GATT, the WTO and

Sustainable
Development
positioning
the work program
on trade and
environment

I N T E R N A T I O N A L I N S T I T U T E

IISD FOR SUSTAINABLE DEVELOPMENT

I N S T I T U T I N T E R N A T I O N A L
D U D ÉV E LO PP E ME N T D UR A B LE
IIDD
I NTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

GATT, the WTO and

Sustainable
Development
positioning
the work program
on trade and
environment

Copyright  1995 International Institute for Sustainable

Development (IISD)

Nevin Shaw, Executive Interchange Fellow and

Aaron Cosbey, Research Officer

INTERNATIONAL INSTITUTE

IISD FOR SUSTAINABLE DEVELOPMENT

INSTITUT INTERNATIONAL
DU DÉVELOPPEMENT DURABLE
IIDD

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PREFACE

IISD believes the transition to sustainable development will be

facilitated by bringing the trade, environment and development
communities together in a mutually supportive context. A starting set
of interlinked principles will enable the communities to understand
each other better and find common ground. This could lead them to
develop new rules and agreements that enhance the relationship of
environment and economy. IISD published Trade and Sustainable
Development Principles in February, 1994. We now believe this work
should be followed by specific analysis related to regional agreements
and to GATT.
Now that the Uruguay Round has been signed off in Marrakech, the
serious work of determining how GATT and the WTO should
address these issues can truly begin. We recognize that trade and
sustainable development matters are now just too big and pervasive to
be within the mandate and competence of any one international
institution. But it is essential for a clear vision to be developed at this
historical crossroads for the global trade framework.
This vision must not be limited to the modest gains of the past, nor
can it isolate environment from the mainstream of economic
considerations and wealth creation. From our discussions within
policy communities, among negotiators and international institutions,
we believe there is common ground but also still much dissent on
how GATT/WTO might move forward on agendas incorporating
environment and development. We believe this first year after the
Uruguay Round is a time to narrow differences, especially between
nations of the North and South.
IISD’s discussion paper is intended to stimulate consideration of an
appropriate agenda that would truly link trade and sustainable
development at the global level.

Arthur J. Hanson
President and CEO

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CONTENTS

SUMMARY 1

OBJECTIVE 5

PREVIEW 7

INTRODUCTION 9

GETTING STARTED 11

CONTEXT OF THE WORK PROGRAM 13

THREE PERSPECTIVES OF THE ISSUES 17

The Perspective of Non-Industrialized Countries 17

The Perspective of Business 21

The Perspective of Northern Environmentalists 24

A PRINCIPLED APPROACH 27

Issues for the Trade and Environment Committee 28

Issues Not the Exclusive Jurisdiction of the WTO 33

CONCLUDING NOTE 37

NOTES 39

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SUMMARY

On April 15 1994, over 100 of the world’s trade ministers met in

Morocco to sign off on the Uruguay Round of Multilateral Trade
Negotiations. At that time they also approved a programme of future
work for the proposed World Trade Organization (WTO) that
included a general framework for approaching issues of trade and the
environment. This paper explores how the unfolding of that work
program and the related work of other organizations, might help
facilitate a global transition to sustainable development.
Sustainable development should be the starting point, the key
objective, with the work on trade and environment constituting a de
facto trade and sustainable development program. In addition to the
proposed WTO, several other major international institutions should
be active in various aspects of promoting trade and sustainable
development. Our recommendations are linked to and grounded in
Agenda 21 of the 1992 United Nations Conference on Environment
and Development (UNCED) and to IISD’s Trade and Sustainable
Development Principles.
To set the context of the trade and environment work program, and
the pressures which will bear on its implementation, it is useful to
begin by summarizing the perspectives of non-industrialized
countries, business and environmentalists. It should be noted by way
of background that the overarching agenda has been driven largely by
the concerns of the U.S. and the E.U., which are responding to a
potent combination of pressures from domestic environmental and
business lobbies.
Many non-industrialized countries view the results of Uruguay Round
and related future work proposals as betrayal of Agenda 21, the
GATT principle of non-discrimination in trade, and the IISD
Principles. They are angry that they may be forced to alter their
spending priorities to deal with environmental problems, many
caused by consumption of the rich, when they have even scarcer
resources to look after immediate basic needs. They point out that
most of the measures called for in Agenda 21, designed to help them
build capacity to address problems of environmental integrity, have
not been forthcoming. The non-industrialized countries, therefore,
want to develop a range of disciplines to govern the use of
environmental and environment-related trade measures. They are also
seeking more market access, technology, funding and various forms of
assistance within a more democratic and just governance of the World
Bank, the International Monetary Fund and the proposed WTO.

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Business sees growth, induced by liberalized trade, as necessary for

improving environmental protection, providing the financial means
to make such protection possible. It wants greater certainty through
clarification of certain trade rules, and of their relationships to
multilateral environmental agreements. Like non-industrialized
countries, business is concerned about abuse of environmental and
environment-related trade measures and opts for specific disciplines to
ensure greater objectivity and certainty.
Environmentalists have been frustrated by a common failure to
integrate environment and economy in decision-making at all levels,
including trade policy. They worry that their successes in raising
domestic environmental standards will be undermined by the inability
to keep out imports from countries not following similar standards.
They therefore seek to “green” the world trading system, calling for a
permanent WTO Trade and Environment Committee and a body
outside the trade regime to liaise with other relevant organizations —
a sort of intergovernmental panel on trade and the environment. In
terms of specific policy changes, they hope the work of the
Committee can result in: a priori general exception to existing rules
for multilateral environmental agreements with enforcing trade
measures; discussion of unilateral use of trade measures against those
who use objectionable production and process methods; more open
GATT procedures; and attention to some of the concerns of
developing and “transition” economies.
We suggest a principled approach to deal with such differing
perspectives, based on considerations of efficiency, equity and
environmental integrity. A two-stage approach is advocated. The first
stage moves forward the issues recently discussed in the GATT
Working Group on Environmental Measures and International Trade,
and deals with the institutional questions of where, how and with
whom to address other issues. The second stage then covers such
issues as process and production methods, clarification of other trade
rules, environmental subsidies, export of domestically prohibited
products, technology transfer, payments for environmental services
rendered for the common good, and trade in services. We note with
regret that the Working Group and the GATT Committee on Trade
and Development, whose agendas have an important degree of
overlap, have not been integrated by the establishment of a single
Trade, Environment and Development Committee. At a minimum,
the relationship between the two separate Committees needs to be
clarified.
A number of necessary initiatives will not be the exclusive jurisdiction
of the proposed WTO, being as much related to environment and
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development as to trade. Many of these tasks are already being

addressed by various institutions. Such undertakings will need to
proceed on a parallel track to efforts within the WTO, and on a more
coordinated basis than is currently the case. International institutions
will in general need to stretch and cooperate to reflect growing
international economic and environmental interdependence. The
Organization for Economic Cooperation and Development and the
United Nations Conference on Trade and Development are asked to
do more research more effectively in relevant areas. The United
Nations Environment Program should provide leadership in
facilitating Multilateral Environmental Agreements. These
institutions as well as United Nations Development Program, the
World Bank, regional development banks and national aid agencies
are tasked with equipping needy countries to develop sustainably.
There is also a need to identify an international coordinating body to
deal with proliferating ecolabelling schemes.
Finally, we support the advocacy of Peter Sutherland, GATT’s
Director-General, to create a high level framework for economic
cooperation between the World Bank, International Monetary Fund
and GATT —- with the important provisos that environmental
cooperation also be on the agenda, and that such an agenda be
pursued within a wider, more democratic system of governance which
includes the relevant UN bodies, and which is open to meaningful
forms of participation by NGOs, including the business community.
This would help to ensure that environment and economy, of which
trade is a part, are made mutually supportive in the process of
sustainable development worldwide.

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GATT, THE WTO AND SUSTAINABLE DEVELOPMENT:

positioning the work program on trade and environment

OBJECTIVE

The objective of this paper is to sketch out a general approach which

might be followed in the unfolding of the WTO’s trade and
environment work program 1. It includes recommendations that the
Trade and Environment Committee (The Committee) focus on
specific issues. Much of what we say is also relevant to the
institutional questions which will be considered by the Preparatory
Sub-Committee, as regards The Committee’s relationships with other
organizations, and to the complementary work which those
organizations might pursue. Our approach is to focus on achieving
sustainable development, of which trade liberalization and protection
of the environment are parts —- parts that can be mutually
supportive and promote sustainable development worldwide.

