wto and environment-environmental law project
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WTO AND ENVIRONMENT
ENVIRONMENTAL LAW PROJECT
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TABLE OF CONTENTS
INTRODUCTION 1 - 3
RESEARCH METHODOLOGY. 4
EMERGING ENVIRONMENT DEBATE IN GATT/ WTO... 5 - 8
The 1971 GATT study
EMIT - GATT Group on Environmental Measures and International Trade
Rio in 1992 and after
Trade and Environment in the WTOs Founding Charter
WORLD TRADE ORGANIZATION.. 9- 19
Objectives of the WTO
Functions of the WTO
The Uruguay Round
Committee on Trade and Environment
WTO AGREEMENTS.. 20- 44
Introduction
Important WTO Agreements
- GATT
- TRIPS
- GATS
- Agreement on Agriculture
- The Sanitary and Phytosanitary Measures Agreement
- Agreement on Subsidies and Countervailing Measures
- Agreement on Technical Barriers to Trade
- Agreement on Trade Related Aspects of Investment Measures
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MULTILATERAL ENVIRONMENTAL AGREEMENTS (MEAs).. 45 - 56
Definition
Basic information on selected MEAs in tabular format
MEAs and International Law
How does a multilateral agreement enter into force internationally?
Mechanisms used for implementing agreements
MEAs AND THE MULTILATERAL TRADING SYSTEM 57- 73
Multilateral Environmental Agreements
Trade measures in MEAs
Why Trade Restrictions have been incorporated in MEAs
Inter-relationships between MEA trade measures and WTO Rules.
Interaction of MEA trade measures with the WTO
Relationship between key MEAs and the WTO agreements
- CITES
- Montreal Protocol
- Basel Convention
- Kyoto Protocol
- Convention on Biological Diversity
- Cartagena Protocol
- Stockholm and Rotterdam Conventions
The Doha Mandate on MEAs
Developing Countries and MEAs
TRADE & ENVIRONMENT IN CONFLICT CASE LAWS.. 74 - 95
Case 1: Tuna-Dolphin Case
Case 2: Gasoline case
Case 3: Shrimp turtle case
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Case Studies on MEAs
- Case Study 1- The Kyoto Protocol
- Case Study 2 - Virunga National Park
- Case Study 3 - Invasive Alien Species
- Case Study 4 - The Aarhus Convention
POSSIBLE SOLUTION TO THE CONFLICTS BETWEEN THE WTO &ENVIRONMENT 96 - 98
CONCLUSION 99 -100
BIBLIOGRAPHY 101
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INTRODUCTION
"Trade is a powerful engine of economic growth, and that economic growth is vital to
creating conditions which favour advancing environmental protection, improving socialconditions, or sustaining ethical values. By opening markets, particularly to exports from
developing countries, and by keeping markets open through clear and enforceable rules,
the global trading system is a natural ally of sustainable development"1.
Interaction between international trade and the environment is as old as trade itself.
However, awareness that the interaction has implications in public policy terms dates
back at least to the trade provisions in 1933 convention on fauna and flora. 2 In the late
1960s environmental problems caused by the discharge of waste and other pollutantsinto the natural environment emerged seriously, and so did concerns over the
implications for international competitiveness.
Over the past two decades, producers in countries with stricter environmental standards
have worried increasingly about the impact of those standards on their competitiveness in
world markets. At the same time, governments and firms in other countries have
expressed concern about new barriers being erected against imports produced under less
strict standards.
Most recently, there has been growing public concern with issues related to the pollution
of the global commons (for example, ozone depletion and climate change) as well as with
species diversity and the treatment of animals. This has raised important questions about
the use of trade policies to influence environmental measures in other countries.
Since trade and environment both affect the use of natural resources, they naturally
interact, and have had a long legacy of mutual mistrust. For both free-traders andenvironmentalists, the inter-linkage has been a topic of contention and serves as a point
of reference to NGOs as well as to industrial lobby groups. The debate initially was quite
contentious and unproductive as both parties differed greatly in their trust of market
1 Speech by Renato Ruggiero, A shared responsibility: Global Policy Coherence For Our Global Age, December 9, 1997.2 The full title of the convention, which is still in force, is the Convention Relative to the Preservation of Fauna and Flora in their
Natural State.
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forces and typically value the environment differently.3Free traders feared that talk about
environmental protection will be used as an excuse by some economic sectors to gain
protection for themselves against competition from abroad. Environmentalists feared that
free trade will be used as an excuse to give inadequate weight to environmental goals and
excessive weight to maximization of market-measured GDP.
The environmental implications of international trade are becoming an important part of
multilateral and domestic policy agendas. This is particularly the case for trade relations
between developing and developed countries. To what extent developing countries
should devote their resources to lowering domestic environmental costs for their own
welfare and that of the world as whole has frequently been debated. The debate stems
from the widely held view that a tradeoff between economic growth and environmental
quality exists. Many policymakers in developing countries argue that they have the right
to pursue the same material aspirations by the same means as did the industrialized world
during it developmental stages and are thus willing to spend smaller percentages of their
productive resources for pollution abatement than developed countries. It is increasingly
recognized that the import of goods and services entails an implicit transfer of
environmental effects to the exporting country.
The relationship between trade and environment is a complex and highly debated issue.Addressing this relationship is fundamental in order to achieve sustainable development.
As a result of increasing global economic inter-dependence and further trade
liberalisation as well as growing pressure on the environment and the use of natural
resources, there is an ever growing inter-face between trade and environment. It is widely
recognised that trade and environment can be mutually supportive, but, differences
remain on effective implementation. In fact, trade liberalisation and trade policy have
positive and negative impacts on the environment. However, a number of conditions
should be met to ensure that the net gains deriving from trade liberalisation will support
and reinforce the protection of the environment.
The trade and environment debate is complex and varied, and it involves some of the
most fundamental WTO principles and rules, such as the concept of non-discrimination3 Copeland and Taylor, 2004.
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and the definition of "like products". It is a horizontal issue that cuts across many
disciplines in WTO. For example, Multilateral Environmental Agreements have
consequences for trade which may come into conflict with the general aim of the WTO to
reduce trade barriers.
The WTO has no specific agreement dealing with the environment. However, the WTO
agreements confirm governments right to protect the environment, provided certain
conditions are met, and a number of them include provisions dealing with environmental
concerns.
