Trading Away the Environment: WTO Rules Thwart Environmental Agreements, Punish Innovation

by Michelle Sforza

Five years of the World Trade Organization (WTO) have convinced environmentalists that their worst fears were right: the global commerce agency is fundamentally flawed, its basic rules antithetical to environmental, as well as consumer, worker safety and other non-commercial interests.

In the WTO's very first ruling on one country's challenge to another's law, a tribunal ordered the United States to scrap a U.S. Clean Air Act regulation or face economic sanctions simply because the regulation might adversely impact foreign gasoline. Under WTO rules, countries which lose a tribunal decision must alter their laws to comply with the WTO agreements or accept perpetual trade sanctions or fines. In the Clean Air Act case, the Clinton administration moved to change the offending regulation.

Soon thereafter, another WTO tribunal held that a European ban on beef from hormone-treated cows violated WTO rules requiring countries to prove that products are actually dangerous before taking them off the market (as opposed to a requirement that companies demonstrate that products are safe before they are put on the market). At the urging of European consumers and public health advocates, the EU has defied the WTO ruling, and is now paying the price: small European family farms are suffering $200 million in retaliatory tariffs against their products each year until the EU revokes the ban.

A quarter of the WTO's enforceable rulings have been against food safety rules, product standards and environmental regulations. The WTO has never upheld a challenged environmental regulation, rejecting claims that the contested environmental safeguards met generic WTO rules or satisfied requirements for the WTO's environmental exceptions clause.

While the WTO has made clear its willingness to override hard-won, domestic public health and environmental laws, it is now becoming increasingly clear that laws adopted to comply with international agreements on the environment are equally vulnerable to challenge under WTO rules.

In 1998, a WTO appellate panel ruled the United States could not maintain an embargo on shrimp from countries that have not adopted regulations to protect endangered sea turtles from drowning in shrimp nets. The U.S. took such action under the CITES (Convention on Trade in Endangered Species), an agreement signed by over 146 nations to protect animals threatened with extinction. The WTO panel chose not to interpret the U.S. shrimp embargo as a legitimate exercise of its obligations under CITES, even though the agreement lists the sea turtle as a species that signatory countries must protect.

Now, environmentalists believe, cases on the WTO's horizon are showing how far-reaching WTO rules are, revealing the potential multifaceted conflicts with multilateral environmental treaties, demonstrating how narrow corporate interests can hijack the WTO's machinery for their own purposes, and highlighting how corporations can manipulate WTO rules to chill the development of a new generation of rules for an ecologically sound global economy.

WTO vs. Kyoto

In 1997, representatives from 150 countries convened in Kyoto, Japan to establish legally binding limits on emissions of greenhouse gases. Thirty-seven industrialized nations, including the EU, the United States and Japan, agreed to significantly limit greenhouse gas emissions.

To comply, in 1998 Japan revised its "Law Concerning Rational Use of Energy," which includes rules setting standards for automobile fuel efficiency. Japan set new fuel efficiency standards for all cars, particularly cars in the medium weight category, where the standards were less rigorous when compared to those applied to smaller and larger cars.

When Japan attempted to implement its Kyoto objectives, the United States and the EU accused Tokyo of violating WTO rules and began pressuring the Japanese to loosen the new emissions standards.

In 1999, the EU shot off a letter to the WTO, complaining that the new rules would adversely affect European cars, as most medium-sized cars in Japan are of EU origin. Sources within the Japanese government confirm that the EU and the United States are objecting to the Japanese regulations on behalf of Daimler-Chrysler and the Ford Motor Company. Both companies are members of the Global Climate Coalition, the industry group leading the charge against U.S. Senate ratification of the Kyoto Protocol.

In a March 8, 1999 letter to the Japanese Ministry of Foreign Affairs, the United States voiced support for the objective of reducing CO2 emissions, while claiming Japan's new rules may be WTO-illegal: "Although the use of the [policy] does not appear to be per se discriminatory, the regime puts a comparatively heavier burden on imported products."

Japan claims that the law is flexibly written, allowing automakers to decide for themselves how to comply with the new fuel efficiency requirements.

Ironically, one reason the United States is able to be so bold in its challenge to Japan's Kyoto implementation regulations is that similar U.S. rules have been successfully challenged before. The arguments marshaled against the Japanese clean air requirements by the United States and the EU -- that non-discriminatory rules unfairly impact on a particular segment of the auto market that is dominated by foreign imports -- echo those used by the European Union against the U.S. Corporate Average Fuel Economy (CAFE) standards during a 1994 challenge to the law at the WTO's predecessor institution, the GATT (General Agreement on Tariffs and Trade) Secretariat. U.S. CAFE standards were designed to reduce harmful gasoline emissions, and imposed obligations on manufacturers to improve fuel efficiency in the entire fleet of cars. A GATT panel ruled that, while not intentionally discriminatory, some CAFE provisions had a heavier impact on EU cars.

Wired for Business

If laws adopted to implement multilateral environmental agreements are being undermined by the WTO, then environmental proposals ahead of the international curve are especially vulnerable.

