0
Trade and the Environment:
The political feasibility of governments implementing
non-discriminatory, environmentally friendly trade
policy measures
By Alice Coupland
12338907
Supervisor:
Professor Ingo Venzke
Final Draft:
16
thJuly 2019
1
Abstract
This thesis analyses the relationship between trade and the environment,
focusing on the conflict between countries’ environmental obligations under the
Kyoto Protocol and trade obligations under the World Trade Organisation.
Section I of the paper begins informatively, by evaluating the current problem.
Section II then describes why the current relationship is inadequate and the
potential conflict arising in both fora. Section III then critically analyses the
political feasibility of governments implementing non-discriminatory,
environmentally friendly trade policies. The paper zooms in on the gap between
the national and international law as a contributing factor to this problem,
explaining how NGOs can indirectly effect implementation at the international
level. Section IV evaluates the discrepancy between developed and developing
countries, presenting an example of this issue. Section V then closely analyses
four WTO cases in which the problems discussed thus far are exhibited. Finally,
Section VI concludes the paper, suggesting future reforms, emphasising the
need for cooperation and compromise. This paper includes both primary and
secondary sources, looking at the legal obligations the countries are bound by
and then assessing the difficulties that stem from said obligations.
2
Table of Contents
I.
Introduction
3
II.
Background to the dispute
7
III.
Can environmental concerns realistically be pursued in a
non-discriminatory way?
10
IV.
Does the inequality between developed (Northern) and developing
(Southern) countries contribute to discriminatory measures?
14
V.
Does the WTO’s DSB’s jurisprudence undermine growing
environmental concerns?
18
A.
US-Tuna
19
B.
US-Shrimp
20
C.
Canada-Feed In
22
D.
India-Solar Panels
25
VI.
Future suggestions and conclusions
31
3
I. Introduction
The conflicting interests between trade liberalisation and environmental protection appears to have materialised through states’ contradictory obligations. States have committed
themselves to “the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce,”1 yet many have also
signed multilateral environmental agreements (MEAs) that increasingly rely on “restrictive trade measures to achieve their goals, despite the uncertainty as to whether such measures contravene WTO obligations.”2 Both crises evidently have underlying political tensions
embroiled in them. Where an environmental trade measure under an MEA is deemed to be inconsistent with a GATT provision, and does not fall within any relevant exceptions, the question arises whether the GATT (now World Trade Organisation (WTO)) or the MEA prevails to the extent of the inconsistency,3 considering environmentalists would argue that
the MEA prevails, however it is unknown how that position would be adjudicated in the WTO.
Article 30 of the Vienna Convention on the Law of the Treaties (VCLT) expresses that the later treaty prevails, although this can disturb the balance as it has the potential to invalidate parts of MEAs that became binding prior to 1994.4 Although, it seems illogical for
treaties and their provisions to have the power to invalidate others on the basis that one was created prior to the other, because interests are flexible and the will of states are likely to change over time as they adapt to new scenarios. Moreover, there are claims that the VCLT contravenes rules of lex specialis and pacta sunta servanda.5 Therefore, environmentalists
can claim that MEAs are more precise, relating to more specialised topics than that of the WTO, for example reducing emissions to a certain target within a certain time period.
Pauwelyn explored the topic of how the WTO interacts within the area of public international law. He argues that the WTO almost obsessively sticks to the VCLT, without adjusting these
1 GATT ‘The Text of the General Agreement on Tariffs and Trade 1994’ (July 1986, Geneva).
2 Tania Voon, ‘Sizing up the WTO: Trade-Environment Conflict and Kyoto Protocol’ (2000) 10 Transnational Law and Policy 71, 72.
3 Ibid 77.
4 Vienna Convention on the Law of the Treaties (VCLT) adopted 23 May 1969, entered into force 27 January 1980) art 30. See also, (n 2) 77.