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RESEARCH METHODOLOGY
Aims and objectives
The project aims at studying the issues associated with the trade and the environment
debate. This paper begins with the genesis of the issue of trade and the environment and
examines the inter-relation between trade, environment and the WTO. The Paper further
tries to examine the relationship between certain Multilateral Environmental Agreements
(MEAs) and the WTO Agreements. The paper analyzes how environmental provisions
have permeated into the multilateral trading system, through the incorporation of
environmental provisions under new WTO agreements and the concern of the developing
countries with regard to the MEAs.
The Project covers the basic conceptual issues, as well as the genesis of trade and
environment as it has been dealt with in the WTO. The ultimate objective is to understand
the justification for policy linkages between trade and the environment and the rationale
for special trade rules to reflect environmental concerns.
Method of writing
The researcher has endeavored to use a combination of descriptive and analytical styles
of writing throughout this project. More emphasis has been placed on the analytical style
of writing.
Sources of Data
The main sources have been textbooks, articles and web-search.
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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, and 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) prepared a study 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 could constitute a new form of protectionism
i.e. "green protectionism".
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.
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 (EMIT), 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 (EFTA) asked for the EMIT Group to
be convened. (EFTA, at the time included Austria, Finland, Iceland, Liechtenstein,
Norway, Sweden and Switzerland.)
Developments: 19711991
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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 (19731979), 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 (19861994), 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
(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 theenvironment). 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
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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), 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 groups 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-labelling 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.
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WORLD TRADE ORGANIZATION
The World Trade Organization (WTO) is an international organization designed to
supervise and liberalize international trade. The WTO came into being on January 1,
1995, and is the successor to the General Agreement on Tariffs and Trade (GATT),which was created in 1948. It represents the culmination of an eight-year process of trade
negotiations, known as the Uruguay Round. The WTO is located in Geneva, and is
administered by a secretariat that also facilitates ongoing trade negotiations and oversees
trade dispute resolution. There are currently 146 member countries of the WTO.
The WTO deals with the rules of trade between nations at a global level. It is responsible
for negotiating and implementing new trade agreements, and is in charge of policing
member countries' adherence to all the WTO agreements, signed by the bulk of the
world's trading nations and ratified in theirparliaments. These documents provide the
legal ground rules for international commerce. The agreements are like contracts which
bind governments to keep their trade policies within the boundaries set by the
agreements.
Objectives of the WTO
The reasons for establishing the WTO and the policy objectives of this internationalorganization are set out in the preamble to the WTO Agreement. According to the
preamble, the parties to the WTO Agreement agreed to the terms of this agreement and
the establishment of the WTO "recognizing that their relations in the field of trade and
economic endeavour should be conducted with a view to raising the 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 worlds resources in accordance with the
objective of sustainable development, seeking both to protect and preserve 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 ultimate objectives of the WTO are thus:
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The increase of standards of living;
The attainment of full employment;
The growth of real income and effective demand; and
The expansion of production of, and trade in, goods and services
However, it is clear from the Preamble that in pursuing these objectives the WTO must
take into account the need for preservation of the environment and the needs of the
developing countries. The Preamble stresses upon the importance of sustainable
economic development and of integration of developing countries, and in particular least-
developed countries, in the world trading system.
Functions of the WTO
Among the various functions of the WTO, these are regarded by analysts as the most
important:
It oversees the implementation, administration and operation of the covered
agreements.
It provides a forum for negotiations and for settling disputes.
Additionally, it is the duty of WTO to review the national trade policies, and to ensure the
coherence and transparency of trade policies through surveillance in global economic
policy-making. Another priority of the WTO is the assistance ofdeveloping, least-
developed and low-income countries in transition to adjust to WTO rules and disciplines
through technical cooperation and training. The WTO is also a center of economic
research and analysis, regular assessments of the global trade picture in its annualpublications and research reports on specific topics are produced by the organization.
Finally, the WTO cooperates closely with the two other components of the Bretton
Woods system, the IMF and the World Bank.
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The Uruguay Round
As mentioned earlier, the World Trade Organization represents the culmination of an
eight-year process of trade negotiations, known as the Uruguay Round.
The Uruguay Round commenced in September1986 and continued until April 1994. The
Round, based on the GATT ministerial meeting in Geneva (1982), was launched in Punta
del Este in Uruguay (hence the name), followed by negotiations in Montreal, Geneva,
Brussels, Washington, D.C., and Tokyo, with the 20 agreements finally being signed in
Marrakech - the Marrakesh Agreement. The Round transformed the General Agreement
on Tariffs and Trade (GATT) into the World Trade Organization (WTO).
Despite the profile of the trade and environment issue in the mid to late stages of theUruguay Round,5 the negotiations concluded in the Round did not deal directly with
Trade and Environment issues. This was largely a reflection of the absence of reference
to the environment in the agenda of Uruguay Round. As a consequence, the WTO
agreements that emerged from the Round did not deal with environment as a standalone
issue. Environmental groups made much of the fact that their concerns were not reflected
in the 500 pages of legal texts that emerged from the Round, including the tariff
schedules, running to some 26,000 pages. This perceived neglect of the WTO to deal
directly with the Environmental problems was seen by environmentalists as squandering
a crucial chance to centrally address the trade and environment issue and establish broad
principles to guide the WTO in its future work.
On other environmental-related matters, the Uruguay Round generated results with
varying degrees of ambiguity. In the area of standards, the thrust of the agreements from
the round was to discipline trade barriers while allowing for differences in non-border
measures. Exactly how much discipline would be exerted on National regulations,
especially in the case of sanitary and phytosanitary standards, and what would constitute
sufficient scientific justification for standards that were higher than international
standards, remained unclear. Under the subsidies agreement the use of countervailing
5 A number of events contributed to raising the profile of trade and environment during the later part of Uruguay Round besides thetuna/ dolphin dispute. These included the Earth Summit in Rio in June 1992, the vocal opposition of environmentalists to NAFTA andthe Uruguay Round decisions in the US.
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measures to deal with 'unfair' trade practices in the form of lax environmental standards
was not permitted. But the agreement did imply that subsidies that take the form of
foregone revenue for environmental taxes can be countervailable if they are specific.
Nonetheless, trade and environment issues were important in developments runningparallel to the negotiations themselves, and in particular played a role in defining the
work programme for the WTO following the Round. At the ministerial meeting in
Marrakesh in April 1994, governments agreed that trade and environment should be on
the future agenda for the WTO, and that a Committee on Trade and the Environment
should be formed to assess trade and environment linkages.