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PREVIEW

The paper reviews some basic considerations which should inform

any decisions on implementing the work program. It then looks at the
current context to suggest a more inclusive approach to the program
than exists now. This is followed by a brief examination of the
perspectives of governments, business and northern environmentalists
with respect to selected issues. We note that the objectives of the
Marrakech decision are general rather than specific and argue that the
focus now should therefore be on guiding its unfolding in a manner
which is conducive to producing some early results and pave the way
for more extensive results subsequently. We also argue that one cannot
expect work leading to legally binding commitments to link trade and
environment without a commensurate result to cover development.
This requires effectively tasking other international organizations, not
only those related to trade, to provide operational linkages. An outline
of some of the necessary tasks is provided.

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INTRODUCTION

The 1992 United Nations Conference on Environment and

Development (UNCED) made it clear that we can no longer consider
environment, economic (of which trade is a part) and social
development policy objectives separately. The Rio Declaration
suggests that environmentally compatible economic development will
only occur if countries establish a genuine and continuously
supportive, cooperative and equitable global partnership involving
governments, their people and key sectors of societies to implement
essential multilateral agreements. Agenda 21 points out that the only
way to achieve this is to address environment and development
concerns at the same time, noting that economic policies of individual
countries and international economic relations both have great
relevance to sustainable development. It called for a balanced
comprehensive and successful outcome of the Uruguay Round of
Multilateral Trade Negotiations, including improved market access
and improved functioning of commodity markets which support
transition of developing countries to sustainable development.
It is important to also recall that concern over sustainable
development arose from the growing judgement that a planetary
increase in production and consumption to meet the expected several
fold increase in demand was simply unsustainable. The need for
altered production and consumption patterns and a reallocation of
resources had to be collectively and equitably addressed. UNCED
parties agreed that this would generally require an open, equitable,
secure, non-discriminatory and predictable multilateral trading
system. They also warned against the use of trade restrictions or
distortions as means to offset differences in cost arising from
differences in environmental standards and regulations. Further, they
agreed to shun unilateral actions to deal with environmental
challenges outside the jurisdiction of the importing country, opting
instead for international cooperation. It was also agreed that
sustainable development would require domestic reforms and
assistance programs in areas such as economic development, improved
market access and commodity prices, environmental management,
technology transfer, financing (debt relief, foreign investment, official
development assistance) and institutional capacity building. Indeed,
internalization of environmental costs was fundamentally tied to such
positive actions.
The world community of nations has not adequately addressed
questions of how to deal with the expected massive increase in
demand for goods and services in ways which respect the integrity of
the environment and treat people equitably. Sustainable development 9
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

not only requires growth but also a change in the quality of growth, to
make it less material- and energy-intensive and more equitable in its
impact. These changes are required globally as part of an inter-
connected package to maintain the stock of ecological capital, to
improve the distribution of income and to reduce the degree of
vulnerability to economic crises. How we further construct the
institutions and mechanisms to cope with this need — and how we
avoid potential conflicts — are the central issues we must grapple
with.

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GETTING STARTED

We believe that profound changes in world economic and

environmental relations are needed if trade is to make its full potential
contribution to sustainable development. These changes should be
based upon a commonly agreed set of indivisible principles from
which new rules, agreements and conventions can be derived over
time. The International Institute for Sustainable Development (IISD)
released its Trade and Sustainable Development Principles in
February, 1994 to suggest new ways to define and address shared
concerns of the trade, environment and development communities 2.
These Principles are an interlinked set, in line with the spirit of the
Rio Declaration and Agenda 21. The principles encourage:
• progressive internalization of unpaid environmental costs in the
prices of goods and services, and trade liberalization, to improve
efficiency
• trade liberalization and other critical proactive measures to
promote equity today and tomorrow (additional market access,
building capacity to manage the environment, debt relief,
funding, investment and technology transfer)
• special efforts to respect and help maintain the regenerative
capacity of ecosystems, avoid irreversible harm to plant and
animal populations and species and protect designated
parklands (where such efforts require the use of GATT-
inconsistent trade measures, they should be within the context
of prior internationally agreed criteria)
• implementation of environmental measures at a jurisdictional
level appropriate to the geographic scope of the problem, and
cooperative efforts to this effect where there are significant
transborder impacts
• better international cooperation across the board, as well as
more open, effective and impartial dispute settlement
procedures
• balancing the magnitude of potential environmental damage
and the risk of its occurrence against the cost of preventing it,
and adopting a precautionary and adaptive policy approach
based on objective factors
• timely, easy and full access to information by all affected or
interested parties, and public participation and accountability in
the decision-making process
These principles need to be applied to the implementation of the
work program, in ways that are detailed below.
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CONTEXT OF THE WORK PROGRAM

Policy-makers everywhere are finding their challenges ever more

daunting. They are under increasing pressure to broaden their foci,
one salient example being the current demands to include
environmental and development considerations in the formulation of
trade policies. Yet this comes in the context of an extremely dynamic
and complex global system of economic and political relationships,
where we increasingly experience unexpected changes, uncertainties,
and the resulting unintended effects of public and private sector
actions. The implications of efforts to liberalize trade, protect the
environment and support economic development are not well
understood.
There is an urgent need to better understand the differing values,
assumptions, goals, priorities and decision-making practices in these
fields, with particular attention to differing national legal systems and
cultures, and the resulting challenges for effective cooperation. The
broader issues of linkage raised by efforts to integrate trade,
environment and development nationally and through key inter-
governmental organizations are also poorly understood. Progress
depends on effectively addressing gaps in knowledge and tools of
analysis and their practical applications to guide policy dialogues and
decision-making processes. It also depends on not ignoring principles
such as equity, multilateralism and openness.
On April 15, 1994, the Contacting Parties to the General Agreement
on Tariffs and Trade (GATT) came together in Marrakech to sign the
results of the Uruguay Round of Multilateral Trade Negotiations —
this was recognized by the Earth Summit in Rio in 1992 to be the
most important contribution that governments could make to
improving the policy options for combating poverty, protecting the
environment and promoting sustainable development. The Parties
approved the transformation of GATT to World Trade Organization
next year, covering goods, services, intellectual property and
investment within a broader and perhaps more enforceable dispute
settlement process.
There are some aspects of the new order which should be welcomed
by those who strive for sustainable development. The Multi-Fibre
Agreement, a quota system used effectively for decades against
developing country textile imports, will be phased out over a 10 year
period. The Agreement on Technical Barriers to Trade recognizes that
no country should be prevented from taking measures necessary to
protect human, animal and plant life or health or the environment
within its own borders, provided they generally respect the principle
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of non-discrimination and are no more trade restrictive than

necessary. The Agreement on Agriculture should reduce incentives for
environmentally harmful farming, given its disciplines on market
access, domestic subsidies and export competition. The Agreement on
Subsidies and Countervailing Duties allows genuine non-actionable
environmental subsidies. The Agreement on Trade-Related
Intellectual Property Rights should encourage innovations to support
the environment, as well as exclude certain items from patentability to
avoid harm to the environment (how to do so is the subject of some
debate). As well, the General Agreement on Trade in Services contains
a ministerial recommendation to examine and report on the
relationship between services, trade and the environment.
One of the results of the April meeting was the approval of a work
program to guide the GATT/WTO over the coming years. Among
other things, the program laid out how to ensure better policy
coordination and multilateral cooperation over the linkages between
trade and environment — a theme that has been addressed for several
years now by the GATT Working Group on Environmental Measures
and International Trade and the Committee on Trade and
Development.
The Group on Environmental Measures and International Trade in
part anticipated Agenda 21 recommendations and UNCED follow-
up, as indicated by the Ukawa Report 3. The Report deals with trade
provisions in multilateral environmental agreements, transparency of
trade-impacting national environmental regulations and the trade
effects of new packaging and labelling requirements aimed at
protecting the environment.
The Committee on Trade and Development has discussed the
interface between trade, environment and development, the relevance
of trade rules to the interface; and improving market access. It
proposes a program to achieve sustainable development by addressing
such issues as differences in consumption and need; the relationship
of poverty to environment, technology, trade liberalization, funding
and compensation for the provision of environmental services;
avoiding environmental measures which distort trade; and improving
market access for new environmentally friendly goods and services
through removal of trade barriers and tariff escalation. The risk exists
that the Trade and Development Committee will be marginalized in
the context of the politics of the proposed Trade and Environment
Committee, or lose relevance.
The Trade and Environment Decision agreed to in Marrakech
presented “the program of work, and recommendations on an
institutional structure for its execution” 4. The text suggests that
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modification of existing GATT rules (“compatible with the open,

