and
WTO rules, two aspects are important to note: first, trade provisions in MEAs are
typically in the form of import or export bans, which are in principle GATT/WTO
incompatible. Trade bans are allowed in the GATT under the general exception clause of
Article XX (paragraphs (b), (d), and (g) ). Second, trade provisions in some MEAs
discriminate between parties and non-parties, and the implementation of those provisions
could result in an inconsistency with the GATT principle of unconditional Most-
Favoured- Nation treatment (GATT Article I) in case all WTO Members are not Parties


    Research Associate, Centre for International Legal Studies, SIS, Jawaharlal Nehru University, New Delhi.

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to an MEA. Till date, there has been no formal dispute under the WTO that could settle
the question of whether and under what circumstances trade measures in MEAs are
consistent with WTO rules. However, some disputes concerning issues of environmental
protection were brought before the GATT /WTO dispute settlement body.

I. Emerging Environment Debate in GATT/WTO

Trade and environment, as an issue, is by no means new. The link between trade and
environmental protection — both the impact of environmental policies on trade, and the
impact of trade on the environment — was recognized as early as 1970.

Growing international concern about the impact of economic growth on social
development and the environment led to a call for an international conference on how to
manage the human environment. The 1972 Stockholm Conference was the response.

The 1971 GATT study

In 1972, the UN held a Conference on the Human Environment in Stockholm. During the
preparations in 1971, the Secretariat of the General Agreement on Tariffs and Trade
(GATT) was asked to make a contribution.

The Secretariat therefore prepared a study under its own responsibility. Entitled
“Industrial Pollution Control and International Trade”, the study focused on the
implications of environmental protection policies on international trade. It reflected the
concern of trade officials at the time, that such policies could become obstacles to trade
as well as constitute a new form of protectionism (i.e. “green protectionism”).

In 1971, GATT Director-General Olivier Long presented the study to GATT members
(or the CONTRACTING PARTIES). He urged them to examine what the implications of
environmental policies might be for international trade.

In the discussions that followed, a number of GATT members suggested that a
mechanism be created in GATT for the implications to be examined more thoroughly.



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EMIT—GATT Group on Environmental Measures and International Trade

In November 1971, the GATT Council of Representatives agreed to set up a Group on
Environmental Measures and International Trade (also known as the “EMIT” group),
which would be open to all GATT members (i.e. GATT signatories). However, the
decision also said group would only convene at the request of GATT members.
Therefore, it was not until 1991 when the members of the European Free Trade
Association asked for the EMIT Group to be convened. (EFTA, at the time included
Austria, Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland.)

Why, after 20 years of EMIT’s inactivity, did EFTA make the request?
EFTA referred to the upcoming 1992 United Nations Conference on Environment and
Development (UNCED), and said GATT should contribute. In addition, there were a few
new developments in both trade and the environment in those 20 years.

Developments: 1971–1991

Between 1971 and 1991, environmental policies began to have an increasing impact on
trade, and with increasing trade flows, the effects of trade on the environment had also
become more widespread. This led to a number of discussions:

      During the Tokyo Round of trade negotiations (1973–1979), participants took up
       the question of the degree to which environmental measures (in the form of
       technical regulations and standards) could form obstacles to trade. The Tokyo
       Round Agreement on Technical Barriers to Trade (TBT), also known as the
       “Standards Code”, was negotiated. Amongst other things, it called for non-
       discrimination in the preparation, adoption and application of technical
       regulations and standards, and for them to be transparent.


      During the Uruguay Round (1986–1994), trade-related environmental issues were
       once again taken up. Modifications were made to the TBT Agreement, and certain
       environmental issues were addressed in the General Agreement on Trade in
       Services, the Agreements on Agriculture, Sanitary and Phytosanitary Measures

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        (SPS), Subsidies and Countervailing Measures, and Trade-Related Aspects of
        Intellectual Property Rights (TRIPS).


       In 1982, a number of developing countries expressed concern that products
        prohibited in developed countries on the grounds of environmental hazards, health
        or safety reasons, continued to be exported to them. With limited information on
        these products, they were unable to make informed decisions regarding their
        import.

At the 1982 GATT ministerial meeting, members decided to examine the measures
needed to bring under control the export of products prohibited domestically (on the
grounds of harm to human, animal, plant life or health, or the environment). This led to
the creation, in 1989, of a Working Group on the Export of Domestically Prohibited
Goods and Other Hazardous Substances.



        In 1991, a dispute between Mexico and United States put the spotlight on the
linkages between environmental protection policies and trade. The case concerned a US
embargo on tuna imported from Mexico, caught using “purse seine” nets which caused
the incidental killing of dolphins. Mexico appealed to GATT on the grounds that the
embargo was inconsistent with the rules of international trade. The panel ruled in favour
of Mexico based on a number of different arguments. Although the report of the panel
was not adopted, its ruling was heavily criticised by environmental groups who felt that
trade rules were an obstacle to environmental protection.


During this period, important developments were also taking place in environmental
forums. The discussion on the relationship between economic growth, social
development and environment that began at the Stockholm Conference continued
throughout the 1970s and 80s.


In 1987, for example, the World Commission on Environment and Development
produced a report entitled Our Common Future (also known as the Brundtland Report),

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in which the term “sustainable development” was coined. The report identified poverty as
one of the most important causes of environmental degradation, and argued that greater
economic growth, fuelled in part by increased international trade, could generate the
necessary resources to combat what had become known as the “pollution of poverty”.

As a result of these developments, the EMIT group’s proposal met with a positive
response. Despite some countries’ initial reluctance to have environmental issues
discussed in GATT, they agreed to have a structured debate on the subject.

In accordance with its mandate of examining the possible effects of environmental
protection policies on the operation of the General Agreement, the EMIT group focused
on the effects of environmental measures (such as eco-labeling schemes) on international
trade, the relationship between the rules of the multilateral trading system and the trade
provisions contained in multilateral environmental agreements (MEAs) (such as the Basel
Convention on the Transboundary Movement of Hazardous Wastes), and the
transparency of national environmental regulations with an impact on trade.

RIO IN 1992 AND AFTER

The activation of the EMIT group was followed by further developments in
environmental forums.

The 1992 UN Conference on Environment and Development (UNCED), also known as
the Rio “Earth Summit”, drew attention to the role of international trade in poverty
alleviation and in combating environmental degradation. Agenda 21, the programme of
action adopted at the conference, also addressed the importance of promoting sustainable
development through, amongst other means, international trade.

The preparatory work for the summit had itself influenced developing countries’
approach discussing trade and environment issues in the EMIT group. The concept of
“sustainable development” had established a link between environmental protection and
development at large.



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These moves were about to yield more concrete results within the trading system. The
environment and trade were to be linked more explicitly in the new constitution of the
multilateral trading system that was to be signed in 1994.

TRADE AND ENVIRONMENT IN MARRAKESH AGREEMENT ESTABLISHING
THE WORLD TRADE ORGANIZATION

Towards the end of the 1986–94 Uruguay Round (and two decades after the EMIT group
was set up in GATT), attention was once again drawn to trade-related environmental
issues, and the role of the soon-to-be-created World Trade Organization (WTO).

As a result, the preamble to the Marrakesh Agreement Establishing the World Trade
Organization, refers to the importance of working towards sustainable development. It
states that WTO members recognize:

   “that their relations in the field of trade and economic endeavour should be conducted
   with a view to raising standards of living... , 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.”

The fact that the first paragraph of the preamble recognizes sustainable development as
an integral part of the multilateral trading system illustrates the importance placed by
WTO members on environmental protection.