Committee on Trade and Environment
When Ministers approved the results of the Uruguay Round negotiations in Marrakesh in
April 1994, they took a decision to begin a comprehensive work programme on trade and
environment in the WTO. During the past five years, this work programme has provided
the focus of discussions in the Committee on Trade and Environment (CTE). The CTEs
main aim is to build a constructive relationship between trade and environmental
concerns.
The CTE has a two-fold mandate:
first "to identify the relationship between trade measures and environmental
measures in order to promote sustainable development"; and
second, "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".
This broad-based mandate covers goods, services, and intellectual property rights and
builds on work carried out in the previous GATT Group on Environmental Measures and
International Trade. Since 1997, the CTE has adopted a thematic approach to its work to
broaden and deepen the discussions and to allow all items of the work programme to be
addressed in a systematic manner. Discussions of the items on the work programme have
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been clustered into two main areas: issues relevant to market access and issues related to
the linkages between the multilateral environment and trade agendas.
Important parameters which have guided CTEs work
The Committee on Trade and Environment (CTE) has brought environmental and
sustainable development issues into the mainstream of the WTOs work. There are
several important parameters which have guided the CTEs work.
The first parameter is that WTO competency for policy coordination in this area is
limited to trade and those trade-related aspects of environmental policies which
may result in significant trade effects for its Members. In other words, it is not
intended that the WTO should become an environmental agency. Nor should itget involved in reviewing national environmental priorities, setting environmental
standards or developing global policies on the environment. That will continue to
be the task of national governments and of other inter-governmental organizations
better suited to the task;
The second parameter is that increased national coordination as well as
multilateral cooperation is necessary to address environmental concerns; and
The third parameter is that secure market access opportunities are essential to help
developing countries work towards sustainable development.
The contribution which the WTO could make to environmental protection was
recognized at the United Nations Conference on Environment and Development
(UNCED the Earth Summit) in 1992, which stated that an open, equitable and non-
discriminatory multilateral trading system has a key contribution to make national and
international efforts for better protection and conservation of environmental resourcesand promotion of sustainable development. Among the most important recommendations
of the UNCED to the GATT at the time was to implement the results of the Uruguay
Round.
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The CTE's in its first report in 1996, recognized that trade and environment are both
important areas of policy making and that they should be mutually supportive in order to
promote sustainable development. The report noted that the multilateral trading system
has the capacity to further integrate environmental considerations and enhance its
contribution to the promotion of sustainable development without undermining its open,
equitable and non-discriminatory character.
To raise awareness of the linkages between trade, environment and sustainable
development and to enhance the dialogue between policy makers from Ministries of both
trade and environment in WTO Member Governments, the WTO Secretariat has
organized a series of regional seminars on trade and environment for government
officials from developing and least-developed countries and countries with economies in
transition.
At its meeting in October 1999, the CTE agreed to continue to deepen the analysis of all
items on the work programme based on the thematic clusters of market access and the
linkages between the multilateral environment and trade agendas with the objective of
fulfilling the mandate of the CTE.
Main points of discussion of the CTEs work programme
Some of the main points of discussion of the CTEs work programme include the
following:
1. Trade measures applied pursuant to MEAs
Throughout the discussions on this issue in the WTO, it has become clear that the
preferred approach for governments to take in tackling transboundary or global
environmental problems is through cooperative, multilateral action under an MEA. Whilesome MEAs contain trade provisions, trade restrictions are not the only or necessarily the
most effective policy instrument to use in MEAs. In certain cases they can play an
important role. It has also been stated that the WTO already provides broad and valuable
scope for trade measures to be applied pursuant to MEAs in a WTO-consistent manner.
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As in the past few years, in June 1999 the CTE held an Information Session with
Secretariats of MEAs relevant to the work of the CTE to discuss the trade-related
developments in these agreements. At the June Session, presentations and papers were
provided by the Convention on the International Trade in Endangered Species of Wild
Fauna and Flora; the Montreal Protocol on Substances that Deplete the Ozone Layer; the
United Nations Framework Convention on Climate Change; the Intergovernmental
Forum on Forests; and the International Tropical Timber Organization. This meeting
illustrated how trade-related measures function in MEAs and helped to deepen the
understanding of the relationship between MEAs and the multilateral trading system.
2. Dispute settlement
A related item concerns the appropriate forum for the settlement of potential disputes that
may arise over the use of trade measures pursuant to MEAs. There is general agreement
that in the event a dispute arises between WTO Members who are also signatories to an
MEA, they should try first to resolve it through the dispute settlement mechanisms
available under that MEA. Were a dispute to arise with a non-party to an MEA, but with
another WTO Member, the WTO would provide the only possible forum for resolving
the dispute.
The CTE agrees that better policy coordination between trade and environmental policy
officials at the national level can help prevent situations from arising in which the use of
trade measures applied pursuant to the MEAs could become subject to disputes.
Furthermore, it is unlikely that problems would arise in the WTO over trade measures
agreed and applied among parties to an MEA. In the event of a dispute, however, WTO
Members are confident that the WTO dispute settlement provisions would be able to
tackle any problems which arise in this area, including those cases requiring input from
environmental experts.
3. Eco-labelling
Eco-labelling programmes are important environmental policy instruments. Eco-labelling
was discussed extensively in the GATT, and provided the basis in the CTE for a detailed
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examination of related issues. The key requirement from the WTOs point of view is that
environmental measures that incorporate trade provisions or that affect trade
significantly, should not discriminate between home-produced goods and imports, nor
between imports from or exports to different trading partners. Non-discrimination is the
cornerstone of secure and predictable market access and undistorted competition:
consumers are guaranteed a wider choice and producers better access to the full range of
market opportunities. Subject to that requirement being met, WTO rules place essentially
no constraints on the policy choices available to a country to protect its own environment
against damage either from domestic production or from the consumption of domestically
produced or imported products.
The CTE has acknowledged that well-designed, eco-labelling programmes can be
effective instruments of environmental policy. It notes that in certain cases such
programmes have raised significant concerns about possible trade effects. An important
starting point for addressing some of these trade effects is to ensure adequate
transparency in the preparation, adoption and application of eco-labelling programmes.
Interested parties from other countries should also be allowed to voice their concerns.
Discussion is continuing on how the use in eco-labelling programmes of criteria based on
non-product-related processes and production methods should be treated under the rules
of the WTO Agreement on Technical Barriers to Trade.