equitable and non-discriminatory nature of the system”) might be
contemplated as a result and over time 5. This will be based on results
of identifying the relationship between trade measures and
environment measures in order to promote sustainable development.
The agenda items to be initially addressed by the Trade and
Environment Committee include:
• use of trade measures for environmental purposes
• environmental measures with significant trade effects
• charges and taxes for environmental purposes
• environmentally related packaging and other requirements
• transparency obligations with respect to trade measures used for
environmental purposes and environmental measures with
significant trade effects
• available dispute settlement processes
• the effect of environmental measures on market access and the
environmental benefits of removing trade restrictions and
distortions
As well, the Committee will be charged with addressing the workplan
envisaged in the Decision on Services and the Environment, and the
relevant provisions of the Agreement on Trade-Related Aspects of
Intellectual Property Rights. The Committee on Trade and
Development clearly shares interest in this agenda. The task of the
Working Group on exports of domestically prohibited goods is also
relevant.
The work program will certainly affect the operations of organizations
such as the UN Commission on Sustainable Development (CSD), the
United Nations Conference on Trade and Development (UNCTAD),
and United Nations Environment Program (UNEP), in that it
involves consideration of work planned or ongoing in those fora on
various aspects of trade and sustainable development.
The institutional structure by which the work program is executed
has great potential to affect global sustainable development. As more
and more economic activity becomes transnational, and as trade rules
expand to cover areas such as investment measures, services and
intellectual property rights (IPRs), it becomes more and more urgent
that the integration of economy and environment be taken to the
level of the international system of trade — a system which now
covers over $5 trillion dollars in transactions annually.
This integration must move beyond trade and environment concerns,
however, and be based on principles of trade and sustainable 15
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development. The increasingly aggressive promotion of an agenda on

trade and environment is seen by vulnerable countries to be woefully
inadequate. Many in the North see sustainable development as simply
environmental protection, ignoring the development side of the
equation. But dealing effectively with the needs of the world’s poor,
and the special problems of developing and “transition” countries in
successfully implementing growth and distribution policies, is
essential to resolving the conflicts of trade and the environment. It is
imperative that the GATT/WTO’s trade and environment work
program be a de facto trade and sustainable development work
program, integrating the objectives of the trade, environment and
development communities. There is a very real danger that the
economic development dimension of the work program will be
fundamentally lacking.

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THREE PERSPECTIVES OF THE ISSUES

What follows is an attempt to lay out the trade and sustainable

development perspectives held by the non-industrialized countries,
the business community and the environmental community, with
some emphasis on what each is looking for in the unfolding of The
Committee’s program of work. It should be noted at the outset that
all three are in fact very heterogeneous groups, each embodying many
differing agendas and priorities. The perspectives presented are
necessarily composites, based on written output (much focused
specifically on the GATT/WTO work program) and extensive
personal consultation.
By way of setting the context, we note that the overarching agenda
has been driven largely by the concerns of the United States (US) and
the European Union (EU). These governments are responding to a
potent combination of pressures from the environmental
communities and the competitiveness, or “fair trade”, lobbies. The US
has pursued the most ambitious objectives, covering environmental
measures, economic instruments, production process standards
(PPMs), competitiveness, principles, etc. It is also perceived as seeking
to legitimize trade measures which extend US standards to others on
both a multilateral and unilateral basis 6. The EU seems to oppose US
unilateralism, but at the same time is seen to be open to a common
U S -EU approach. It has tried to obtain an exemption from GATT
rules for Multilateral Environmental Agreements (MEAs), including
“regional agreements”, perhaps in an attempt to create the scope for
EU members and like-minded associates to extrajurisdictionally apply
process and production standards on which they agree. Both the US
and the EU are seen to want more effective institutions free to act
decisively on key issues as the two define them.

The Perspective of Non-Industrialized Countries7

The hopes of many non-industrialized countries were raised by
Agenda 21 and its promise of the possibilities for achieving
sustainable development. Instead such countries are now bitter about
the results of the Uruguay Round in terms of meaningful market
access for goods and services and a much smaller proportion and
slower pace of reduction of subsidies and the tariffication of market
access in agriculture. They claim to have made “disproportionate”
concessions in areas such as intellectual property, investment and
services which they vowed not to make only a few years ago. Many
resent those aspects of the negotiations which took place non-
transparently among a few to make their own deals and impose the
results on others. The changing goals of the major players were 17
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accommodated by the negotiating processes through altered mandates

in particular subject areas, even when this upset the original balance
of agenda items.
There is a perception, held by many governments and most NGOs in
non-industrialized countries, that yet another set of conditionalities is
being undemocratically imposed on them, in addition to those of the
International Monetary Fund and the World Bank. Such countries are
increasingly adopting the freer trade and investment regimes
emphasized in Agenda 21 and promoted by many industrialized
countries. Now, however, they are being told that these reforms will
only be supported if the US/EU environmental agenda is also
adopted. This includes internalization of environmental costs as
identified by the North, including, for example, acceptance of limits
or bans on harvesting of tropical forests. While Agenda 21 does make
domestic governments of all countries responsible for respecting
environmental integrity, the measures it called for to help developing
countries in that undertaking have for the most part not yet been
forthcoming. Instead, the weak countries are being told to provide a
level playing field for the rich by investing in more costly
environmental standards. The fact that these investments crowd out
development dollars and often address environmental problems which
are the result of industrialization and consumption of the rich are
ignored repeatedly. Instead, there are growing threats of the use of
import restrictions, eco-dumping and countervailing duties, and
border taxes.
The northern governments, industries and environmental non-
governmental organizations (NGOs) that are agitating for an
ambitious trade and environment work program have yet to take
serious account of this situation. Indeed, they continue to make
greater demands on those who are staring at a possible “mirage” of
market access in this Round. Even well-intentioned measures to
protect the environment can and are at times designed to
disadvantage foreign producers in terms of competitiveness and
market access. These parties have yet to acknowledge publicly the
extent to which they are violating Agenda 21 which, for example,
requires them to not use trade restrictions as a means to offset
differences in costs arising from differences in environmental
standards and regulations. Instead, they are threatening to add labour,
tax and possibly other standards under the guise of competitiveness 8.
As a result, many non-industrialized countries are reluctant to deal on
the subject of trade and environment. In areas where millions die
every year from such basic environmental problems as lack of clean
water and sanitation, the environmental issues being addressed by
18 some northern NGOs seem remote, and dictated by a far different set
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of priorities 9. If non-industrialized countries are to be able to deal

responsibly with their environmental problems, and contribute to
solving problems of a global nature, they must at a minimum be able
to simultaneously deal with the problems of underdevelopment.
As well as having to deal with such difficult traditional development
issues as sanitation, nutrition and education, the poor countries of the
world have pressing capacity problems when it comes to dealing with
issues of environmental resource management. They lack financial,
technical and managerial capacity in such areas — and crushing
external debt and highly protected Northern markets make such
deficiencies difficult to address. The fear — to some extent justified
by the coercive process and sparse results of the Uruguay Round
negotiations, and by the trend towards reduced commitments in the
OECD countries to foreign assistance — is that the results of any
trade and environment discussions in the WTO will be legally
binding commitments to deal with environmental priorities of the
North, in return for uncertain promises to deal with issues of
development at some later date, on an issue by issue basis.
The position of the non-industrialized countries is, therefore, to try at
all costs to more carefully balance the discussion of trade and
environment issues in the WTO, fearful that any inch given will
result in miles taken. The position is:
• there should be a review of environmental measures which have
a significant trade effect with a view to determining their
consistency with GATT/WTO rules, as well as a review of such
rules to uphold and safeguard an open, non-discriminatory and
equitable trading system
• the WTO should improve mechanisms to ensure that
transparency requirements in the formulation and
implementation of trade related environmental measures are
met. In particular they want to examine environmental
requirements relating to products, packaging, labelling,
recycling and disposal and their effects on trade
• Contracting Parties should avoid unilateral imposition of trade
measures to achieve environmental goals
• Contracting Parties should respect fundamental tenets of non-
discrimination in the use of trade measures against non-parties
to MEAs
• measures adopted for environmental protection should be
legitimate, least trade restrictive and objective
• trade measures should not be used to address competitiveness
problems, nor as instruments of pressure 19
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• the WTO should improve links with other relevant