4 rules for trade.6 However, he noted a difference in Peru-Agriculture, claiming that the WTO
has struggled to situate itself between other branches of international trade law, particularly with free trade agreements (FTAs),7 which highlight the diversity between states and raise
questions of how far their contractual freedom extends to adapting WTO rules or waiving their WTO rights.8 In Peru-Agriculture, the Panel had to decide whether, in a conflict, an
FTA or the WTO itself would prevail. In the appeal, Peru raised arguments claiming that the Panel erred in its interpretation by failing to consider Article 31 of the VCLT.9 The Appellate
Body (AB) claimed that although Peru didn’t raise arguments on interpretation in light of the VCLT before the Panel, they still concerned the interpretation of WTO provisions. Thus, Peru’s arguments can be considered a “legal interpretation developed by the Panel.”10 The
AB stated that as the WTO is a multilateral treaty, the general rules of interpretation in
Article 31 of the VCLT aim at establishing the common intention of the parties to the treaties, not just the intentions of some of the parties.
The AB had reservations as to whether an FTA can be used under Article 31(3) of the VCLT to establish the common intentions of WTO members. In the AB’s view, such
approach would result in WTO provisions being interpreted differently depending on the members to which they apply, and upon their rights and obligations under the FTA to which they are party.11 The AB claimed that the WTO has specific provisions for amendments,
waivers or exceptions thus prevailing over the general provisions of the VCLT, particularly when focusing on Article XXIV which focuses primarily on FTA exceptions,12 therefore
when assessing whether a provision in an FTA may depart from WTO provisions which is nevertheless consistent with the covered agreements one must look at Article XXIV of the GATT rather than the VCLT. The AB in Turkey-Textiles, considered that Article XXIV may provide a justification for GATT inconsistent measures if two conditions are fulfilled: the party claiming the benefit must demonstrate that the measure at issue is introduced upon the
6 Joost Pauwelyn, ‘Interplay between the WTO Treaty and other International Legal Instruments and Tribunals: Evolution after 20 years and WTO jurisprudence’ [2016] 1, 5.
7 Ibid 6. 8 (n 6) 6.
9 Peru-Additional Duty on Imports of Certain Agricultural Products (Peru-Agriculture) (AB Report) [2015] WT/DS457/AB/R, para 5.81.
10 Peru-Agriculture, para 5.86. 11 Peru-Agriculture, para 5.106. 12 Peru-Agriculture, para 5.112.
5 formation of an FTA that fully meets all the requirements of Article XXIV, and that party must show that the formation of the FTA would be prevented if it were not allowed to introduce the disputed measure,13 yet the FTA itself was ambiguous as to whether it allowed
Peru to maintain the WTO-inconsistent measure.14 This case contained questions of members
sovereignty to enter into their own FTAs with other countries and how this interacts with their WTO obligations. Pauwelyn argues that for the WTO’s dispute settlement body (DSB) to impose the same “one-size-fits-all straightjacket on all WTO members is unrealistic” and undesirable by denying the sovereign right of countries to fulfil their own diverse
preferences.15
Throughout this paper, it will be demonstrated how there are several major issues relating to the trade/environment conflict which will be analysed further. It is the countries themselves, not the WTO and Kyoto Protocol, that have the ability to ease the conflict, and the responsibility lies with them as they possess the “legal competence to determine, through their established procedures, whether trade in allowances would be subject to the WTO Agreements.”16 However, it will be demonstrated further how governments face an
abundance of political pressure that undoubtedly impact their decision-making and policy implementation. Therefore, it is paramount that both regimes continue to monitor and analyse governmental relationships, which is important not only in legal terms but also in terms of understanding the political regime.17 The current relationship between the WTO and MEAs, particularly the Kyoto Protocol, is inadequate and a breakthrough must be found before irreparable damage occurs. It will be analysed whether it is politically feasible for governments to implement their environmental measures in a non-discriminatory way.
Section II will provide background information to the dispute, including the aims of the regimes, the positive and negative aspects of each regime and the legal problems caused. Section III will outline the central issue, which is whether environmental measures can realistically be pursued in a non-discriminatory way. This question is the overarching issue
13 Turkey-Restrictions on Imports of Textile and Clothing Products (Turkey-Textiles) (AB Report) [1999] WT/DS34/AB/R, para 58.