4. WTO Transparency Provisions
The WTO transparency provisions fulfil an important role in ensuring the proper
functioning of the multilateral trading system. They help to prevent unnecessary trade
restrictions and distortions and ensure that WTO Members provide information about
changes in their regulations. They can also provide a valuable first step in ensuring that
trade and environment policies are developed and implemented in a mutually supportiveway. Trade-related environmental measures should not be required to meet more onerous
transparency requirements than other measures that affect trade. The CTE has stated that
no modifications to WTO rules are needed to ensure adequate transparency for trade-
related environmental measures. In 1998, the CTE also established a WTO
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Environmental Database which can be accessed electronically by WTO Members. The
WTO Secretariat updates this database annually by reviewing all the environment-related
notifications. The Environmental Database is seen as an important step towards
increasing the transparency of trade-related environmental measures notified by WTO
Members.
5. Export of domestically prohibited goods
During the mid-1980s, concerns were raised by a number of developing country GATT
Contracting Parties that they were importing certain hazardous or toxic products without
knowing the full environmental or public health dangers such products could pose. In the
late 1980s, a GATT Working Party examined ways of treating trade in goods which are
severely restricted or banned for sale on the domestic market of an exporting country. A
key consideration was that the importing country should be fully informed about the
products it was receiving and have the right to reject them if it felt such products caused
environmental or public health problems.
Several MEAs have been negotiated in the last few years to deal with problems of trade
in environmentally hazardous products (e.g. the Basel Convention and London
Guidelines). The WTO does not intend to duplicate work that has already been
accomplished elsewhere in the area of domestically prohibited goods. WTO Members, in
the context of the CTE, have agreed to support the efforts of the specialized inter-
governmental environmental organizations that are helping to resolve such problems.
However, they have noted that there may be a complementary role for the WTO to play
in this area.
6. Trade liberalization and sustainable development
Further liberalization of international trade, both in goods and services, has a key role to
play in advancing economic policy objectives in Member countries. In that respect, WTO
Members have already made an important contribution to sustainable development and
better environmental protection world-wide by concluding the Uruguay Round
negotiations. This contribution will steadily increase as the results of the Round move
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towards full implementation. The UN Conference on Environment and Development (the
Earth Summit) also recognized an open, non-discriminatory trading system to be a
prerequisite for effective action to protect the environment and to generate sustainable
development. This is based on the perspective that countries, particularly developing
countries, are dependent on trade as the main source of continued growth and prosperity.
The CTE is continuing to tackle this item of its work programme in the context of the
built-in agenda for further trade liberalization initiatives contained in the results of the
Uruguay Round negotiations. The CTE has noted that the removal of trade restrictions
and distortions, in particular high tariffs, tariff escalation, export restrictions, subsidies
and non-tariff barriers, has the potential to yield benefits for both the multilateral trading
system and the environment. Discussions in 1999 included the sectors of agriculture and
fisheries, energy, forestry, non-ferrous metals, textiles and clothing, leather and
environmental services. The discussions highlighted areas where the removal of trade
restrictions and distortions can be beneficial for the environment, trade and development,
providing win-win-win opportunities.
7. Trade in services and TRIPS
The CTE also is to examine the role of the WTO in relation to the links between
environmental measures and the new trade agreements reached in the Uruguay Round
negotiations on services and intellectual property. Discussion on these two items of the
work programme have broken new ground since there was very little understanding of
how the rules of the trading system might affect or be affected by environmental policies
in these areas.
With respect to the General Agreement on Trade in Services (GATS) and the
environment, the CTE has noted that its discussions so far have not led to the
identification of any measures that Members feel may be applied for environmental
purposes to services trade which are not already adequately covered by GATS provisions.
In the case of intellectual property rights, WTO Members have acknowledged that the
Agreement on Trade-related Intellectual Property Rights (TRIPS) plays an essential role
in facilitating access to and the transfer of environmentally-sound technology and
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products. However, further work is required in this area, including clarifying the
relationship between the TRIPS Agreement and the Convention on Biological Diversity.
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WTO AGREEMENTS
Introduction
Environmental issues began to be systematically addressed in the WTO following the
Decision on Trade and Environment taken towards the end of the Uruguay Round at
Marrakesh in 1994. The Committee on Trade and Environment was established in the
same year, with the explicit mandate to resolve environmental issues in the trading
system. Some new agreements under the WTO also contained environmental provisions.
In 2001 the environment was explicitly put on the negotiating agenda in the Doha
Ministerial Declaration in 2001. Today the environment has been mainstreamed into the
multilateral trading system, and has significant implications for shaping future rules
under the WTO regime.
The WTO's agreements are the legal foundation for the international trading system that
is used by the bulk of the world's trading nations. Most of the WTO agreements are the
result of the 198694 Uruguay Round negotiations, signed at the Marrakesh ministerial
meeting in April 1994. The WTOs agreements are often called the Final Act of the 1986
- 1994 Uruguay Round of trade negotiations. These agreements are also called the
WTOs Trade Rules.
The WTO agreements cover goods, services and intellectual property. They spell out the
principles of liberalization, and the permitted exceptions. They include individual
countries commitments to lower customs tariffs and other trade barriers, and to open and
keep open services markets. They set procedures for settling disputes. They prescribe
special treatment for developing countries. They require governments to make their trade
policies transparent by notifying the WTO about laws in force and measures adopted, and
through regular reports by the secretariat on countries trade policies.
Important WTO Agreements
Some of the important WTO Agreements are summarized below.
The General Agreement on Tariffs and Trade (GATT)
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The General Agreement on Tariffs and Trade was the outcome of the failure of
negotiating governments to create the International Trade Organization (ITO). GATT
was formed in 1947 and lasted until 1994, when it was replaced by the World Trade
Organization. The Bretton Woods Conference had introduced the idea for an organization
to regulate trade as part of a larger plan for economic recovery after World War II. As
governments negotiated the ITO, 15 negotiating states began parallel negotiations for the
GATT as a way to attain early tariff reductions. Once the ITO failed in 1950, only the
GATT agreement was left. The GATT's main objective was the reduction of barriers to
international trade. This was achieved through the reduction oftariffbarriers, quantitative
restrictions and subsidies on trade through a series of agreements. The GATT was a
treaty, not an organization. The functions of the GATT were taken over by the World
Trade Organization which was established during the final round of negotiations in early
1990s.
The history of the GATT can be divided into three phases: the first, from 1947 until the
Torquay Round, largely concerned which commodities would be covered by the
agreement and freezing existing tariff levels. A second phase, encompassing three
rounds, from 1959 to 1979, focused on reducing tariffs. The third phase, consisting only
of the Uruguay Round from 1986 to 1994, extended the agreement fully to new areas
such as intellectual property, services, capital, and agriculture. Out of this round the
WTO was born.