1994 ministerial decision

In Marrakesh in April 1994, ministers also signed a “Decision on Trade and
Environment” which states that:

   “There should not be, nor need be, any policy contradiction between upholding and
   safeguarding an open, non-discriminatory and equitable multilateral trading system on




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   the one hand, and acting for the protection of the environment, and the promotion of
   sustainable development on the other.”

The decision also called for the creation of the Committee on Trade and Environment.
In 2001 the environment was explicitly put on the negotiating agenda in the Doha
Ministerial Declaration in 2001.


II.   ENVIRONMENTAL                  ISSUES IN THE WTO: RELEVANT WTO
PROVISIONS

A number of WTO provisions are directly relevant to trade-related environmental issues.
These include the non-discrimination principles of most-favoured-nation and national
treatment, and certain sections of GATT Article 20 (i.e. XX) which says protecting
human, animal or plant life or health, and conserving scarce natural resources, can be
cited as reasons for bypassing normal trade rules.

Environmental concerns are also addressed in a number of different WTO agreements,
for instance the Agriculture Agreement, etc.

These are the relevant provisions:

Non-discrimination
Goods: general exceptions of GATT Article 20 (i.e. XX)
Services: general exceptions of GATS Article 14 (i.e. XIV)
Technical Barrers to Trade (TBT) Agreement
Sanitary and Phytosanitary Measures (SPS) Agreement
Intellectual Property (TRIPS) Agreement
Agriculture Agreement
Two decisions

Non-discrimination
Non-discrimination has two components in the WTO:




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      Most-favoured-nation treatment (MFN) — treating one’s trading partners equally.
       This is set out in Article I (i.e. 1) of the General Agreement on Tariffs and Trade
       (GATT), which is the WTO agreement dealing with the rules of trade in goods. It
       is also specified in Article II (i.e. 2) of the General Agreement on Trade in
       Services (GATS) and Article 4 of the Agreement on Trade-Related Aspects of
       Intellectual Property Rights (TRIPS).
       GATT Article I says a WTO member cannot treat a product of another country
       more favourably than the products of other WTO members (except in certain
       circumstances such as under regional free-trade agreements or preferential
       treatment for developing countries’ exports).


       The same principle applies for services, although GATS allows members to list
       temporary, one-off exemptions.


       Most-favoured-nation treatment means all member countries are on an equal
       footing. All share the benefits of any moves towards lower trade barriers. The
       MFN principle ensures that developing countries and others with little economic
       leverage are able to benefit freely from the best trading conditions whenever and
       wherever they are negotiated.

      National treatment — equal treatment for foreign and domestic goods and
       services.


       Article III (i.e. 3) of GATT stipulates that once goods have entered a market, they
       must be treated no less favourably than equivalent domestically produced goods.
       Article XVII (i.e. 17) of GATS sets out a similar principle for services, although
       its application is more limited. Article 3 of TRIPS also specifies national
       treatment for intellectual property protection.

Non-discrimination is the main principle on which the rules of the multilateral trading
system are founded. The principle prevents the abuse of environmental polices and their
use as protectionism in disguise. It ensures that national environmental protection policies

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cannot arbitrarily discriminate between foreign and domestically made products, or
between products imported from different trading partners. (Strictly speaking, the policies
cannot discriminate between “like” products, i.e. products that are the same or
equivalent.)

Goods: the general exceptions of GATT Article 20

Negotiated as early as 1947, GATT Article XX on “General Exceptions” lays out a
number of specific instances in which WTO members (originally GATT “contracting
parties”), may be exempted from GATT rules. These include two sets of circumstances
for environmental protection.

The Article states that:

       “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; ...”

Paragraphs (b) and (g) are designed to allow WTO members to adopt policy measures
that would normally be inconsistent with GATT, when “necessary” to protect human,
animal or plant life or health (which together can be taken to mean “environment”), or if
related to the conservation of exhaustible natural resources.

However, the opening paragraph (the “chapeau”) of Article XX is designed to ensure that
the GATT-inconsistent measures do not result in arbitrary or unjustifiable discrimination
and do not constitute disguised protectionism.



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Services: the general exceptions of GATS Article XIV (14)

Negotiated during the 1986–94 Uruguay Round, the General Agreement on Trade in
Services (GATS) contains a “general exceptions” clause, Article XIV, similar to GATT
Article XX.

The GATS article starts with an introduction (“chapeau”) that is identical to that of
GATT Article XX.

Addressing environmental concerns, paragraph (b) allows WTO members to adopt policy
measures that would normally be inconsistent with GATS if this is “necessary to protect
human, animal or plant life or health” (identical to GATT Article XX(b)).

As under GATT, this must not result in arbitrary or unjustifiable discrimination and must
not constitute protectionism in disguise.

The Technical Barriers to Trade (TBT) Agreement

The WTO Agreement on Technical Barriers to Trade seeks to ensure that technical
regulations and standards, and their testing and certification procedures, do not create
unnecessary obstacles to trade.

In its preamble, the agreement recognizes countries’ rights to adopt such measures to the
extent they consider appropriate — for example, to protect human, animal or plant life or
health, or the environment.

Moreover, members are allowed to take measures to ensure that their standards of
protection are met. (This is known as adopting “conformity assessment procedures”.)

Among the agreement’s important features are:




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      non-discrimination in the preparation, adoption and application of technical
       regulations, standards, and conformity assessment procedures;
      avoiding unnecessary obstacles to trade;
      adopting international standards as far as possible;
      the transparency of these measures, through governments notifying them to the
       WTO Secretariat and establishing national enquiry points.

The agreement allows countries to adopt technical regulations, standards and conformity
assessment procedures for environmental protection, provided non-discrimination,
transparency and other requirements are met.

Sanitary and Phytosanitary Measures (SPS) Agreement

The WTO Agreement on Sanitary and Phytosanitary Measures deals with food safety,
and human, animal and plant health and safety regulations.

It recognizes members’ rights to adopt SPS measures but stipulates that they must be
based on science, should not create unnecessary obstacles to trade, and should not
arbitrarily or unjustifiably discriminate between members where similar conditions
prevail. The agreement encourages members to adapt their SPS measures to the areas
(regions, countries or parts of countries) that supply their imports.

The SPS Agreement complements the Technical Barriers to Trade Agreement. It allows
members to adopt SPS measures for environmental purposes, but subject to such
requirements as risk assessment, non-discrimination and transparency.

Intellectual property (TRIPS) agreement

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
refers explicitly to the environment in Section 5, which deals with patents.

It says (in paragraphs 2 and 3 of Article 27 — Arts 27.2 and 27.3 for short — of Section
5) that members can make certain inventions ineligible for patenting:


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        To protect human, animal or plant life or health, to avoid serious harm to the
         environment. A member can exclude an invention from patentability if it believes
         the invention has to be prevented (within its territory) for these and certain other
         objectives.
        Plants and animals. Micro-organisms have to be eligible for patenting. So do non-
         biological and microbiological processes for the production of plants or animals.
         And invented plant varieties have to be eligible for protection either by patenting,
         or by an effective system specially created for the purpose (“sui generis”), or a
         combination of the two. Otherwise, plants and animals do not have to be eligible
         for patenting.

These provisions are designed to address the environmental concerns related to
intellectual property protection.

The TRIPS Agreement allows members to refuse to patent inventions that may endanger
the environment (provided their commercial exploitation is prohibited as a necessary
condition for the protection of the environment). For ethical or other reasons, they can
also exclude plants or animals from patentability, subject to the conditions described
above.

The Agriculture Agreement

Adopted during the 1986–94 Uruguay Round, the WTO Agriculture Agreement seeks to
reform trade in agricultural products, and provide a basis for market-oriented policies.