organizations
• the WTO should analyze recent cases of trade-environment
friction to assess trends and soundness/ fairness of measures used
• there is a need for an organizational structure which respects
these and other commitments in Agenda 21
As well, on a more proactive level, many non-industrialized countries
would like to see measures which would help improve both their
economies and their environments, such as:
• expansion and enhancement of public and private sector
mechanisms for technology transfer — stronger intellectual
property rights and a liberal investment regime are not enough
• improved market access for commodity products in primary and
processed forms via, for example, reduced tariff escalation
• substantial and progressive reduction in subsidies which induce
inefficient industrialized country production (e.g., agriculture,
textiles)
• capacity-building measures in environmental resource
management, public education, etc.
• where appropriate, financial assistance in the form of grants,
loans, debt relief, etc.
• a ban on the export of domestically prohibited goods
• a serious effort in general to deal with the spirit of Part IV of
GATT which is intended to give the overwhelming majority of
the world’s countries and people a fair shake in the system
Articles XXXVII-VIII represent a commitment to accord high priority
to the reduction and elimination of barriers to products currently or
potentially of particular interest to non-industrialized countries,
including customs duties and other restrictions which differentiate
unreasonably between such products in their primary and processed
forms. The Trade Policy Review Mechanism and other tools should
be used to make industrialized countries individually and jointly more
accountable in this regard and to halt introduction or increase in such
barriers.
From a non-industrialized country perspective, a WTO work
program which generates and legitimizes ambitious changes in legally
binding trade rules to protect the environment while ignoring
development concerns will further erode sovereignty and ultimately
result in painful domestic disorder. Economically, this would arise
from the additional burdens placed on domestic industries in the
20 process of “greening”. Politically, it would arise from the perception in
 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

the eyes of the domestic public and political opponents that

governments were bowing to yet another set of externally imposed
demands from the Bretton-Woods institutions. In the eyes of these
critics, such demands are seen to ignore essential national differences
in such areas as development priorities, risk tolerance, environmental
conditions and ability to pay.
A disproportionate focus on what the WTO can do for the
environment may excessively sap the energy of many countries to take
action to protect the environment, if it causes their administrations to
be preoccupied with the demands emanating from The Committee’s
work program. Many countries are barely in the process of integrating
the relevant policies. There is a danger in using trade policy as the sole
lever for change when environmental policy too must be improved.
As well, such a focus on trade may lead non-industrialized countries,
stung by lack of market access and threatened by new forms of trade
barriers, to question the overall contribution of trade to their future
development. And increasing references in industrialized countries to
their difficult fiscal positions, and corresponding impacts on foreign
assistance and export financing, suggest a reduced commitment to
build capacity to improve the environment and to assist in the
economic development efforts of the weaker parts of global society.
Growing allegations about the non-transparent and undemocratic
governance of key Bretton Woods international institutions to control
non-OECD countries only serve to feed these concerns.

The Perspective of Business10

Business works from the fundamental starting assumption that trade,
as an engine of economic growth, is essential for sustainable
development. It asserts that effective environmental protection is
unlikely to grow out of weak, debt and recession ridden economies. It
views efficient and dynamic economic growth, induced by liberalized
trade, as a necessary fund-generating element in enhanced
environmental protection.
The aim of business is to foster a climate within which such growth
may take place. To that end, much of the efforts of the business
community in the trade and environment debate are devoted to
trying to achieve some measure of certainty — to creating a clear set
of rules with predictable consequences, by which investors may be
guided in long-term decision-making. Given that trade and
environmental policies currently interact in relatively dynamic and
untested waters, business sees the unsettling likelihood that today’s
investment decisions will become mistakes in retrospect, as a result of
reinterpretation of trade rules on environmental grounds. The
21
importance of minimizing investor risk through greater certainty
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

therefore drives many of the specific policy positions that business

takes on trade and sustainable development issues.
Business would like to see clarification of some rules of multilateral
trade. There is uncertainty about the intent and scope of certain
portions of the Uruguay Round results as they relate to the
environment, specifically in parts of the Agreements on Technical
Barriers to Trade, Trade-Related Intellectual Property Rights, and
Sanitary and Phyto-Sanitary Measures. As well, there is the longer-
standing uncertainty as to the scope of the Article XX general
exceptions as they apply to environmental protection. Some have
suggested that the negotiation of interpretive statements might be of
some value.
Similarly, business would like clarification of the relationship between
the provisions of the GATT and those existing (and future) legally
binding MEAs that have trade measures and sanctions, to resolve
conflicts while observing and strengthening GATT principles.
Mechanisms should be developed to resolve disputes arising from
such actions, which may affect trade and investment flows.
Harmonization of standards is not a function of WTO, but a further
clarification (or simplification) of the trade rules applicable to
harmonization is seen as desirable. Business also recognizes grounds
which justify differences: e.g., differing environmental conditions and
levels of development. It therefore opts for mutual recognition as a
workable alternative.
Many in the business community fear that trade policy measures
adopted for environmental purposes will inevitably be used as a
means of arbitrary or unjustifiable discrimination or a disguised
restriction on trade. To reduce the scope for abuse from “green” trade
protectionism, they advocate that such measures be consequent upon
internationally agreed procedures and should be subject to trade rules,
especially those governing transparency and non-discrimination.
A related worry begins with the suspicion that even legitimate trade-
related environmental measures may be highly disruptive of trade
flows, particularly measures contained in MEAs. This in itself is cause
for concern, but the real issue is in determining how the attendant
environmental benefits measure up with their economic costs. This is
the issue of proportionality, and most in the business community
would like to see procedures established which test trade-related
environmental measures to ensure that: 1) their costs are not
disproportionate to the objectives being sought, and; 2) any such
measures are the least trade restrictive measures available, of the range
of equally effective policy alternatives. In general, business argues that
22 international standards should be formulated which establish rational,
 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

objective, scientifically-based, cost-effective and performance oriented

criteria for trade-related sustainable development measures (which
includes environmental protection).
Business believes dispute settlement should be transparent, inviting at
the outset comments by interested non-governmental experts, and
providing an opportunity for comment before any final report is
submitted for adoption. Where the dispute is about the unnecessary
trade restrictiveness of national standards, the adjudication procedures
should distinguish between degree of risk acceptable to particular
parties and the scientific legitimacy of standards adopted to
implement that degree of risk. It is essential to reach separate
judgements about the scientific basis for the dispute and about
whether the standard in question is unnecessarily trade restrictive.
The former should involve consideration of the latest relevant
scientific data and knowledge, feasibility, practical experience and
standards used elsewhere for similar purposes. The latter involves
consideration of whether the effects on trade are incidental, the
burden on imports is excessive relative to the environmental benefit
and another measure could promote the legitimate environmental
objective.
In keeping with the desire for greater certainty and for increasingly
liberalized trade, business argues that international problems
(transboundary, global) should be tackled by means of international
agreements, not by trade distorting or punitive measures. Specifically,
there is concern that the use of trade sanctions to enforce
environmental policies or MEAs should be avoided, as should
unilateral actions to deal with environmental challenges outside the
jurisdiction of the importing country. Multilateral agreements to deal
with environmental management issues involving transborder or
global ecological problems are the preferred policy response and
should be encouraged over purely national measures involving the use
of trade measures and sanctions. There may be willingness to explore
trade-distorting or punitive measures and the criteria for their use
within the specified disciplines of a genuine MEA.
Some in the business community argue the limitations of the
GATT/WTO in approaching trade and environment issues, and urge
that clear and rational institutional linkages be established with the
other Bretton Woods institutions, the relevant UN agencies, and with
secretariats of the various MEAs. Some have proposed that this could
come about in the context of the Committee on Trade and
Environment, and have suggested that The Committee might also
maintain links with private sector and environmental expert groups.
By whatever mechanism, all of the business community advocates an
openness of process which includes their voices (among others) in 23
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

decisions which will affect trade and investment flows. This might
include fora ranging from outside expertise in dispute settlement
proceedings to representation on standard-setting bodies.
Finally, some business groups have called for a reduction in tariffs on
processed goods “to allow developing countries to sustainably manage
their resources and minimize environmental impacts.” They call for
the work program to examine how such initiatives might be used to
support sustainable development.