In 1993 the GATT was updated (GATT 1994) to include new obligations upon its
signatories. One of the most significant changes was the creation of the World Trade
Organization (WTO).
GATT was a set of rules agreed upon by nations and the WTO is an institutional body.
The WTO expanded its scope from traded goods to trade within the service sector andintellectual property rights. Although it was designed to serve multilateral agreements,
during several rounds of GATT negotiations (particularly the Tokyo Round)plurilateral
agreements created selective trading and caused fragmentation among members. WTO
arrangements are generally a multilateral agreement settlement mechanism of GATT.
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Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)
The agreement recognises that widely varying standards in the protection and
enforcement of intellectual property rights and the lack of a multilateral framework of
principles, rules and disciplines dealing with international trade in counterfeit goods have
been a growing source of tension in international economic relations. Rules and
disciplines were needed to cope with these tensions. To that end, the agreement addresses
the applicability of basic GATT principles and those of relevant international intellectual
property agreements; the provision of adequate intellectual property rights; the provisionof effective enforcement measures for those rights; multilateral dispute settlement; and
transitional arrangements.
Part I of the agreement sets out general provisions and basic principles, notably a
national-treatment commitment under which the nationals of other parties must be given
treatment no less favourable than that accorded to a partys own nationals with regard to
the protection of intellectual property. It also contains a most-favoured-nation clause, a
novelty in an international intellectual property agreement, under which any advantage a party gives to the nationals of another country must be extended immediately and
unconditionally to the nationals of all other parties, even if such treatment is more
favourable than that which it gives to its own nationals.
Part II addresses each intellectual property right in succession. With respect to copyright,
parties are required to comply with the substantive provisions of the Berne Convention
for the protection of literary and artistic works, in its latest version (Paris 1971), though
they will not be obliged to protect moral rights as stipulated in Article 6bis of that
Convention. It ensures that computer programs will be protected as literary works under
the Berne Convention and lays down on what basis data bases should be protected by
copyright. Important additions to existing international rules in the area of copyright and
related rights are the provisions on rental rights. The draft requires authors of computer
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programmes and producers of sound recordings to be given the right to authorize or
prohibit the commercial rental of their works to the public. A similar exclusive right
applies to films where commercial rental has led to widespread copying which is
materially impairing the right of reproduction. The draft also requires performers to be
given protection from unauthorized recording and broadcast of live performances
(bootlegging). The protection for performers and producers of sound recordings would be
for no less than 50 years. Broadcasting organizations would have control over the use that
can be made of broadcast signals without their authorization. This right would last for at
least 20 years.
With respect to trademarks and service marks, the agreement defines what types of signs
must be eligible for protection as a trademark or service mark and what the minimum
rights conferred on their owners must be. Marks that have become well-known in a
particular country shall enjoy additional protection. In addition, the agreement lays down
a number of obligations with regard to the use of trademarks and service marks, their
term of protection, and their licensing or assignment. For example, requirements that
foreign marks be used in conjunction with local marks would, as a general rule, be
prohibited.
In respect of geographical indications, the agreement lays down that all parties mustprovide means to prevent the use of any indication which misleads the consumer as to the
origin of goods, and any use which would constitute an act of unfair competition. A
higher level of protection is provided for geographical indications for wines and spirits,
which are protected even where there is no danger of the publics being misled as to the
true origin. Exceptions are allowed for names that have already become generic terms,
but any country using such an exception must be willing to negotiate with a view to
protecting the geographical indications in question. Furthermore, provision is made for
further negotiations to establish a multilateral system of notification and registration of
geographical indications for wines.
Industrial designs are also protected under the agreement for a period of 10 years.
Owners of protected designs would be able to prevent the manufacture, sale or
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importation of articles bearing or embodying a design which is a copy of the protected
design.
As regards patents, there is a general obligation to comply with the substantive provisions
of the Paris Convention (1967). In addition, the agreement requires that 20-year patentprotection be available for all inventions, whether of products or processes, in almost all
fields of technology. Inventions may be excluded from patentability if their commercial
exploitation is prohibited for reasons of public order or morality; otherwise, the permitted
exclusions are for diagnostic, therapeutic and surgical methods, and for plants and (other
than microorganisms) animals and essentially biological processes for the production of
plants or animals (other than microbiological processes). Plant varieties, however, must
be protectable either by patents or by a sui generis system (such as the breeders rights
provided in a UPOV Convention). Detailed conditions are laid down for compulsory
licensing or governmental use of patents without the authorization of the patent owner.
Rights conferred in respect of patents for processes must extend to the products directly
obtained by the process; under certain conditions alleged infringers may be ordered by a
court to prove that they have not used the patented process.
With respect to the protection of layout designs of integrated circuits, the agreement
requires parties to provide protection on the basis of the Washington Treaty onIntellectual Property in Respect of Integrated Circuits which was opened for signature in
May 1989, but with a number of additions: protection must be available for a minimum
period of 10 years; the rights must extend to articles incorporating infringing layout
designs; innocent infringers must be allowed to use or sell stock in hand or ordered
before learning of the infringement against a suitable royalty: and compulsory licensing
and government use is only allowed under a number of strict conditions.
Trade secrets and know-how which have commercial value must be protected againstbreach of confidence and other acts contrary to honest commercial practices. Test data
submitted to governments in order to obtain marketing approval for pharmaceutical or
agricultural chemicals must also be protected against unfair commercial use.
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The final section in this part of the agreement concerns anti-competitive practices in
contractual licences. It provides for consultations between governments where there is
reason to believe that licensing practices or conditions pertaining to intellectual property
rights constitute an abuse of these rights and have an adverse effect on competition.
Remedies against such abuses must be consistent with the other provisions of the
agreement.
Part III of the agreement sets out the obligations of member governments to provide
procedures and remedies under their domestic law to ensure that intellectual property
rights can be effectively enforced, by foreign right holders as well as by their own
nationals. Procedures should permit effective action against infringement of intellectual
property rights but should be fair and equitable, not unnecessarily complicated or costly,
and should not entail unreasonable time-limits or unwarranted delays. They should allow
for judicial review of final administrative decisions. There is no obligation to put in place
a judicial system distinct from that for the enforcement of laws in general, nor to give
priority to the enforcement of intellectual property rights in the allocation of resources or
staff.