In its preamble, the agreement reiterates members’ commitment to reform agriculture in a
manner that protects the environment.

Under the agreement, domestic support measures with minimal impact on trade (known
as “green box” policies) are allowed and are excluded from reduction commitments —
they are listed in Annex 2 of the Agreement. Among them are expenditures under
environmental programmes, provided that they meet certain conditions. Again, the
exemption enables governments to capture “positive environmental externalities”.

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Relevant decisions

Two ministerial decisions addressing environmental issues were adopted at the end of the
Uruguay Round.

A ministerial Decision on Trade and Environment, created the Committee on Trade and
Environment (CTE) with the aim of making international trade and environmental
policies support each other. The decision contains the work programme of the CTE.

Ministers also adopted a Decision on Trade in Services and the Environment. It instructs
the CTE to examine and report on the relationship between services trade and the
environment, including the issue of sustainable development, in order to determine if any
modifications of GATS Article XIV are required. The CTE has taken up this issue as part
of its work programme.


ENVIRONMENT: ISSUES IN THE WTO
Relevant WTO provisions: texts

Extracts relevant to the environment, of WTO legal texts.

WTO Agreement: preamble
Goods: general exceptions of GATT Article XX (i.e. 20)
Technical Barrers to Trade (TBT) Agreement
Sanitary and Phytosanitary Measures (SPS) Agreement
Agriculture Agreement
Intellectual Property (TRIPS) Agreement
Services: general exceptions of GATS Article XIV (i.e. 14)

Decision on Trade and Environment, 14 April 1994
Decision on Trade in Services and the Environment, 15 December 1994




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Marrakesh Agreement Establishing the World Trade Organization :

Preamble

The Parties to this Agreement,

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 effective 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, ...

Agree as follows: ...

GATT : Article XX-General exceptions

“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;

...

(d) necessary to secure compliance with laws or regulations which are not inconsistent
with the provisions of this Agreement, including ...;

...

(g) relating to the conservation of exhaustible natural resources if such measures are
made effective in conjunction with restrictions on domestic production
orconsumption; ... .”

Agreement on Technical Barriers to Trade

Preamble

“... Recognizing that no country should be prevented from taking measures necessary to
ensure the quality of its exports, or for the protection of human, animal or plant life or

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health, of the environment, or for the prevention of deceptive practices, at the levels it
considers appropriate, subject to the requirement that they 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. ...”

Article 2 : Preparation, Adoption and Application of Technical Regulations by Central
Government Bodies

“With respect to their central government bodies:

2.1    Members shall ensure that in respect of technical regulations, products imported
from the territory of any Member shall be accorded treatment no less favourable than that
accorded to like products of national origin and to like products originating in any other
country.

2.2     Members shall ensure that technical regulations are not prepared, adopted or
applied with a view to or with the effect of creating unnecessary obstacles to international
trade. For this purpose, technical regulations shall not be more trade-restrictive than
necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would
create. Such legitimate objectives are, inter alia: national security requirements; the
prevention of deceptive practices; protection of human health or safety, animal or plant
life or health, or the environment. In assessing such risks, relevant elements of
consideration are, inter alia: available scientific and technical information, related
processing technology or intended end-uses of products.

[...]

2.4    Where technical regulations are required and relevant international standards exist
or their completion is imminent, Members shall use them, or the relevant parts of them
basis for their technical regulations except when such international standards or relevant
parts would be an ineffective or inappropriate means for the fulfilment of the legitimate
objectives pursued, for instance because of fundamental climatic or geographical factors
or fundamental technological problems.”

Agreement on Sanitary and Phytosanitary Measures : Annex A
Definitions

“1.     Sanitary or phytosanitary measure — Any measure applied:

(a) to protect animal or plant life or health within the teritory of the Member from risks
arising from the entry, establishment or spread of pests, diseases, disease-carrying
organisms or disease-causing organisms;




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(b) to protect human or animal life or health within the territory of the Member from
risks arising from additives, contaminants, toxins or disease-causing organisms in foods,
beverages or feedstuffs;

(c) to protect human life or health within the territory of the Member from risks arising
from diseases carried by animals, plants or products thereof, or from the entry,
establishment or spread of pests; or

(d) to prevent or limit other damage twithin the territory of the Member from the entry,
establishment or spread of pests.”




Agreement on Agriculture

Annex 2
Domestic Support: the Basis for Exemption from the Commitments

...

“12.     Payments under environmental programmes

(a) Eligibility for such payments shall be determined as part of a clearly-defined
government environmental or conservation programme and be dependent on the
fulfilment of specific conditions under the government programme, including conditions
related to production methods or inputs.

(b) The amount of payment shall be limited to the extra costs or loss of income
involved in complying with the government programme.”

Agreement on Trade-Related Aspects of Intellectual Property Rights

Article 27
Patentable Subject Matter

...

“2.     Members may exclude from patentability inventions, the prevention within their
territory of the commercial exploitation of which is necessary to protect ordre public or
morality, including to protect human, animal or plant life or health or to avoid serious
prejudice to the environment, provided that such exclusion is not made merely because
the exploitation is prohibited by their law.

3.     Members may also exclude from patentability:


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(a)   diagnostic, therapeutic and surgical methods for the treatment of humans or
animals;

(b) plants and animals other than micro-organisms, and essentially biological processes
for the production of plants or animal other than non-biological and microbiological
processes. However, Members shall provide for the protection of plant varieties either by
patents or by an effective sui generis system or by any combination thereof. The
provisions of this subparagraph shall be reviewed four years after the date of entry into
force of the WTO Agreement.”

General Agreement on Trade in Services

Article XIV
General Exceptions

“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
like conditions prevail, or a disguised restriction on trade in services, nothing in this
Agreement shall be construed to prevent the adoption or enforcement by any Member of
measures:

...

(b)   necessary to protect human, animal or plant life or health; ...”


 Relevant WTO provisions: text of 1994 decision

Full text of the Decision on Trade and Environment. Adopted by ministers at the meeting
of the Uruguay Round Trade Negotiations Committee in Marrakesh on 14 April 1994.

Ministers,

Meeting on the occasion of signing the Final Act Embodying the Results of the
Uruguay Round of Multilateral Trade Negotiations at Marrakesh on 15 April 1994,

Recalling the preamble of the Agreement establishing the World Trade Organization
(WTO), which states that members’ “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 effective
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

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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,”

Noting:

      the Rio Declaration on Environment and Development, Agenda 21, and its
       follow-up in GATT, as reflected in the statement of the Chairman of the Council
       of Representatives to the CONTRACTING PARTIES at their 48th Session in
       December 1992, as well as the work of the Group on Environmental Measures
       and International Trade, the Committee on Trade and Development, and the
       Council of Representatives;

      the work programme envisaged in the Decision on Trade in Services and the
       Environment; and

      the relevant provisions of the Agreement on Trade-Related Aspects of Intellectual
       Property Rights,

Considering that there should not be, nor need be, any policy contradiction between
upholding and safeguarding an open, non-discriminatory and equitable multilateral
trading system on the one hand, and acting for the protection of the environment, and the
promotion of sustainable development on the other,

Desiring to coordinate the policies in the field of trade and environment, and this without
exceeding the competence of the multilateral trading system, which is limited to trade
policies and those trade-related aspects of environmental policies which may result in
significant trade effects for its members,

Decide:

      to direct the first meeting of the General Council of the WTO to establish a
       Committee on Trade and Environment open to all members of the WTO to report
       to the first biennial meeting of the Ministerial Conference after the entry into

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       force of the WTO when the work and terms of reference of the Committee will be
       reviewed, in the light of recommendations of the Committee,

      that the TNC Decision of 15 December 1993 which reads, in part, as follows:

“(a) to identify the relationship between trade measures and environmental measures, in
order to promote sustainable development;

(b) to make appropriate recommendations on whether any modifications of the provisions
of the multilateral trading system are required, compatible with the open, equitable and
non-discriminatory nature of the system, as regards, in particular:

                the need for rules to enhance positive interaction between trade and
                 environmental measures, for the promotion of sustainable development,
                 with special consideration to the needs of developing countries, in
                 particular those of the least developed among them; and

                the avoidance of protectionist trade measures, and the adherence to
                 effective multilateral disciplines to ensure responsiveness of the
                 multilateral trading system to environmental objectives set forth in
                 Agenda 21 and the Rio Declaration, in particular Principle 12; and

                surveillance of trade measures used for environmental purposes, of trade-
                 related aspects of environmental measures which have significant trade
                 effects, and of effective implementation of the multilateral disciplines
                 governing those measures;”

       constitutes, along with the preambular language above, the terms of reference of
       the Committee on Trade and Environment,

      that, within these terms of reference, and with the aim of making international
       trade and environmental policies mutually supportive, the Committee will initially
       address the following matters, in relation to which any relevant issue may be
       raised:

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              the relationship between the provisions of the multilateral trading system
               and trade measures for environmental purposes, including those pursuant
               to multilateral environmental agreements;

              the relationship between environmental policies relevant to trade and
               environmental measures with significant trade effects and the provisions
               of the multilateral trading system;

              the relationship between the provisions of the multilateral trading system
               and:

(a) charges and taxes for environmental purposes;

(b) requirements for environmental purposes relating to products, including standards and
technical regulations, packaging, labelling and recycling;

              the provisions of the multilateral trading system with respect to the
               transparency of trade measures used for environmental purposes and
               environmental measures and requirements which have significant trade
               effects;

              the relationship between the dispute settlement mechanisms in the
               multilateral trading system and those found in multilateral environmental
               agreements;

              the effect of environmental measures on market access, especially in
               relation to developing countries, in particular to the least developed among
               them, and environmental benefits of removing trade restrictions and
               distortions;

              the issue of exports of domestically prohibited goods;

      that the Committee on Trade and Environment will consider the work programme
       envisaged in the Decision on Trade in Services and the Environment and the

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       relevant provisions of the Agreement on Trade-Related Aspects of Intellectual
       Property Rights as an integral part of its work, within the above terms of
       reference,

      that, pending the first meeting of the General Council of the WTO, the work of
       the Committee on Trade and Environment should be carried out by a Sub-
       Committee of the Preparatory Committee of the World Trade Organization
       (PCWTO), open to all members of the PCWTO,

to invite the Sub-Committee of the Preparatory Committee, and the Committee on Trade
and Environment when it is established, to provide input to the relevant bodies in respect
of appropriate arrangements for relations with intergovernmental and non-governmental
organizations referred to in Article V of the WTO.

Relevant WTO provisions: text of services decision

Full text of the Decision on Trade in Services and the Environment. Adopted by the
Uruguay Round Trade Negotiations Committee in Geneva on 15 December 1994.
Ministers

Decide to recommend that the Council for Trade in Services at its first meeting adopt the
decision set out below.

The Council for Trade in Services,

Acknowledging that measures necessary to protect the environment may conflict with the
provisions of the Agreement; and

Noting that since measures necessary to protect the environment typically have as their
objective the protection of human, animal or plant life or health, it is not clear that there
is a need to provide for more than is contained in paragraph (b) of Article XIV;

Decides as follows:



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1. In order to determine whether any modification of Article XIV of the Agreement is
required to take account of such measures, to request the Committee on Trade and
Environment to examine and report, with recommendations if any, on the relationship
between services trade and the environment including the issue of sustainable
development. The Committee shall also examine the relevance of inter-governmental
agreements on the environment and their relationship to the Agreement.

2. The Committee shall report the results of its work to the first biennial meeting of the
Ministerial Conference after the entry into force of the Agreement Establishing the World
Trade Organization.

III. ENVIRONMENTAL DISPUTES IN GATT/WTO

Under the GATT (1948–94), six panel proceedings involving an examination of
environmental measures or human health-related measures under GATT Article20
(i.e. XX) were completed. Of the six reports, three were not adopted.

In 1995, the WTO’s dispute settlement procedure took over from GATT. Since then,
three such proceedings have been completed Under GATT.

> United States — Prohibition of Imports of Tuna and Tuna Products from Canada,
ruling adopted on 22 February 1982. Case brought by Canada.
> Canada — Measures Affecting Exports of Unprocessed Herring and Salmon, ruling
adopted on 22 March 1988. Case brought by US.
> Thailand — Restrictions on the Importation of and Internal Taxes on Cigarettes, ruling
adopted on 7 November 1990. Case brought by US.
> United States — Restrictions on Imports of Tuna, the “tuna-dolphin” case, ruling not
adopted, circulated on 3 September 1991. Case brought by Mexico, etc.
> United States — Restrictions on Imports of Tuna, “son of tuna-dolphin”, ruling not
adopted, circulated on 16 June 1994. Case brought by EU.
> United States — Taxes on Automobiles, ruling not adopted, circulated on
11 October 1994. Case brought by EU.



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Under the WTO

> United States — Standards for Reformulated and Conventional Gasoline, WTO case
Nos. 2 and 4. Ruling adopted on 20 May 1996. Case brought by Venezuela and Brazil.

       The case affirmed that the US had every right to adopt the highest possible
       standard to protect its air quality so long as it did not discriminate against foreign
       imports. The US lost the case because it discriminated — its requirement on
       domestic producers was less stringent than that imposed on imported gasoline (in
       this case from Venezuela and Brazil).



> United States — Import Prohibition of Certain Shrimp and Shrimp Products, the
“shrimp-turtle” case. WTO case Nos. 58 and 61. Ruling adopted on 6 November 1998.
Case     brought       by      India,      Malaysia,      Pakistan       and      Thailand.
Recourse to Article 21.5 of the DSU. Ruling adopted on 21 November 2001. Case
brought by Malaysia.

       Many have missed the importance of the Appellate Body’s ruling on this case. It
       recognized that under WTO rules governments have every right to protect human,
       animal or plant life and health and to take measures to conserve exhaustible
       resources. The WTO does not have to “allow” them this right. The US lost the
       case because it applied its import measures in a differentiated manner. The ruling
       also said WTO panels may accept “amicus briefs” (friends of the court
       submissions) from NGOs or other interested parties.



> European Communities — Measures affecting asbestos and asbestos-containing
products. WTO case No. 135. Ruling adopted on 5 April 2001. Case brought by Canada.

The Panel and the Appellate Body in this case both rejected Canada's challenge to France
import ban on asbestos and asbestos-containing products, reinforcing the view that the



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WTO Agreements support members' ability to protect human health and safety at the
level of protection they deem appropriate.



ENVIRONMENT: DISPUTES 1
Canada versus US: tuna import ban

A case brought by Canada against the US under GATT. The panel report was adopted in
1982. United States — Prohibition of Imports of Tuna and Tuna Products from Canada

Panel finding adopted on 22 February 1982.

An import prohibition was introduced by the US after Canada had seized 19 fishing
vessels and arrested US fishermen fishing for albacore tuna, without authorization from
the Canadian government, in waters considered by Canada to be under its jurisdiction.
The US did not recognize this jurisdiction and introduced an import prohibition to
retaliate under the Fishery Conservation and Management Act.

The Panel found that the import prohibition was contrary to Article XI:1, and was
justified neither under Article XI:2, nor under Article XX(g) of the General Agreement.