The Perspective Of Northern Environmentalists11

Since well before the time of the Brundtland Commission,
environmentalists have espoused the need to integrate environmental
and economic objectives, and warned that failure to do so will
eventually result in poor performance on both fronts. In a world
characterized by growing economic interdependence, and where
ecosystems and environmental effects respect few borders, the need
for such an integration will often have to be international. In 1987 by
Brundtland, and again in 1992 by the UN Conference on
Environment and Development, this message was confirmed and
reinforced.
It is only in the last three years or so that environmentalists had really
begun to direct their attention to the GATT, and ask how such an
integration was proceeding on that front. Their perception was that it
was not, and that the GATT was woefully ignorant of international
environmental problems.
More than any issue, the 1991 US-Mexico Tuna-Dolphin dispute
brought the GATT under this type of scrutiny. One of the greatest
fears of the environmental community, highlighted by this case, is
that high process standards which they achieved only after decades of
legal and political battle, involving extensive public mobilization and
education, will now be eroded by imports from countries where such
standards are not followed12. They also fear that efforts towards
harmonization will lead to the erosion of the “regulatory leader”
effect, by which jurisdictions with great market power such as
Germany and California in effect drive international standard-setting
and technological innovation through high local standards. The
results of such processes — unleaded gasoline, advances in alternate
forms of power provision and new technologies for recycling and
packaging — are rightly considered environmental triumphs.
Many environmentalists are wary of multilateral processes, a caution
born of years of struggle against unsympathetic political powers,
anxious to bury environmental concerns in lengthy and unproductive
24
bureaucratic procedures. In that context, the appeal of the big stick
 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

approach, especially to those holding the stick, is great. The tangible

benefits in environmental terms of such an approach, weighed against
the difficulties of more consensus-based multilateral efforts, add to
the temptation. For example, the successful results of the campaign
for a UN ban on driftnet fishing, which was achieved by unilateral
threats, stands in sharp contrast to the perpetually troubled efforts of
the International Whaling Commission, an institution relying on
consensus, without sanctions as “teeth”. Not enough
environmentalists are sensitive to the development limitations facing
poorer countries, and reluctance of vulnerable countries to deal with
trade and environment issues appears to them as more of the same
government recalcitrance with which they are only too familiar.
In that context of mistrust and antagonism, the objectives of the
environmental community are to have their concerns dealt with in
very specific terms. To many environmentalists, the general language
of The Committee’s work program simply means more scope for
subsequent waffling and bad faith efforts. Some of the specific
demands are:
• that the Committee be established as a permanent body — a
standing Committee on Trade and the Environment.
• the establishment of an intergovernmental panel, similar to that
which dealt with climate change issues, to deal with the issues
outside the scope of the GATT/WTO itself (e.g., natural and
social scientific research, fostering international environmental
agreements and commodity agreements, facilitating the
diffusion of clean technologies, etc.)
• a GATT definition of MEAs, with an a priori exemption from
GATT rules for such agreements allowing for discriminatory
trade measures as enforcement mechanisms
• discussion of how to allow for discrimination on the basis of
PPMs, meaning, for example, the right to levy countervailing
duties in cases of “eco-dumping”. Both this and the above issue
relate to the more general desire to see an “internalization” of
external environmental costs
• greater openness of GATT/WTO processes to public scrutiny
and public influence. Included are calls for such things as:
— greater openness of GATT/WTO-designated standard-
setting bodies (on sanitary and phytosanitary standards,
for example)
— the publishing of dispute panel decisions and panel
arguments
25
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

— observer status at dispute panels and negotiating sessions

(direct access)
— the right to submit amicus briefs to dispute panels
— the right of a disputant to call in environmental expertise
in a dispute proceeding
— regular consultations on key issues
More and more, the environmental community is becoming aware of
the need to integrate development issues in the trade and
environment debate. The result has been calls for the GATT
Contracting Parties to act on a number of trade and sustainable
development issues. Among them:
• a reduction of environmentally and economically damaging
agricultural subsidies in industrialized countries
• a similar reduction in escalating tariffs which block developing
country exports and frustrate diversification away from basic
natural resource extraction/harvest
• commodity agreements which give greater returns to primary
producers
• capacity-building for environmental management in developing
countries
• debt relief and increased development assistance
• the need for the above-mentioned intergovernmental panel to
integrate the work of organizations with environment and
development expertise (e.g., UNCTAD, UNEP, UNDP, CSD)
with the work of the WTO

26
 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

A PRINCIPLED APPROACH

Given the widely disparate perspectives and shopping lists outlined

above, the atmosphere of mistrust and uncertainty that surrounded
the negotiation of the WTO’s trade and environment work program,
and the pressing need for international action to foster sustainable
development, what is the best result that can be expected following
Marrakech? IISD’s Trade and Sustainable Development Principles,
formulated as they were by a group familiar with trade, environment
and development concerns, are instructive in pointing the way to
possible common ground, to give some operational and pragmatic
focus.
If sustainable global development is to be achieved, The Committee
and its precursor must begin with certain reaffirmations which would
guide the implementation of the work program:
• the essential needs of the world’s poor should be given
overriding priority through more effective and appropriate
domestic and international policies and practices
• the environment’s ability to meet present and future needs must
be primarily supported by national governments through more
effective and appropriate domestic and international
environmental policies and practices (such as measures for cost
internalization)
• a more serious effort must be made to liberalize trade and give
the majority of the world’s people alternatives to current, at
times unsustainable, livelihoods
• the major participants should respect multilateralism rather than
seeking scope for unilateral trade restrictions which extend their
standards and choices to others. (International cooperation on
global sustainable development concerns such as biodiversity,
and forest issues will not be forthcoming from countries who
feel they have been coerced in other fora.)
It should be noted at the outset that it would probably be counter-
productive for The Committee to spell out a detailed program of
work at this point. There has not yet been the time or the thoughtful
consideration that should lead to such a program — the attention of
the trade community has understandably been focused on completing
the Uruguay Round — and the results of hasty planning would likely
be regretted at a later point. This is particularly so since the issues
currently contemplated as part of the agenda tend to be lacking in
consideration of development concerns.
The question should be re-worked, then, to ask what should be
looked for in the unfolding of that program of work, given the 27
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

Decision on Trade and Environment endorsed by the Ministers in

Marrakech. Given the concise but open-ended agenda that was
negotiated, it is probably more realistic for the program to proceed in
two stages. The first could involve a continuation (perhaps with
added or modified emphases) of the work done by the Working
Group and Committee on Trade and Development, and could also
involve addressing issues of institutional structure, such as openness of
the WTO processes as well as operational linkages with other
organizations in the fulfilment of the work program. The second
could involve, having established the framework within which to treat
them, the consideration of the other issues of substance described
below.
There are two types of issues which need to be addressed: those which
relate directly to The Committee itself, and those which may be
outside the scope of the WTO alone, but which need to be addressed
if trade and sustainable development are to be optimally compatible.