The civil and administrative procedures and remedies spelled out in the text include
provisions on evidence of proof, injunctions, damages and other remedies which wouldinclude the right of judicial authorities to order the disposal or destruction of infringing
goods. Judicial authorities must also have the authority to order prompt and effective
provisional measures, in particular where any delay is likely to cause irreparable harm to
the right holder, or where evidence is likely to be destroyed. Further provisions relate to
measures to be taken at the border for the suspension by customs authorities of release,
into domestic circulation, of counterfeit and pirated goods. Finally, parties should provide
for criminal procedures and penalties at least in cases of wilful trademark counterfeiting
or copyright piracy on a commercial scale. Remedies should include imprisonment and
fines sufficient to act as a deterrent.
The agreement would establish a Council for Trade-Related Aspects of Intellectual
Property Rights to monitor the operation of the agreement and governments compliance
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with it. Dispute settlement would take place under the integrated GATT dispute-
settlement procedures as revised in the Uruguay Round.
With respect to the implementation of the agreement, it envisages a one-year transition
period for developed countries to bring their legislation and practices into conformity.Developing countries and countries in the process of transformation from a centrally-
planned into a market economy would have a five-year transition period, and least-
developed countries 11 years. Developing countries which do not at present provide
product patent protection in an area of technology would have up to 10 years to introduce
such protection. However, in the case of pharmaceutical and agricultural chemical
products, they must accept the filing of patent applications from the beginning of the
transitional period. Though the patent need not be granted until the end of this period, the
novelty of the invention is preserved as of the date of filing the application. If
authorization for the marketing of the relevant pharmaceutical or agricultural chemical is
obtained during the transitional period, the developing country concerned must offer an
exclusive marketing right for the product for five years, or until a product patent is
granted, whichever is shorter.
Subject to certain exceptions, the general rule is that the obligations in the agreement
would apply to existing intellectual property rights as well as to new ones.
The General Agreement on Trade in Services (GATS)
The General Agreement on Trade in Services (GATS) came into force in 1995 and
constitutes the legal framework through which World Trade Organization (WTO)
Members progressively liberalize trade in services, including health-related services.
Within the GATS framework, trade in health services is understood as the provision of
specialized and general health personnel, nursing services, hospital services, ambulance
services, and physiotherapeutic and paramedical services provided by medical and dental
laboratories.
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GATS allows WTO Members to choose which service sectors to open up to trade and
foreign competition. To date, only 50 WTO Members have made some type of
commitment on health services under GATS, much less than in financial services (100
Members). Liberalization of financial services may have implications for health systems
through its impact on health insurance.
Individual Members' commitments to open markets in specific sectors - and how open
those markets will be - are the outcome of negotiations. The commitments appear in
schedules that list the sectors being opened, the extent of market access offered in those
sectors (e.g. whether there are any restrictions on foreign ownership), and any limitations
on national treatment (whether some rights granted to local companies will not be granted
to foreign companies). For example, a Member could require all foreign-owned hospitals
to provide 25% of beds to care for the uninsured, but this would have to be scheduled as a
national treatment limitation (if it were not already a requirement for locally-owned
hospitals).
The overall aim of GATS is to liberalize trade in services. The agreement covers four
different modes (modes 1-4 trade in services) all of which affect health:
Mode 1 Cross-border supply
Health services provided from the territory of one Member State in the territory of
another Member State. This is usually via interactive audio, visual and data
communication. The patient therefore has the opportunity to consult with physicians in a
different country, as do local doctors. Typical examples include Internet consultation,
diagnosis, treatment and medical education. This form of supply can bring care to under-
served areas, but can be capital intensive and divert resources from other equally pressing
needs.
Mode 2 Consumption abroad
This usually covers incidents when patients seek treatment abroad or are abroad when
they need treatment. This can generate foreign exchange, but equally can crowd out local
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patients and act as a drain on resources when their treatment is subsidized by the sending
government.
Mode 3 Foreign commercial presence
Health services supplied in one Member State, through commercial presence in the
territory of another Member State. This covers the opening up of the health sector to
foreign companies, allowing them to invest in health operations, health management and
health insurance. It is argued that, on the one hand, FDI can make new services available,
contribute to driving up quality and create employment opportunities. On the downside, it
can help create a two-tier health system and an internal brain-drain - and thus exacerbate
inequity of health provision.
Mode 4 Movement of natural persons (individuals rather than companies)
The temporary movement of a commercial provider of services (for example, a doctor)
from their own country to another country to provide his or her service under contract or
as a member of staff transferred to a different country. This is one of the most contentious
areas for health, as there is concern that it will increase the brain drain of health personnel
from poor to rich countries. However, GATS is concerned only with health professionals
working in other countries on a temporary basis. Brain drain refers to the emigration ofeducated, qualified, and skilled people from poorer countries to richer countries. WHO's
Human Resources for Health initiative aims to increase individual countries' pools of
qualified health staff.
The extent to which GATS will have an impact on public services such as health and
education is controversial. GATS comes into the equation when countries decide to allow
foreign private suppliers to provide services.
Opponents of GATS are convinced that it will limit a state's sovereign powers to protect
human health, and ensure provision of good quality, affordable health services.
Specifically, they fear that progressive liberalization of services under GATS will force
WTO Members to privatize health care currently provided by governments, and that
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these changes will be irreversible. They are also concerned that the capacity of states to
regulate health-related services will be eroded.
The counter-argument stresses that GATS allows WTO Members to decide for
themselves which sectors will be liberalized and to define country-specific conditions onthe form that liberalization will take. Some WTO Members have already indicated they
will not be requesting or offering commitments on health services in the current
negotiations. Those states that do proceed are not obliged to respond positively to any
particular request. Nor is there any requirement for reciprocity. Moreover, the Doha
declaration specifically reaffirmed the right of Members to regulate or introduce new
regulations on the supply of services. Defenders of GATS therefore argue that national
control over policy and practice has been enhanced.
The political dynamic around GATS may be somewhat different from that affecting the
Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. Many
developing countries are keen to welcome foreign direct investment and to secure access
in the north for their professionals. Many developed countries, on the other hand, are
nervous about the political and economic effects of liberalization on publicly-funded
health services.
GATS is a complex treaty and it does not lay down minimum standards as TRIPS does.
Rather, it takes shape through the process of negotiation. Overall, there is lack of
empirical data on the level of international trade in health-related services, as well as on
the effects of liberalization in specific countries. Finally, trade in services is increasing in
any case (often through bilateral negotiations), thus making attribution to GATS very
difficult.
Certain other WTO Agreements are as follows:
Agreement on Agriculture
The WTO Agreement on Agriculture was one of the many agreements which were
negotiated during the Uruguay Round.