ENVIRONMENT: DISPUTES 2
US versus Canada: fish export ban

A case brought by the US against Canada under GATT. The panel report was adopted in
1988. Canada — Measures Affecting Exports of Unprocessed Herring and Salmon

Adopted on 22 March 1988.

Under the 1976 Canadian Fisheries Act, Canada maintained regulations prohibiting the
exportation or sale for export of certain unprocessed herring and salmon. The US
complained that these measures were inconsistent with GATT Article XI. Canada argued
that these export restrictions were part of a system of fishery resource management aimed
at preserving fish stocks, and therefore were justified under Article XX(g).


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The Panel found that the measures maintained by Canada were contrary to GATT Article
XI:1 and were justified neither by Article XI:2(b) nor by Article XX(g).


ENVIRONMENT: DISPUTES 3
US versus Thailand: cigarettes

A case brought by the US against Thailand under GATT. The panel report was adopted in
1990. Thailand — Restrictions on the Importation of and Internal Taxes on Cigarettes

Adopted on 7 November 1990.

Under the 1966 Tobacco Act, Thailand prohibited the importation of cigarettes and other
tobacco preparations, but authorized the sale of domestic cigarettes; moreover, cigarettes
were subject to an excise tax, a business tax and a municipal tax.

The US complained that the import restrictions were inconsistent with GATT Article
XI:1, and considered that they were justified neither by Article XI:2(c), nor by Article
XX(b). It also argued that the internal taxes were inconsistent with GATT Article III:2.

Thailand argued, inter alia, that the import restrictions were justified under Article XX(b)
because the government had adopted measures that could only be effective if cigarette
imports were prohibited and because chemicals and other additives contained in US
cigarettes might make them more harmful than Thai cigarettes.

The Panel found that the import restrictions were inconsistent with Article XI:1 and not
justified under Article X1:2(c). It further concluded that the import restrictions were not
“necessary” within the meaning of Article XX(b). The internal taxes were found to be
consistent with Article III:2.
ENVIRONMENT: DISPUTES 4
Mexico etc versus US: ‘tuna-dolphin’

A case brought by Mexico and others against the US under GATT. The panel report was
circulated in 1991, but not adopted, so it does not have the status of a legal interpretation


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of GATT law. The US and Mexico settled “out of court”. United States — Restrictions
on Imports of Tuna

Not adopted, circulated on 3 September 1991

This case still attracts a lot of attention because of its implications for environmental
disputes. It was handled under the old GATT dispute settlement procedure. Key questions
are:

          can one country tell another what its environmental regulations should be?
          do trade rules permit action to be taken against the method used to produce goods
           (rather than the quality of the goods themselves)?

What was it all about?

In eastern tropical areas of the Pacific Ocean, schools of yellowfin tuna often swim
beneath schools of dolphins. When tuna is harvested with purse seine nets, dolphins are
trapped in the nets. They often die unless they are released.

The US Marine Mammal Protection Act sets dolphin protection standards for the
domestic American fishing fleet and for countries whose fishing boats catch yellowfin
tuna in that part of the Pacific Ocean. If a country exporting tuna to the United States
cannot prove to US authorities that it meets the dolphin protection standards set out in US
law, the US government must embargo all imports of the fish from that country. In this
dispute, Mexico was the exporting country concerned. Its exports of tuna to the US were
banned. Mexico complained in 1991 under the GATT dispute settlement procedure.

The embargo also applies to “intermediary” countries handling the tuna en route from
Mexico to the United States. Often the tuna is processed and canned in one of these
countries. In this dispute, the “intermediary” countries facing the embargo were Costa
Rica, Italy, Japan, and Spain, and earlier France, the Netherlands Antilles, and the United
Kingdom. Others, including Canada, Colombia, the Republic of Korea, and members of
the Association of Southeast Asian Nations, were also named as “intermediaries”.


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The panel

Mexico asked for a panel in February 1991. A number of "intermediary" countries also
expressed an interest. The panel reported to GATT members in September 1991. It
concluded:

        that the US could not embargo imports of tuna products from Mexico simply
         because Mexican regulations on the way tuna was produced did not satisfy US
         regulations. (But the US could apply its regulations on the quality or content of
         the tuna imported.) This has become known as a “product” versus “process” issue.
        that GATT rules did not allow one country to take trade action for the purpose of
         attempting to enforce its own domestic laws in another country — even to protect
         animal health or exhaustible natural resources. The term used here is "extra-
         territoriality".

What was the reasoning behind this ruling? If the US arguments were accepted, then any
country could ban imports of a product from another country merely because the
exporting country has different environmental, health and social policies from its own.
This would create a virtually open-ended route for any country to apply trade restrictions
unilaterally — and to do so not just to enforce its own laws domestically, but to impose
its own standards on other countries. The door would be opened to a possible flood of
protectionist abuses. This would conflict with the main purpose of the multilateral trading
system — to achieve predictability through trade rules.

The panel's task was restricted to examining how GATT rules applied to the issue. It was
not asked whether the policy was environmentally correct. It suggested that the US policy
could be made compatible with GATT rules if members agreed on amendments or
reached a decision to waive the rules specially for this issue. That way, the members
could negotiate the specific issues, and could set limits that would prevent protectionist
abuse.




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The panel was also asked to judge the US policy of requiring tuna products to be labelled
“dolphin-safe” (leaving to consumers the choice of whether to buy the product). It
concluded that this did not violate GATT rules because it was designed to prevent
deceptive advertising practices on all tuna products, whether imported or domestically
produced.

P.S. The report was never adopted

Under the present WTO system, if WTO members (meeting as the Dispute Settlement
Body) do not by consensus reject a panel report after 60 days, it is automatically accepted
(“adopted”). That was not the case under the old GATT. Mexico decided not to pursue
the case and the panel report was never adopted even though some of the “intermediary”
countries pressed for its adoption. Mexico and the United States held their own bilateral
consultations aimed at reaching agreement outside GATT.

In 1992, the European Union lodged its own complaint. This led to a second panel report
circulated to GATT members in mid 1994. The report upheld some of the findings of the
first panel and modified others. Although the European Union and other countries
pressed for the report to be adopted, the United States told a series of meetings of the
GATT Council and the final meeting of GATT contracting parties (i.e. members) that it
had not had time to complete its studies of the report. There was therefore no consensus
to adopt the report, a requirement under the old GATT system.

On 1 January 1995, GATT made way for the WTO.


ENVIRONMENT: DISPUTES 5
EU versus US: ‘son of dolphin-tuna’

A case brought by the EU against the US under GATT following the Mexican complaint
against the US. The panel report was circulated in 1994, but not adopted. United States
— Restrictions on Imports of Tuna

Not adopted, circulated on 16 June 1994


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The EC and the Netherlands complained that both the primary and the intermediary
nation embargoes, enforced pursuant to the Marine Mammal Protection Act (see previous
case), did not fall under Article III, were inconsistent with Article XI:1 and were not
covered by any of the exceptions of Article XX. The US considered that the intermediary
nation embargo was consistent with GATT since it was covered by Article XX,
paragraphs (g), (b) and (d), and that the primary nation embargo did not nullify or impair
any benefits accruing to the EC or the Netherlands since it did not apply to these
countries.

The Panel found that neither the primary nor the intermediary nation embargo were
covered under Article III, that both were contrary to Article XI:1 and not covered by the
exceptions in Article XX (b), (g) or (d) of the GATT.