Issues for the Trade and Environment Committee

1. Trade and Sustainable Development Principles.
At the outset, the program of work on trade and the environment
should seek to define a starting set of principles that will guide makers
of trade policy and trade-related environment and development
policy, to ensure the promotion of sustainable development. This
would provide a commonly-agreed framework from which to
proceed, and would make subsequent efforts to deal with the issues
that much easier. IISD’s work on principles might be valuable in this
regard. The work of the OECD Joint Experts group and of
UNCTAD might also be taken into account. We believe that without
such a starting point, the issues of equity and fairness will be
marginalized in the efforts to accommodate the very necessary
environmental agenda. We also believe that to do so is in nobody’s
long-term interest.
2. Current Topics Under Examination.
The work program should include the three items which were
discussed by the GATT Working Group: trade provisions contained
in existing MEAs vis-a-vis GATT principles and provisions;
multilateral transparency of national environmental regulations likely
to have trade effects, and; trade effects of new packaging and labelling
requirements aimed at protecting the environment. These are all
topics of some interest to non-industrialized countries, and to
business, who give a high priority to improving GATT discipline to
ensure that environmental measures and trade interact in a mutually
28 supportive manner.
 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

3. Multilateral Environmental Agreements.

Progress in dealing with the relationship of MEAs with trade measures
to the WTO could be quite a substantive achievement. The work of
The Committee should result in recommendations to ensure that
trade rules do not interfere with a decision by the world community
to include specific trade measures in a genuine MEA. Since
circumstances of future MEAs are likely to be heterogeneous, a boiler-
plate formula to exempt them a priori from WTO rules is unlikely
generally acceptable. Such exemptions may have to wait until the
international community gains more experience with such
agreements, and trust levels are built up. Until that time, MEAs with
trade sanctions should seek WTO waivers on a case-by-case basis
which reflects a measured flexible approach. The process to be used in
negotiating an MEA and the criteria which would need to be met so
that the MEA qualifies for a waiver should be set out:

• the MEA should be developed under the aegis of UNEP

• participation should be available to all on a non-
discriminatory basis, with a substantial consensus from
producing, consuming, damaging and benefiting
countries, from the different regions affected
• there should be a multilateral review of the specific nature
and extent of the threat to environmental integrity, and
clear analysis of the various policy options for addressing
them
• the benefits and costs of any package of remedial measures
should be negotiated and equitable, with special attention
to the differentiated needs and responsibilities of poorer
countries
• there should be clear and enforceable obligations,
including dispute settlement procedures
• trade measures used as enforcement mechanisms should be
defensible on grounds of necessity, effectiveness,
proportionality and specificity
• there should be clear definition of what constitutes a
significant free rider country to be targeted for punitive
measures
• there should be good faith attempts to avoid use of trade
measures through incentives to encourage participation,
such as technology cooperation, training, funding, etc.
4. Process and Production Methods.
There have been a number of calls for The Committee to address the 29
issue of PPMs. The most widely integrated — and therefore the
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

best — forum for addressing disparities of PPM standards is via

multilateral agreements, which are discussed above. The forum should
be multilateral because there is considerable scope for legitimate
differences in such standards across jurisdictions, due to differing
environmental circumstances, and in line with different development
priorities. There is great potential for a significant disruption of global
trade flows from increased unilateral adoption of standards for PPMs.
Yet there have been, and will continue to be, those who use unilateral
trade measures to address differences in environmental standards for
PPMs. The work program should seek to spell out specific disciplines
on the use of unilateral trade-related environmental measures
designed to affect PPMs abroad. Many, particularly in vulnerable
countries, feel that such measures are unacceptable under any
conditions. Business is concerned that confidential information may
have to be disclosed to gain acceptance. Indeed, IISD’s Principles
characterize unilateral measures as signifying policy failure by all
concerned, and the principle of Subsidiarity argues that where effects
are localized, PPMs are usually a domestic sovereign concern. We are
arguing for a workable compromise, given that such measures have
been used in the past and will continue to used, and on the
understanding that a rules-based approach to the issue will benefit
vulnerable countries (and others) in the long run. As well as
specifying what types of measures are acceptable in what
circumstances, the WTO should set criteria and prerequisites for such
actions based on the criteria presented above in the discussion of
MEAs and others (e.g., compensation for the loss of expected benefit
from negotiated market access, or acceptance of withdrawal of
equivalent trade benefits). It is essential that in the elaboration of such
new rules, special consideration be given to the needs of developing
and transition countries.
5. Institutional Body on Trade, Environment and Development.
We believe that the mandate of the Trade and Environment
Committee should be expanded to include issues of development.
Indeed, the Committee should be renamed Trade, Environment and
Development Committee. This would signal a new beginning —- the
beginning of an interlinked consideration of the key issues of
sustainable development. The environment community has preached
such an integration for some time and the Brundtland Commission
and Agenda 21 advocate the indivisibility of the underlying issues.
And IISD’s Trade and Sustainable Development Principles also urge
an integration of the economy and the environment in decision
making.
The proposed Committee should reaffirm and build upon the spirit
30
of Agenda 21 by undertaking to bring forward recommendations
 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

which link the schedule of progress in environmental protection to

that of development. A separation of the two will allow the dominant
parties to continue to trivialize development and trade concerns: in
effect to build a ramp for environmental and protectionist interests to
make demands of non-industrialized countries and business which
will create a race to the bottom in international relations. We think,
therefore, that it is unfortunate a recommendation has been made to
establish a Trade and Environment Committee at the first meeting of
the General Council of the WTO without at least clarifying its
relationship with the Committee on Trade and Development.
Many developing and other countries are hesitant to see the
GATT/WTO deal with trade-environment issues in any forum; there
are legitimate fears that an exclusive focus on environmental concerns
will lead to new non-tariff barriers to exports. In fact this may be the
case. Our argument is that this demonstrates all the more clearly the
need for such an approach. Environmental concerns will continue to
affect trade with or without this approach, and only proactive agenda-
setting by developing and other concerned countries in a rules-based
setting will be effective in defending their interests from “the tyranny
of the powerful” and in helping to shape the rules that will improve
discipline while supporting the achievement of environmental goals.
This is not intended to understate the real concern that future trade
and environmental obligations will be legally binding while
development assistance will not.
6. Clarification of Existing Rules.
At the end of the day, The Committee should clarify the scope for the
appropriate use of trade measures to pursue environmental goals
(while recognizing that appropriate environmental policies are a
preferable option). This would involve demonstrating what
environmental objectives can be met in ways that conform to existing
rules13, providing elaboration on the intent and purpose of rules
whose application is controversial (e.g., Article XX general exceptions
relating to conservation of exhaustible natural resources, and
protection of human, plant and animal health), and specifying
amendments to existing text which might enhance the positive
interaction between trade and environmental measures. There should
also be an evaluation of the types of environmentally-motivated trade
measures which fall outside the scope of trade rules, focusing on when
they are effective and necessary and when undesirable and non-
negotiable. The question of the adequacy of current rules to safeguard
the trading system should be a priority.
7. Subsidies for Environmental Purposes.
On the issue of subsidies for environmental purposes, The 31
Committee should examine how current rules and emerging trends
 GA TT , THE WTO AND SUSTAINABLE DEVELOPMENT

might impact on developing countries. Increased exemptions for non-

industrialized country subsidies might be examined (the current
exemption is set at 20%). As well, in anticipation of reduced scope to
subsidize on traditional grounds, many countries are examining the
feasibility of replacing such subsidies with others, based on
environmental grounds, but with potentially similar distorting effects
on trade. The Committee should examine the scope for such
undesirable actions, and ways in which they might be avoided.
Further reductions in agricultural subsidies should also be targeted.
8. Openness.
The Committee should deal with the issue of openness, where there is
common ground, and this could be extended with additional
exploration and confidence building. Much can also be done in
capitals through domestic consultative processes, including round
tables and symposia. By way of illustration, this item might involve
examining the possibility of rule changes and criteria to allow: greater
openness of GATT bodies dealing with agreements on standards; a
disputant country to unilaterally call testimony from environmental
experts in dispute settlement proceedings; public availability of panel
reports; and non-disputing parties with standing to make comments
at such proceedings.
9. Domestically Prohibited Goods.
The issue of using developing and transition economies as “dumping
grounds” for trade in goods no longer permitted for sale in the
developed country of origin must be resolved on a priority basis, given
the principle of environmental integrity (and equity). The efforts of
the Working Group on Trade in Domestically Prohibited Goods can
serve as a starting point in these efforts.
10. Technology Transfer and the Rules of Trade.
The issue of effective alternatives to compulsory licensing of
technologies must be given a more serious consideration than simply
demanding intellectual property rights protection and a welcome mat
for foreign investment in most countries. Accelerated transfer of
technologies, particularly those related to environmental
management, or which increase natural resource input efficiency, is
critical for sustainable development, and it is unclear how the new
rules for intellectual property rights and investment measures will
impact.
11. International Payments for Environmental Services.
The 1992 GATT Annual Report discussed the possibility of
international payments for environmental services rendered for the
32 global good. These might include the preservation of biodiversity, the
preservation of sites of international environmental significance, the
 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