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The implementation of the Agreement on Agriculture started with effect from January 1,
1995. As per the provisions of the Agreement, the developed countries would complete
their reduction commitments within 6 years, i.e., by the year 2000, whereas the
commitments of the developing countries would be completed within 10 years, i.e., by
the year 2004. The least developed countries are not required to make any reductions.
The products, which are included within the purview of this agreement are what are
normally considered as part of agriculture except that it excludes fishery and forestry
products as well as rubber, jute, sisal, abaca and coir.
Salient Features
The WTO Agreement on Agriculture contains provisions in 3 broad areas of agricultureand trade policy: market access, domestic support and export subsidies.
Market Access
This includes tariffication, tariff reduction and access opportunities. Tariffication means
that all non-tariff barriers such as quotas, variable levies, minimum import prices,
discretionary licensing, state trading measures, voluntary restraint agreements etc. need to
be abolished and converted into an equivalent tariff. Ordinary tariffs including those
resulting from their tariffication are to be reduced by an average of 36% with minimum
rate of reduction of 15% for each tariff item over a 6 year period. Developing countries
are required to reduce tariffs by 24% in 10 years. Developing countries as were
maintaining Quantitative Restrictions due to balance of payment problems, were allowed
to offer ceiling bindings instead of tariffication.
Special safeguard provision allows the imposition of additional duties when there are
either import surges above a particular level or particularly low import prices ascompared to 1986-88 levels.
It has also been stipulated that minimum access equal to 3% of domestic consumption in
1986-88 will have to be established for the year 1995 rising to 5% at end of the
implementation period.
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Domestic support
For domestic support policies, subject to reduction commitments, the total support given
in 1986-88,measured by the total Aggregate Measurement of Support (AMS) should be
reduced by 20% in developed countries (13.3% in developing countries). Reductioncommitments refer to total levels of support and not to individual commodities. Policies
which amount to domestic support both under the product specific and non-product
specific categories at less than 5% of the value of production for developed countries and
less than 10% for developing countries are also excluded from any reduction
commitments. Polices which have no or at most minimal trade distorting effects on
production are excluded from any reduction commitments (Green Box-Annex 2 of the
Agreement on Agriculture - http://www.wto.org). The list of exempted green box policies
includes such policies which provide services or benefits to agriculture or the rural
community, public stock holding for food security purposes, domestic food aid and
certain de-coupled payments to producers including direct payments to production
limiting programmes, provided certain conditions are met.
Special and Differential Treatment provisions are also available for developing country
members. These include purchases for and sales from food security stocks at
administered prices provided that the subsidy to producers is included in calculation ofAMS. Developing countries are permitted untargeted subsidised food distribution to meet
requirements of the urban and rural poor. Also excluded for developing countries are
investment subsidies that are generally available to agriculture and agricultural input
subsidies generally available to low income and resource poor farmers in these countries.
Export Subsidies
The Agreement contains provisions regarding member's commitment to reduce Export
Subsidies. Developed countries are required to reduce their export subsidy expenditure by
36% and volume by 21% in 6 years, in equal instalment (from 1986-1990 levels). For
developing countries the percentage cuts are 24% and 14% respectively in equal annual
installment over 10 years. The Agreement also specifies that for products not subject to
export subsidy reduction commitments, no such subsidies can be granted in the future.
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The Sanitary and Phytosanitary Measures Agreement
The Agreement on the Application of Sanitary and Phytosanitary Measures sets out the
basic rules for food safety and animal and plant health standards.
It allows countries to set their own standards. But it also says regulations must be based
on science. They should be applied only to the extent necessary to protect human, animal
or plant life or health. And they should not arbitrarily or unjustifiably discriminate
between countries where identical or similar conditions prevail.
Member countries are encouraged to use international standards, guidelines and
recommendations where they exist. However, members may use measures which result in
higher standards if there is scientific justification. They can also set higher standards
based on appropriate assessment of risks so long as the approach is consistent, not
arbitrary.
The agreement still allows countries to use different standards and different methods of
inspecting products.
Key Features
All countries maintain measures to ensure that food is safe for consumers, and to prevent
the spread of pests or diseases among animals and plants. These sanitary and
phytosanitary measures can take many forms, such as requiring products to come from a
disease-free area, inspection of products, specific treatment or processing of products,
setting of allowable maximum levels of pesticide residues or permitted use of only
certain additives in food. Sanitary (human and animal health) and phytosanitary (plant
health) measures apply to domestically produced food or local animal and plant diseases,
as well as to products coming from other countries.
Protection or protectionism?
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Sanitary and phytosanitary measures, by their very nature, may result in restrictions on
trade. All governments accept the fact that some trade restrictions may be necessary to
ensure food safety and animal and plant health protection. However, governments are
sometimes pressured to go beyond what is needed for health protection and to use
sanitary and phytosanitary restrictions to shield domestic producers from economic
competition. Such pressure is likely to increase as other trade barriers are reduced as a
result of the Uruguay Round agreements. A sanitary or phytosanitary restriction which is
not actually required for health reasons can be a very effective protectionist device, and
because of its technical complexity, a particularly deceptive and difficult barrier to
challenge.
The Agreement on Sanitary and Phytosanitary Measures (SPS) builds on previous GATT
rules to restrict the use of unjustified sanitary and phytosanitary measures for the purpose
of trade protection. The basic aim of the SPS Agreement is to maintain the sovereign
right of any government to provide the level of health protection it deems appropriate, but
to ensure that these sovereign rights are not misused for protectionist purposes and do not
result in unnecessary barriers to international trade.
Justification of measures
The SPS Agreement, while permitting governments to maintain appropriate sanitary and
phytosanitary protection, reduces possible arbitrariness of decisions and encourages
consistent decision-making. It requires that sanitary and phytosanitary measures be
applied for no other purpose than that of ensuring food safety and animal and plant
health. In particular, the agreement clarifies which factors should be taken into account in
the assessment of the risk involved. Measures to ensure food safety and to protect the
health of animals and plants should be based as far as possible on the analysis and
assessment of objective and accurate scientific data.
International standards
The SPS Agreement encourages governments to establish national SPS measures
consistent with international standards, guidelines and recommendations. This process is
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the same level of health protection, these should be accepted as equivalent. This helps
ensure that protection is maintained while providing the greatest quantity and variety of
safe foodstuffs for consumers, the best availability of safe inputs for producers, and
healthy economic competition.