In mid-1998, the EU issued a directive designed to minimize electronics waste and to shift the cost of environmental cleanup from the public to the industry. This environmental package would require electronics companies to take responsibility for their products from cradle to grave. It would ban electronic products containing heavy metals such as lead and mercury, require that plastic electronic components contain 5 percent recycled content and make electronics equipment manufacturers -- rather than the public -- responsible for waste recovery and disposal.

The electronics industry and the U.S. government used the WTO to launch a major offensive against the proposed EU directive. The American Electronics Association (AEA), with 3,000 member companies including Motorola and Intel, wrote to the EU charging that the directive would violate a number of WTO rules. In assailing the directive, the AEA claimed that there is no evidence that heavy metals, like lead, pose a threat to human health or the environment. The U.S. State Department quickly followed up with a letter of its own, suggesting that the EU's proposal runs afoul of WTO rules and urging the EU to adopt the less-stringent U.S. approach to electronics waste management.

Under WTO rules, environmental safeguards must be the "least trade restrictive alternative available." On this basis, the AEA claims that the EU directive is WTO-illegal because it would ban certain heavy metals, rather than simply regulating their use and disposal.

The AEA report displays a deep knowledge of WTO jurisprudence. It reminds the EU that no government has made successful use of the GATT provision allowing countries to depart from trade rules in order to protect public health and the environment: "So far, no [GATT/WTO] panel called to apply [GATT's public health and environmental exceptions] has accepted the necessity of a measure otherwise inconsistent with other GATT provisions."

The AEA also argues that WTO rules prevent countries from imposing environmental conservation policies outside their borders. It therefore attacks the EU proposal's recycling requirements when applied to foreign producers on the grounds that the EU has no interest in, or right to advance, environmental protection in the foreign country where the components are made.

The U.S. Department of State letter to the EU was only slightly more moderate in tone than the industry letter. While opening with the familiar theme that the United States "supports the overall objectives" of hazardous waste reduction, the letter goes on to attack the EU directive. Even while acknowledging that heavy metals in electronic equipment are hazardous, the United States complains that the EU requirement that the electronics industry collect, treat and dispose of end-of-life equipment is not "market-driven." The United States argues that since not all of the costs can be passed on to consumers, the EU proposal would impose onerous obligations on the electronics industry. It advises the EU to adopt the U.S. approach of regulating, not banning, hazardous wastes.

The U.S. letter echoes the industry position in maintaining that the WTO-legal way to deal with waste problems is not to ban hazardous substances which may be controlled during their useful life, but to regulate their disposal. It adds that bans require risk assessments which the EU has not yet conducted.

Despite the wording of the letter, the State Department defends its conduct towards the directive: "We are not telling them how to run their affairs," claims State Department spokesperson John Mudge, "but are stating our opinion to them. This is the context we need to see it in."

Asked to explain why the EU should conduct a "risk assessment" on the well-known risks of heavy metals, Jennifer Guhl, the AEA Director of International Trade Policy replies: "The inclusion of materials bans in a directive on waste disposal is not appropriate. We'd like to see shared responsibility in the collection aspect of the proposal."

For critics, WTO's "risk assessment" requirement is one of the organization's engrained corporate biases. Contrasted with the Precautionary Principle, the risk assessment approach requires governments to provide scientific evidence for each environmental or public health measure it wishes to adopt or maintain. The Precautionary Principle obligates governments to act proactively in the face of uncertainty about suspected or possible health and environmental hazards.

"Industry has used risk assessment as a pseudo-scientific cover to hide behind for years," says Tim Smith of the Silicon Valley Toxics Coalition, a group that advocates for stricter rules governing electronics waste and for cleaner electronics technology. "[W]e have massive amounts of information on the toxic health effects of [lead and mercury], and since there are alternatives already available, the AEA's continuing call for more risk assessment seems disingenuous at best."

The AEA's campaign of WTO threats has yielded results. The EU has proposed to eliminate the 5 percent recycled content rule and to axe certain key re-use provisions.

The AEA also successfully lobbied for the EU directive to be brought under jurisdiction of the Transatlantic Business Dialogue (TABD), a US-European business forum which issues regulatory proposals that are often adopted wholesale by governments. And the AEA has continued to challenge the now-weakened EU proposal, still fighting the proposed ban on toxic heavy metals.

Even strong WTO backers worry about the TABD. Mickey Kantor, the U.S. Trade Representative during the creation of the WTO, has said of the TABD: "This is about sovereignty, multinational corporations, the new post-cold-war world, global standards and international harmonization. These are very important issues. But it is like they are being dealt with in a closet somewhere and no one's watching." But it is the WTO rules which have enabled the AEA to force discussion of the EU electronics directive into TABD, another one of the many ways WTO has clashed with measures designed to preserve and restore the planet's health.

Michelle Sforza is research director at Public Citizen’s Global Trade Watch and co-author of Whose Trade Organization? Smrita Rana and Marianne Mollmann provided research assistance for this article.