ENVIRONMENT: DISPUTES 6
EU versus US: car taxes

A case brought by the EU against the US. The panel report was circulated in 1994, but
not adopted. United States — Taxes on automobiles

Not adopted, circulated on 11 October 1994

Three US measures on automobiles were under examination: the luxury tax on
automobiles (“luxury tax”), the gas guzzler tax on automobiles (“gas guzzler”), and the
Corporate Average Fuel Economy regulation (“CAFE”). The European Community
complained that these measures were inconsistent with GATT Article III and could not
be justified under Article XX(g) or (d). The US considered that these measures were
consistent with the General Agreement.

The Panel found that both the luxury tax (which applied to cars sold for over $30,000)
and the gas guzzler tax (which applied to the sale of automobiles attaining less than 22.5
miles per gallon (mpg)) were consistent with Article III:2 of GATT.

The CAFE regulation required the average fuel economy for passenger cars
manufactured in the US or sold by any importer not to fall below 27.5 mpg. Companies

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that were both importers and domestic manufacturers had to calculate average fuel
economy separately for imported passenger automobiles and for those manufactured
domestically.

The Panel found the CAFE regulation to be inconsistent with GATT Article III:4 because
the separate foreign fleet accounting system discriminated against foreign cars, and the
fleet averaging differentiated between imported and domestic cars on the basis of factors
relating to control or ownership of producers or importers, rather than on the basis of
factors directly related to the products as such. Similarly, the Panel found that the
separate foreign fleet accounting was not justified under Article XX(g); it did not make a
finding on the consistency of the fleet averaging method with Article XX(g). The Panel
found that the CAFE regulation could not be justified under Article XX(d).


ENVIRONMENT: DISPUTES 7
Venzuela, Brazil versus US: gasoline

One of the first WTO cases, brought by Venezuela and later Brazil against the US. The
panel report was adopted in 1996. The case did not challenge a country’s right to set
environmental standards. The central question was about discrimination — whether the
US measure discriminated against imported gasoline and in favour of domestic refineries.
United States — Standards for Reformulated and Conventional Gasoline

WTO case Nos 2 and 4. Ruling adopted 20 May 1996

On 23 January 1995, only days after the WTO and its new dispute settlement procedure
came into being, Venezuela complained to the Dispute Settlement Body that the United
States was applying rules that discriminated against gasoline imports. Venezuela formally
requested consultations with the United States, as required under WTO dispute settlement
process.

The case arose because the United States applied stricter rules on the chemical
characteristics of imported gasoline than it did for domestically refined gasoline.




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Venezuela said this was unfair because US gasoline did not have to meet the same
standards — it violated the “national treatment” principle and could not be justified under
exceptions to normal WTO rules for health and environmental conservation measures.

Just over a year later (on 29 January 1996) the dispute panel completed its final report.
(By then, Brazil had joined the case, lodging its own complaint in April 1996. The same
panel considered both complaints.) The dispute panel agreed with Venezuela and Brazil.

The US was found to be violating WTO rules because it discriminated against the
gasoline imports.

The United States appealed.

The Appellate Body completed its report, and the Dispute Settlement Body adopted the
report on 20 May 1996, one year and four months after the complaint was first lodged.
The appeal report upheld the panel’s conclusions (although it made some changes to the
panel’s legal interpretation).

The United States and Venezuela then took six and a half months to agree on what the
United States should do. The agreed period for implementing the solution was 15 months
from the date the appeal was concluded (20 May 1996 to 20 August 1997). The Dispute
Settlement Body monitored progress — the United States submitted “status reports” on
9 January and 13 February 1997, for example.

The United States agreed with Venezuela that it would amend its regulation within
15 months, and on 26 August1997 it reported to the Dispute Settlement Body that a new
regulation had been signed on 19 August.

Legally speaking ...

Venezuela and Brazil claimed that the Gasoline Rule was inconsistent, among other
things, with GATT Article III (“national treatment”), i.e. treating domestic and imported
products equally), and was not covered by GATT Article XX (which deals with general
exceptions to the rules, including for certain environmental reasons).

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The US argued that the Gasoline Rule was consistent with Article III, and, in any event,
was justified under the exceptions contained in GATT Article XX, paragraphs (b), (g)
and (d).

The Panel found that the Gasoline Rule was inconsistent with Article III, and could not
be justified under paragraphs (b), (d) or (g).

On appeal of the Panel’s findings on Article XX(g), the Appellate Body found that the
baseline establishment rules contained in the Gasoline Rule fell within the terms of
Article XX(g), but failed to meet the requirements of the “chapeau” (introductory
paragraph) of Article XX.


ENVIRONMENT: DISPUTES 8
India etc versus US: ‘shrimp-turtle’

A case brought by India, Malaysia, Pakistan and Thailand against the US. The appellate
and panel reports were adopted in 1998.

“... We have not decided that the sovereign nations that are Members of the WTO cannot
adopt effective measures to protect endangered species, such as sea turtles. Clearly, they
can and should. ...”

United States — Import Prohibition of Certain Shrimp and Shrimp Products

WTO case Nos. 58 (and 61). Ruling adopted on 6 November 1998

Seven species of sea turtles have to date been identified. They are distributed around the
world in subtropical and tropical areas. They spend their lives at sea, where they migrate
between their foraging and nesting grounds.

Sea turtles have been adversely affected by human activity, either directly (their meat,
shells and eggs have been exploited), or indirectly (incidental capture in fisheries,
destruction of their habitats, pollution of the oceans).




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In early 1997, India, Malaysia, Pakistan and Thailand brought a joint complaint against a
ban imposed by the US on the importation of certain shrimp and shrimp products. The
protection of sea turtles was at the heart of the ban.

The US Endangered Species Act of 1973 listed as endangered or threatened the five
species of sea turtles that occur in US waters, and prohibited their “take” within the US,
in its territorial sea and the high seas. (“Take” means harassment, hunting, capture,
killing or attempting to do any of these.)

Under the act, the US required that US shrimp trawlers use “turtle excluder devices”
(TEDs) in their nets when fishing in areas where there is a significant likelihood of
encountering sea turtles.

Section 609 of US Public Law 101–102, enacted in 1989, dealt with imports. It said,
among other things, that shrimp harvested with technology that may adversely affect
certain sea turtles may not be imported into the US — unless the harvesting nation was
certified to have a regulatory programme and an incidental take-rate comparable to that
of the US, or that the particular fishing environment of the harvesting nation did not pose
a threat to sea turtles.

In practice, countries that had any of the five species of sea turtles within their
jurisdiction,and harvested shrimp with mechanical means, had to impose on their
fishermen requirements comparable to those borne by US shrimpers if they wanted to be
certified to export shrimp products to the US. Essentially this meant the use of TEDs at
all time.

Many have missed the importance of the Appellate Body’s ruling on this case.

In its report, the Appellate Body made clear that under WTO rules, countries have the
right to take trade action to protect the environment (in particular, human, animal or plant
life and health) and endangered species and exhaustible resources). The WTO does not
have to “allow” It also said measures to protect sea turtles would be legitimate under



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GATT Article 20 (i.e. XX) which deals with various exceptions to the WTO’s trade rules,
provided certain criteria such as non-discrimination were met.

The US lost the case, not because it sought to protect the environment but because it
discriminated between WTO members. It provided countries in the western hemisphere
— mainly in the Caribbean — technical and financial assistance and longer transition
periods for their fishermen to start using turtle-excluder devices.

It did not give the same advantages, however, to the four Asian countries (India,
Malaysia, Pakistan and Thailand) that filed the complaint with the WTO.

The ruling also said WTO panels may accept “amicus briefs” (friends of the court
submissions) from NGOs or other interested parties.

Legally speaking ...

The Panel considered that the ban imposed by the US was inconsistent with GATT
Article XI (which limits the use of import prohibitions or restrictions), and could not be
justified under GATT Article XX (which deals with general exceptions to the rules,
including for certain environmental reasons).