sequestering of carbon, etc. Such payments might serve as

compensation for non-development of resources, or for following
more expensive, more environmentally friendly development paths,
and would be, in fact payments for the export of services. The
Committee should examine the feasibility of various schemes to effect
such payments.
12. Trade in Services and Sustainable Development.
The Committee’s work program includes efforts ongoing in the
Working Party on Trade in services, which has been asked to examine
and report within three years on the relationship between services
trade and the environment This will include the issues of sustainable
development, the relevance and relationship to MEAs, and whether
any modification to Article XIV (general exceptions) are required.
13. Institutional Links with Other Bodies.
A key item for the preparatory Sub-Committee which precedes The
Committee should be the specification of an institutional structure
that will allow for links with other organizations active in the area of
trade and sustainable development, whose work should have input
from the WTO, and whose results should provide the basis for WTO
discussions. A number of possible issues to be so considered are listed
in the section immediately following this.

Issues Not the Exclusive Jurisdiction of the WTO

The issues listed below are all trade-related, and all need to be
addressed if sustainable development is to be achieved They are not,
however, the exclusive jurisdiction or competence of the WTO itself,
as described in Decision on Trade and Environment and in the
mandate of the GATT Working Group. They are rather areas of joint
concern of the WTO and other organizations, such as UNCTAD,
UNEP, UNDP, the World Bank, the International Monetary Fund
(IMF) and various non-governmental organizations. The WTO
should be involved in the deliberations, and their results must feed
into the work of The Committee’s work program. Progress in
negotiations and discussions in the WTO should in fact be linked to
progress in addressing the issues laid out here.
This will involve the creation of a number of formal linkages, joining
the relevant interested institutions, or forming several groups focused
on specific issues. Creation of such linkages, the institutional structure
for integrating trade, environment and development concerns, and
dealing with these issues is no less urgent a priority than tackling the
tasks listed above for consideration by The Committee, even if their
cooperative nature makes them more organizationally challenging .
33
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

1. Research Into Trade, Environment And Development Linkages.

Good empirical research is already ongoing, but more is needed, and
the results should generate policy discussions in the GATT, under the
heading of Agenda 21 follow-up. Topics to be analyzed should
include:

• effects of agricultural subsidies on sustainable development

• effects of escalating tariffs and selected non-tariff barriers
on sustainable development
• effects of intellectual property rights, with reference to
both technology transfer and preservation of biodiversity,
on sustainable development
• effects of the functioning of commodity markets on
sustainable development
• addressing conceptual and methodological issues, e.g.
valuation of environmental cost, decision criteria to make
precautionary principle operational, and appropriate
policy and institutional designs
UNCTAD and OECD already have a number of empirical and policy
research efforts underway in this area. The OECD could provide a
useful service to developing countries by bringing together the
knowledge and experience its constituent countries have gained in
attempts to integrate economic and environmental policies. This
should involve a more broadly focused effort which brings together
committees missing from current trade-environment work, such as
Economic Policy, Development, Financial, Science, Industry and
others. UNCTAD and UNEP would also be essential partners in such
work.
2. Facilitating MEAs.
There is an urgent need for more proactive efforts to facilitate MEAs,
of two types: 1) the traditional multilateral governmental
negotiations, predominantly concerned with global commons issues,
which relate to PPMs; 2) producer-consumer or producer-producer
agreements on PPMs, focused on particular sectors or commodities.
UNEP (with UNCTAD and FAO) has traditionally facilitated the
first type of multilateral agreement, and has experience in regional
environmental agreements as well, such as those brokered in the
Mediterranean. The second type is just as necessary, since commodity
pricing issues and the challenges of a coordinated approach to cost
internalization in resource-based industries are central to making
trade better serve sustainable development objectives. Yet there is no
body with experience or recognized jurisdiction in the area. This role
34 might be taken on by UNEP (with UNCTAD and FAO) and will
 I NTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

involve extensive partnership with other organizations such as perhaps

the World Industry Council on the Environment, the Business
Council on Sustainable Development, the International Organization
of Consumers’ Unions, producers’ organizations and others.
Both types of agreement would probably involve some types of
incentives for participation of non-industrialized country
governments or producers, whether in the style of the Multilateral
Fund of the Montreal Protocol, or in the form of remitted levies, or
technology transfer at concessional rates. Incentives might also
include such things as concessions on escalating tariffs or reductions
in subsidies.
3. Capacity Building For Sustainable Development.
Developing countries and economies in transition face special
problems in dealing with issues of resource management and
environmental protection, and in coming up with sustainable
development action plans. In many cases, there is a lack of technical
and financial capacity, a lack of trained scientists and administrators, a
lack of experience in drafting environmental law, and a lack of public
understanding of the issues. UNDP, the World Bank, regional
development banks and national-level aid agencies currently work to
address some of these gaps, and those efforts should be intensified and
rationalized.
As well, and in cooperation with such agencies, capacity-building
efforts should become a standard part of any MEA, both as incentives
for participation, and as insurance that domestic-level efforts at such
participation will be as effective as possible. These might take the
form of natural resource management training, technology transfer
and fostering of indigenous technology development, assistance with
public awareness campaigns, funding for environmental infrastructure
projects, etc.
A prerequisite to capacity building is an improved mediation between
capital markets and project financing needs of many countries. In this
regard, the OECD countries need to demonstrate a clearer and greater
commitment. This might require major contributors such as the
United States not to be in arrears in terms of contribution to the
World Bank. It could mean a more flexible distribution of shares of
capital to allow countries such as Japan and Taiwan to assume a
greater role in the World Bank.
Capacity building also demands a much greater focus on sustainable
development as the objective of foreign assistance programs, with
poverty alleviation, environmental management and economic growth
as sub-objectives. There could be multilaterally discussed criteria to
guide program formulation, control and evaluation. 35
 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

4. Coordinate Eco-Labelling Schemes Internationally.

There is a great risk that a plethora of disparate eco-labelling schemes
would represent a non-tariff barrier for all exporters, particularly
small-scale exporters who will face high costs in adjusting production
processes for different markets. It may also occur that the nature of an
eco-labelling program unintentionally discriminates against foreign
producers. The latter problem can be proactively avoided by
multilateral consultation in the design phase of such programs, when
categories and measuring techniques are established. The former calls
for greater efforts at harmonization and mutual recognition among
national-level plans.
There is currently no multilateral forum for addressing these needs.
There is a need for an international coordinating body to:
• define legitimate categories and structures for such schemes
• ensure multilateral input into the design of new and existing
schemes
• facilitate harmonization and mutual recognition of standards,
where appropriate
5. Provide Information To Exporters.
Exporters, particularly smaller-scale producers and those in
developing countries, need two kinds of information about their
export markets: what are the trade-related environmental regulations
with possible trade impacts, and what are the “green” opportunities?
Forecasts of future developments in both areas will also be invaluable.
The first is a transparency issue, and the second is a market
intelligence issue.
UNDP has a pilot project, involving a PC-based database of
environmental regulations with potential trade impacts in developed
country markets. The International Trade Centre also has a more
generalized registry of trade-related domestic regulations. Such efforts
should be coordinated to provide a wide dissemination both of
current regulations and also of current market trends, and likely
future regulatory developments.. The task of showing exporters where
their opportunities lie could fall to national development agencies, or
more international bodies like the World Bank, or the Development
Assistance Committee of the OECD, in concert with NGO groups
which have already begun to explore this area as ethical/“green”
middlemen.