Risk Assessment
The SPS Agreement increases the transparency of sanitary and phytosanitary measures.
Countries must establish SPS measures on the basis of an appropriate assessment of the
actual risks involved, and, if requested, make known what factors they took into
consideration, the assessment procedures they used and the level of risk they determined
to be acceptable. Although many governments already use risk assessment in their
management of food safety and animal and plant health, the SPS Agreement encourages
the wider use of systematic risk assessment among all WTO member governments and
for all relevant products.
Transparency
Governments are required to notify other countries of any new or changed sanitary and
phytosanitary requirements which affect trade, and to set up offices (called "Enquiry
Points") to respond to requests for more information on new or existing measures. Theyalso must open to scrutiny how they apply their food safety and animal and plant health
regulations. The systematic communication of information and exchange of experiences
among the WTOs member governments provides a better basis for national standards.
Such increased transparency also protects the interests of consumers, as well as of trading
partners, from hidden protectionism through unnecessary technical requirements.
A special Committee has been established within the WTO as a forum for the exchange
of information among member governments on all aspects related to the implementation
of the SPS Agreement. The SPS Committee reviews compliance with the agreement,
discusses matters with potential trade impacts, and maintains close co-operation with the
appropriate technical organizations. In a trade dispute regarding a sanitary or
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phytosanitary measure, the normal WTO dispute settlement procedures are used, and
advice from appropriate scientific experts can be sought.
Agreement on Subsidies and Countervailing Measures
The Agreement on Subsidies and Countervailing Measures (SCM Agreement)
addresses two separate but closely related topics: multilateral disciplines regulating the
provision of subsidies, and the use of countervailing measures to offset injury caused by
subsidized imports.
Multilateral disciplines are the rules regarding whether or not a subsidy may be provided
by a Member. They are enforced through invocation of the WTO dispute settlement
mechanism. Countervailing duties are a unilateral instrument, which may be applied by a
Member after an investigation by that Member and a determination that the criteria set
forth in the SCM Agreement are satisfied.
Structure of the Agreement
Part I provides that the SCM Agreement applies only to subsidies that are specifically
provided to an enterprise or industry or group of enterprises or industries, and defines
both the term subsidy and the concept of specificity. Parts II and III divide all
specific subsidies into one of two categories: prohibited and actionable(1), and establish
certain rules and procedures with respect to each category. Part V establishes the
substantive and procedural requirements that must be fulfilled before a Member may
apply a countervailing measure against subsidized imports. Parts VI and VII establish the
institutional structure and notification/surveillance modalities for implementation of the
SCM Agreement. Part VIII contains special and differential treatment rules for variouscategories of developing country Members. Part IX contains transition rules for
developed country and former centrally-planned economy Members. Parts X and XI
contain dispute settlement and final provisions.
Coverage of the Agreement
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Part I of the Agreement defines the coverage of the Agreement. Specifically, it
establishes a definition of the term subsidy and an explanation of the concept of
specificity. Only a measure which is a specific subsidy within the meaning of Part I
is subject to multilateral disciplines and can be subject to countervailing measures.
Definition of subsidy Unlike the Tokyo Round Subsidies Code, the WTO SCM
Agreement contains a definition of the term subsidy. The definition contains three
basic elements: (i) a financial contribution (ii) by a government or any public body within
the territory of a Member (iii) which confers a benefit. All three of these elements must
be satisfied in order for a subsidy to exist.
The concept of financial contribution was included in the SCM Agreement only after a
protracted negotiation. Some Members argued that there could be no subsidy unless there
was a charge on the public account. Other Members considered that forms of government
intervention that did not involve an expense to the government nevertheless distorted
competition and should thus be considered to be subsidies. The SCM Agreement
basically adopted the former approach. The Agreement requires a financial contribution
and contains a list of the types of measures that represent a financial contribution, e.g.,
grants, loans, equity infusions, loan guarantees, fiscal incentives, the provision of goods
or services, the purchase of goods.
In order for a financial contribution to be a subsidy, it must be made by or at the direction
of a government or any public body within the territory of a Member. Thus, the SCM
Agreement applies not only to measures of national governments, but also to measures of
sub-national governments and of such public bodies as state-owned companies.
A financial contribution by a government is not a subsidy unless it confers a benefit. In
many cases, as in the case of a cash grant, the existence of a benefit and its valuation will
be clear. In some cases, however, the issue of benefit will be more complex. For example,
when does a loan, an equity infusion or the purchase by a government of a good confer a
benefit? Although the SCM Agreement does not provide complete guidance on these
issues, the Appellate Body has ruled (Canada Aircraft) that the existence of a benefit is
to be determined by comparison with the market-place (i.e., on the basis of what the
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recipient could have received in the market). In the context of countervailing duties,
Article 14 of the SCM Agreement provides some guidance with respect to determining
whether certain types of measures confer a benefit. the context of multilateral disciplines,
however, the issue of the meaning of benefit is not fully resolved.
Specificity
Assuming that a measure is a subsidy within the meaning of the SCM Agreement, it
nevertheless is not subject to the SCM Agreement unless it has been specifically provided
to an enterprise or industry or group of enterprises or industries. The basic principle is
that a subsidy that distorts the allocation of resources within an economy should be
subject to discipline. Where a subsidy is widely available within an economy, such a
distortion in the allocation of resources is presumed not to occur. Thus, only specific
subsidies are subject to the SCM Agreement disciplines. There are four types of
specificity within the meaning of the SCM Agreement:
Enterprise-specificity. A government targets a particular company or companies
for subsidization;
Industry-specificity. A government targets a particular sector or sectors for
subsidization.
Regional specificity. A government targets producers in specified parts of its
territory for subsidization.
Prohibited subsidies. A government targets export goods or goods using
domestic inputs for subsidization.
Categories of Subsidies
The SCM Agreement creates two basic categories of subsidies: those that are prohibited,
those that are actionable (i.e., subject to challenge in the WTO or to countervailing
measures). All specific subsidies fall into one of these categories.
Prohibited subsidies
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Two categories of subsidies are prohibited by Article 3 of the SCM Agreement. The first
category consists of subsidies contingent, in law or in fact, whether wholly or as one of
several conditions, on export performance (export subsidies). A detailed list of export
subsidies is annexed to the SCM Agreement. The second category consists of subsidies
contingent, whether solely or as one of several other conditions, upon the use of domestic
over imported goods (local content subsidies). These two categories of subsidies are
prohibited because they are designed to directly affect trade and thus are most likely to
have adverse effects on t