Following an appeal, the Appellate Body found that the measure at stake did qualify for
provisional justification under Article XX(g), but failed to meet the requirements of the
chapeau (the introductory paragraph) of Article XX (which defines when the general
exceptions can be cited).

The Appellate Body therefore concluded that the US measure was not justified under
Article XX of GATT (strictly speaking, “GATT 1994”, i.e. the current version of the
General Agreement on Tariffs and Trade as modified by the 1994 Uruguay Round
agreement).

At the request of Malaysia, the original panel in this case considered the measures taken
by the United States to comply with the recommendations and rulings of the Dispute
Settlement Body. The panel report for this recourse was appealed by Malaysia. The

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Appellate Body upheld the panel's findings that the US measure was now applied in a
manner that met the requirements of Article XX of the GATT 1994. United States —
Shrimp: Implementation Phase (Article 21.5)


In 1997, Malaysia introduced an action pursuing to Article 21.5 of the Dispute Settlement
Understanding (DSU), arguing that the United States had not properly implemented the
findings of the Appellate Body in the Shrimp/Turtle dispute. The implementation dispute
revolved around a difference of interpretation between Malaysia and the United States on
the findings of the Appellate Body. In Malaysia’s view, a proper implementation of the
findings would be a complete lifting of the US ban on shrimps. The United States
disagreed, arguing that it had not been requested to do so, but simply had to revisit its
application of the ban.


In order to implement the recommendations and rulings of the Appellate Body, the
United States had issued Revised Guidelines for the Implementation of Section 609 of
Public Law 101-162 Relating to the Protection of Sea Turtles in Shrimp Trawl Fishing
Operations (the “Revised Guidelines”). These Guidelines replaced the ones issued in
April 1996 that were part of the original measure in dispute. The Revised Guidelines set
forth new criteria for certification of shrimp exporters.


Malaysia claimed that Section 609, as applied, continued to violate Article XI:1 and that
the United States was not entitled to impose any prohibition in the absence of an
international agreement allowing it to do so. The United States did not contest that the
implementing measure was incompatible with Article XI:1, but argued that it was
justified under Article XX(g). It argued that the Revised Guidelines remedied all the
inconsistencies that had been identified by the Appellate Body under the chapeau of
Article XX.


The implementation panel was called upon to examine the compatibility of the
implementing measure with Article XX(g). It concluded that the protection of migratory
species was best achieved through international cooperation. However, it found that

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whereas the Appellate Body had instructed the United States to negotiate an international
agreement for the protection of sea turtles with the parties to the dispute, the obligation at
issue was an obligation to negotiate, as opposed to an obligation to conclude an
international agreement. It then found that the United States had indeed made serious
“good faith” efforts to negotiate such an agreement. The implementation panel therefore
ruled in favour of the United States.


Malaysia subsequently appealed against the findings of the implementation Panel. It
argued that the panel erred in concluding that the measure no longer constituted a means
of “arbitrary or unjustifiable discrimination” under Article XX. Malaysia asserted that the
United States should have negotiated and concluded an international agreement on the
protection and conservation of sea turtles before imposing the import prohibition. The
Appellate Body upheld the implementation panel’s finding and rejected Malaysia’s
contention that avoiding “arbitrary and unjustifiable discrimination” under the chapeau of
Article XX required the conclusion of an international agreement. Malaysia also argued
that the measure at issue resulted in “arbitrary or unjustifiable discrimination” because of
its lack of flexibility. However, the Appellate Body upheld the panel’s finding and
rejected this claim.


ENVIRONMENT: DISPUTES 9
European Communities — Asbestos

The Panel and the Appellate Body in this case both rejected Canada’s challenge to France
import ban on asbestos and asbestos-containing products, reinforcing the view that the
WTO Agreements support members’ ability to protect human health and safety at the
level of protection they deem appropriate. Chrysotile asbestos is generally considered to
be a highly toxic material, exposure to which poses significant threats to human health
(such as asbestosis, lung cancer and mesothelioma). However, due to certain qualities
(such as resistance to very high temperature), chrysotile asbestos has been widely used in
various industrial sectors. To control the health risks associated with asbestos, the French
Government, which had previously been an importer of large quantities of chrysotile
asbestos, imposed a ban on the substance as well as on products that contained it.

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The European Communities justified its prohibition on the grounds of human health
protection, arguing that asbestos was hazardous not only to the health of construction
workers subject to prolonged exposure, but also to population subject to occasional
exposure. Being the second largest producer of asbestos world-wide, Canada contested
the prohibition in the WTO. While it did not challenge the hazards associated with
asbestos, it argued that a distinction should be made between chrysotile fibres and
chrysotile encapsulated in a cement matrix. The latter, it argued, prevented release of
fibres and did not endanger human health. It also argued that the substances which France
was using as substitutes for asbestos had not been sufficiently studied and could
themselves be harmful to human health.

Canada claimed that the Decree violated GATT Articles III:4 and XI, and Articles 2.1,
2.2, 2.4 and 2.8 of the TBT Agreement, and also nullified or impaired benefits under
GATT Article XXIII:1(b). The EC argued that the Decree was not covered by the TBT
Agreement. With regard to GATT 1994, it requested the panel to confirm that the Decree
was either compatible with Article III:4 or necessary to protect human health within the
meaning of Article XX(b).

Despite finding a violation of Article III, the Panel ruled in favour of the European
Communities. Under Article III (which requires countries to grant equivalent treatment to
like products) the Panel found that the EC ban constituted a violation since asbestos and
asbestos substitutes had to be considered “like products” within the meaning of that
Article. The panel argued that health risks associated with asbestos were not a relevant
factor in the consideration of product likeness. However, the Panel found that the French
ban could be justified under Article XX(b). In other words, the measure could be
regarded as one which was “necessary to protect animal, human, plant life or health.” It
also met the conditions of the chapeau of Article XX. It therefore ruled in favour of the
European Communities.

On appeal, the WTO Appellate Body upheld the panel’s ruling in favour of the EC, while
modifying its reasoning on a number of issues. For instance, it reversed the Panel’s
finding that it was not appropriate to take into consideration the health risks associated

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with chrysotile asbestos fibres in examining the “likeness” of products under GATT
Article III:4. The Appellate Body also argued that the case should have been looked at
under the TBT Agreement rather than under GATT rules, but did not itself pursue the
analysis under TBT since the Appellate Body only has a mandate to examine issues of
“law” in dispute settlement (and cannot itself embark on new analyses).

IV. UNDERSTANDING THE WTO: SETTLING DISPUTES

Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s
unique contribution to the stability of the global economy. Without a means of settling
disputes, the rules-based system would be less effective because the rules could not be
enforced. The WTO’s procedure underscores the rule of law, and it makes the trading
system more secure and predictable. The system is based on clearly-defined rules, with
timetables for completing a case. First rulings are made by a panel and endorsed (or
rejected) by the WTO’s full membership. Appeals based on points of law are possible.

However, the point is not to pass judgement. The priority is to settle disputes, through
consultations if possible. By July 2005, only about 130 of the nearly 332 cases had
reached the full panel process. Most of the rest have either been notified as settled “out of
court” or remain in a prolonged consultation phase — some since 1995.

Principles: equitable, fast, effective, mutually acceptable

Disputes in the WTO are essentially about broken promises. WTO members have agreed
that if they believe fellow-members are violating trade rules, they will use the multilateral
system of settling disputes instead of taking action unilaterally. That means abiding by
the agreed procedures, and respecting judgments.