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 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

CONCLUDING NOTE

Perhaps the central feature of the above recommendations is the call

for institutional change, which links the WTO to other institutions.
Indeed, voices from the GATT/WTO itself have been expressing
similar concerns with the piecemeal approach to global economic
cooperation which now exists. In an address to the World Economic
Forum, GATT Director-General Peter Sutherland observed that the
OECD, the G-7, and other macro coordination regional groupings
do not represent large and important sections of the evolving global
economic map, and “at the same time, the Uruguay Round has taught
us very clearly that economies are now too mutually interdependent
to reach their full potential in isolation or at cross purposes” 14. He
expressed his concern that the current efforts “lack the institutional
underpinning that is necessary to put improved cooperation on a firm
footing”, and proposed a “high-level framework for communication
and cooperation on economic matters” involving the three Bretton
Woods organizations.
We applaud this sentiment and urge that the more democratic
partnership must focus more broadly on sustainable development, of
which the economy is one part. Unless we can create new structures
in the post-Uruguay Round era to encompass both the economy and
the environment, we will simply have replaced one piecemeal
approach with another. Effective global cooperation must, moreover,
involve not only the Bretton Woods institutions, but also relevant
portions of the UN system, and various NGOs. UNCTAD and
UNEP must be more formally linked. Indeed, there is a dire need to
relate our environmental objectives with other foreign policy
objectives, including the pursuit of peace and security, development,
population migrations, democracy and good governance, regionalism
and freer trade and investment. Sustainable development must be
explored in all its dimensions if we are to devise efficient and
equitable solutions. And cost internalization, so vital to sustainable
development, requires a broad approach.
The piecemeal approach to issues at the global level is matched by,
and even based on, a fragmented approach within national capitals.
Many governments are represented in GATT/WTO as well as UNEP,
UNCTAD and various MEAs, all of which have differing perspectives
on many issues. Starting with domestic ministries and moving
progressively outward, they must do a far better job of coordinating
their positions on trade, environment and development. Their
cohesion in doing so will in turn make the international organizations
they subscribe to more effective.
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 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

Finally, we urge that in the unfolding of the WTO trade and

environment work program the difficult issues raised above be
addressed. There are going to be problems which are poorly
understood or difficult to address quickly, given the resonance that
such issues have with many people and the attendant pressures this
puts on public policy. We must be careful of raising expectations
beyond our ability to deliver on them. However, this does not
preclude recognition of the issues, continued discussion, new ways to
review them, segmenting them further, adding new perspective or
analysis to clarify them and to make progress on them through greater
understanding and mutual trust. All parties need to feel that their
concerns have been reflected in the post-Marrakech agenda. These
difficult issues can only be resolved cooperatively.

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NOTES

1 The World Trade Organization (WTO) will become a reality if

the legislatures of the Contracting Parties approve the results of
the Uruguay Round, a process expected to be completed by mid-
1995. Throughout the remainder of this paper, we will refer to
the WTO as if its future existence were, in fact, certain.
2 Trade and Sustainable Development Principles. Winnipeg, Canada:
International Institute for Sustainable De velopment. 1994,
p p. 32. The Principles are: Efficiency/Cost In t e r n a l i z a t i o n ;
Equity; En v i ronmental Integrity; Subsidiarity; In t e r n a t i o n a l
Cooperation; Science and Precaution; and Openness.
3 “Report by Ambassador H. Ukawa (Japan), Chairman of the
Group on Environmental Measures and International Trade, to
the 49th Session of the Contracting Parties.” 25 January, 1994.
4 Trade Negotiations Committee. Trade and En v i ronment
D raft De c i s i o n . MTN.TNC/W/123, 13 De c e m b e r, 1993;
Communication from the Chairman, MTN.TNC/W/141,
29 March 1994.
5 Trade Negotiations Committee. Decisio n on Trade and
Environment. MTN.TNC/W/141, 29 March 1994.
6 For a first attempt to define under what conditions the U.S.
might engage in unilateral measures of this sort, see Wi rt h ,
Timothy E. “Testimony before the U.S. Senate Subcommittee on
Foreign Commerce and Tourism Committee on Commerce,
Science and Transportation”, 3 February, 1994. See also Inside
U.S. Trade, Jan. 21, p. 1.
7 The composite perspective that we attribute to “n o n -
industrialized” countries in fact covers a wide variety of concerns
which, depending on the sector or issue in question, involves
shifting allegiances of mutual interest. The central defining
characteristic of the perspective is vulnerability, whether to the
exercise of unilateral power, or to potential economic disruption
during the transition to sustainable development, particularly for
exporters of resource-based products. The traditionally-defined
developing countries are certainly central to this grouping, as are
the economies in transition, including Eastern Europe and the
former Soviet Union. On some issues, the grouping might even
extend to cover the interests of some OECD countries. For a
good overview of this perspective, see Zutchi, Ambassador B.K.,
Keynote Address at the International Conference “Striking a
Green Deal”, Brussels, 7 November, 1993.
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 GATT, THE WTO AND SUSTAINABLE DEVELOPMENT

8 Labour issues were only kept off the WTO agenda approved in
Marrakech by the determined last-minute efforts of a cluster of
opposed countries
9 Some are urging that the North to focus more closely on patterns
of Northern consumption. They suggest that efforts to internalize
external environmental costs in traded goods should begin with
the costs of energy and water use in OECD countries. See Third
World Ne t w o rk, “World Trade Organization, Trade and
Environment”, Position Paper, 22 March, 1994.
10 The perspective presented here draws on a number of sources.
See World Industry Council for the Environment, “Trade and
Sustainable Development: A Business Perspective”, March 1994;
United States Council for International Business, “Statement on
International Environmental Agreements and the Use of Trade
Measures to Achieve Their Objectives”, 15 December, 1993;
Business and In d u s t ry Ad v i s o ry Committee to the OECD,
“BIAC Statement on International Trade and the Environment”,
13 November, 1992; and Business Council on National Issues
(Canada), “International Trade: The Environmental Dimension”,
3 April, 1993.
11 The perspective presented here draws on a number of sources.
See Prudencio, Rodrigo and St ew a rt Hudson (US Na t i o n a l
Wildlife Federation), “The Road to Marrakech: An In t e r i m
Re p o rt on En v i ronmental Reform of the GATT and the
International Trade System”, January 25, 1994; Arden-Clarke,
Charles (WWF International), “The GATT Trade and
En v i ronment Wo rk Pro g r a m m e”, Ja n u a ry 1994; Na t u r a l
Re s o u rces Defence Council/Foundation for international
Environmental Law and Development, “Green Reform of the
World Trading System: A Fr a m ew o rk for Ac t i o n”, Fe b ru a ry
1994; and WWF International et al., “The GATT Trade and
En v i ronment Wo rk Programme: A Joint NGO St a t e m e n t”,
9 February, 1994.
12 In fact the regulation in question, the US Marine Ma m m a l
Protection Act, while it raised concerns about pro t e c t i n g
legitimate environmental standards, may not itself be a good
example. The arbitrary nature of the standard suggests that some
element of protectionism may have been involved.
13 The current scope for using trade measures to support
environmental goals is quite substantial but could be clarified.
Thousands of health, safety and environmental measures in
OECD countries have been taken since the St o c k h o l m
Conference and OECD Guidelines. Some 360 environment-
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related measurers were notified under the technical barriers to

trade agreement with not one being challenged. There is even
scope for enacting measures which contradict basic trade rules,
where justified by specific circumstances. No challenge has been
brought under the dispute settlement provisions to threaten
existing MEAs. A proliferation of environmentally friendly
packaging and disposal requirements, eco-labelling, eco-taxes and
similar instruments justify clarification of rules including
transparency.
14 Peter D. Sutherland. “Global Trade — The Next Challenge”,
News of the Uruguay Round of Multilateral Trade Negotiations,
NUR 082 28 January, 1994.

41
 The International Institute for Sustainable
Development (IISD) is a private non-profit
corporation established and supported by the
governments of Canada and Manitoba.
Itsmandate is to promote sustainable
development in decision making - within
government, business and the daily lives of
individuals within Canada and internationally.

IISD believes sustainable development will

require new knowledge and new ways of
sharing knowledge. IISD engages in policy
research and communications to meet those
challenges, focussing on initiatives for
international trade, business strategy, and
national budgets. The issue of poverty
eradication is a fundamental theme linking
IISD’s research and communications.

The interconnectedness of the world’s

environment, economy and social fabric
implies that collaborative efforts are needed to
bring about changes. IISD works through and
encourages the formation of partnerships to
achieve creative new approaches to the
complex problems we face.