A dispute arises when one country adopts a trade policy measure or takes some action
that one or more fellow-WTO members considers to be breaking the WTO agreements,
or to be a failure to live up to obligations. A third group of countries can declare that they
have an interest in the case and enjoy some rights.



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A procedure for settling disputes existed under the old GATT, but it had no fixed
timetables, rulings were easier to block, and many cases dragged on for a long time
inconclusively. The Uruguay Round agreement introduced a more structured process
with more clearly defined stages in the procedure. It introduced greater discipline for the
length of time a case should take to be settled, with flexible deadlines set in various
stages of the procedure. The agreement emphasizes that prompt settlement is essential if
the WTO is to function effectively. It sets out in considerable detail the procedures and
the timetable to be followed in resolving disputes. If a case runs its full course to a first
ruling, it should not normally take more than about one year — 15 months if the case is
appealed. The agreed time limits are flexible, and if the case is considered urgent (e.g. if
perishable goods are involved), it is accelerated as much as possible.

The Uruguay Round agreement also made it impossible for the country losing a case to
block the adoption of the ruling. Under the previous GATT procedure, rulings could only
be adopted by consensus, meaning that a single objection could block the ruling. Now,
rulings are automatically adopted unless there is a consensus to reject a ruling — any
country wanting to block a ruling has to persuade all other WTO members(including its
adversary in the case) to share its view.

Although much of the procedure does resemble a court or tribunal, the preferred solution
is for the countries concerned to discuss their problems and settle the dispute by
themselves. The first stage is therefore consultations between the governments
concerned, and even when the case has progressed to other stages, consultation and
mediation are still always possible.

How long to settle a dispute?

These approximate periods for each stage of a dispute settlement procedure are target
figures — the agreement is flexible. In addition, the countries can settle their dispute
themselves at any stage. Totals are also approximate.


    Time                                    DSB Settlement of Disputes


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   60 days                               Consultations, mediation, etc

   45 days                           Panel set up and panellists appointed

  6 months                               Final panel report to parties

   3 weeks                           Final panel report to WTO members

   60 days                  Dispute Settlement Body adopts report (if no appeal)

Total = 1 year                                 (without appeal)

 60-90 days                                     Appeals report

   30 days                     Dispute Settlement Body adopts appeals report

Total = 1y 3m                                    (with appeal)




How are disputes settled?

Settling disputes is the responsibility of the Dispute Settlement Body (the General
Council in another guise), which consists of all WTO members. The Dispute Settlement
Body has the sole authority to establish “panels” of experts to consider the case, and to
accept or reject the panels’ findings or the results of an appeal. It monitors the
implementation of the rulings and recommendations, and has the power to authorize
retaliation when a country does not comply with a ruling.

First stage: consultation (up to 60 days).

Before taking any other actions the countries in dispute have to talk to each other to see if
they can settle their differences by themselves. If that fails, they can also ask the WTO
director-general to mediate or try to help in any other way.

Second stage: the panel (up to 45 days for a panel to be appointed, plus 6 months for
the panel to conclude).



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If consultations fail, the complaining country can ask for a panel to be appointed. The
country “in the dock” can block the creation of a panel once, but when the Dispute
Settlement Body meets for a second time, the appointment can no longer be blocked
(unless there is a consensus against appointing the panel).

Officially, the panel is helping the Dispute Settlement Body make rulings or
recommendations. But because the panel’s report can only be rejected by consensus in
the Dispute Settlement Body, its conclusions are difficult to overturn. The panel’s
findings have to be based on the agreements cited.

The panel’s final report should normally be given to the parties to the dispute within six
months. In cases of urgency, including those concerning perishable goods, the deadline is
shortened to three months.

The agreement describes in some detail how the panels are to work. The main stages are:

Before the first hearing: each side in the dispute presents its case in writing to the panel.

First hearing: the case for the complaining country and defence: the complaining country
(or countries), the responding country, and those that have announced they have an
interest in the dispute, make their case at the panel’s first hearing.

Rebuttals: the countries involved submit written rebuttals and present oral arguments at
the panel’s second meeting.

Experts: if one side raises scientific or other technical matters, the panel may consult
experts or appoint an expert review group to prepare an advisory report.

First draft: the panel submits the descriptive (factual and argument) sections of its report
to the two sides, giving them two weeks to comment. This report does not include
findings and conclusions.

Interim report: The panel then submits an interim report, including its findings and
conclusions, to the two sides, giving them one week to ask for a review.

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Review: The period of review must not exceed two weeks. During that time, the panel
may hold additional meetings with the two sides.

Final report: A final report is submitted to the two sides and three weeks later, it is
circulated to all WTO members. If the panel decides that the disputed trade measure does
break a WTO agreement or an obligation, it recommends that the measure be made to
conform with WTO rules. The panel may suggest how this could be done.

The report becomes a ruling: The report becomes the Dispute Settlement Body’s ruling or
recommendation within 60 days unless a consensus rejects it. Both sides can appeal the
report (and in some cases both sides do).

Appeals

Either side can appeal a panel’s ruling. Sometimes both sides do so. Appeals have to be
based on points of law such as legal interpretation — they cannot reexamine existing
evidence or examine new issues.

Each appeal is heard by three members of a permanent seven-member Appellate Body set
up by the Dispute Settlement Body and broadly representing the range of WTO
membership. Members of the Appellate Body have four-year terms. They have to be
individuals with recognized standing in the field of law and international trade, not
affiliated with any government.

The appeal can uphold, modify or reverse the panel’s legal findings and conclusions.
Normally appeals should not last more than 60 days, with an absolute maximum of 90
days.

The Dispute Settlement Body has to accept or reject the appeals report within 30 days —
and rejection is only possible by consensus.

The case has been decided: what next?




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Even once the case has been decided, there is more to do before trade sanctions (the
conventional form of penalty) are imposed. The priority at this stage is for the losing
“defendant” to bring its policy into line with the ruling or recommendations. The dispute
settlement agreement stresses that “prompt compliance with recommendations or rulings
of the DSB [Dispute Settlement Body] is essential in order to ensure effective resolution
of disputes to the benefit of all Members”.

If the country that is the target of the complaint loses, it must follow the
recommendations of the panel report or the appeals report. It must state its intention to do
so at a Dispute Settlement Body meeting held within 30 days of the report’s adoption. If
complying with the recommendation immediately proves impractical, the member will be
given a “reasonable period of time” to do so. If it fails to act within this period, it has to
enter into negotiations with the complaining country (or countries) in order to determine
mutually-acceptable compensation — for instance, tariff reductions in areas of particular
interest to the complaining side.

If after 20 days, no satisfactory compensation is agreed, the complaining side may ask the
Dispute Settlement Body for permission to impose limited trade sanctions (“suspend
concessions or obligations”) against the other side. The Dispute Settlement Body must
grant this authorization within 30 days of the expiry of the “reasonable period of time”
unless there is a consensus against the request.

In principle, the sanctions should be imposed in the same sector as the dispute. If this is
not practical or if it would not be effective, the sanctions can be imposed in a different
sector of the same agreement. In turn, if this is not effective or practicable and if the
circumstances are serious enough, the action can be taken under another agreement. The
objective is to minimize the chances of actions spilling over into unrelated sectors while
at the same time allowing the actions to be effective.

In any case, the Dispute Settlement Body monitors how adopted rulings are implemented.
Any outstanding case remains on its agenda until the issue is resolved.




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WTO Dispute Settlement Mechanism : The panel process

The various stages a dispute can go through in the WTO. At all stages, countries in
dispute are encouraged to consult each other in order to settle “out of court”. At all
stages, the WTO director-general is available to offer his good offices, to mediate or to
help achieve a conciliation.




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