14 Peru-Agriculture, para 5.117. 15 (n 6) 6-7.
16 Abbie Petsonk, ‘The Kyoto Protocol and the WTO: Integrating greenhouse gas emissions allowance trading into the global marketplace’ (1999) 10 Duke Environmental Law and Policy Reform 185, 197.
17 Thomas L Brewer, ‘The trade regime and the climate regime: institutional evolution and adaptation’ (2003) 3 Climate Policy 329, 339.
6 stemming from environmental measures impacting trade liberalisation. This section will discuss the gap between the national and the international levels and how this contributes to the political feasibility of non-discriminatory environmental measures. Section IV will highlight why the disparity between developed and developing countries is a prominent issue in mainly the WTO, in relation to non-discriminatory measures. Section V will analyse the WTO DSB’s jurisprudence, highlighting how the DSB struggles in deciding on the different forms of implementation pursued. It will be demonstrated how the Panel and AB often refuse to complete a legal analysis, and have often interpreted GATT articles in a rigid way. This section will exhibit the previously discussed issues. Finally, in Section VI, the conclusion of this paper will be presented and future suggestions will be put forward.
II. Background to the dispute
Since the first United Nations (UN) environmental conference in 1972, well over 200 MEAs have come into existence, with treaties such as the UN Framework Convention on Climate Change (UNFCCC) achieving near-universal membership, and with trade restrictions becoming more popular in global environmental policymaking, conflict with WTO rules has now materialised into a looming crisis .18 Questions arise as to whether near-universal treaties
such as the UNFCCC therefore, reflect the common intention of WTO members, even if not all WTO members are a party. Where decision making is done through consensus, and the interests of the parties are diverse, collective action is rare and thus, interpretation space has grown ever bigger.19 The Kyoto Protocol is an international treaty that extends from the
UNFCCC. It imposes legally binding obligations on the parties, representing a practical approach to greenhouse gases.20 The Kyoto Protocol emphasises cooperation with other
parties, enhancing the effectiveness of their policies, and taking steps to share their
experiences in the implementation of such policies, including improving their transparency and effectiveness.21 The emphasis on the need for cooperation is an effective, important and
often overlooked aspect of the Kyoto Protocol, in which there is a call on members to engage
18 Robert Falkner and Nico Jaspers, ‘Environmental Protection, International Trade and the WTO’ in Ken Heydon and Steven Woolcock (eds), The Ashgate Research Companion to International Trade Policy (Ashgate, 2012), 9.
19 (n 6) 2. 20 (n 2) 89.
21 Kyoto Protocol to the United Nations Framework Convention on Climate Change (Dec. 10, 1997) U.N. Doc FCCC/CP/1997/7/Add.1, 37 I.L.M. 22 (1998) art 2(b).
7 in communication with one another to discuss effective measures to reduce carbon emissions and greenhouse gases. It is essential that there is a mechanism allowing for communication at both the national and international level, which will be further discussed in Section III.
The definition of trade measures in MEAs is fairly wide and often imprecise,22 and
this wide array of potentially trade-restrictive measures provides members with a wide scope of implementation, resulting in a lack of harmonisation to achieve such goals, causing increased potential for conflict with trade. Buck and Verheyen proposed that “if energy efficiency standards are developed and applied in a transparent, cooperative and non-discriminatory manner, and if a clear link can be established between a measure and the pursuit of climate policy objectives […] that such measures will not be regarded as
incompatible with GATT obligations.”23 This quote, in principle, seems logical, however it
oversimplifies the conflict by overlooking the fact that the core of politically feasible environmental measures is that they discriminate, in order to be as effective as possible.
Of course, when looking at an environmental measure from the perspective of the WTO, it is important to meet all of the WTO’s standards of non-discrimination, however in principle many countries’ measures are considered WTO inconsistent due to their
implementation and unjustifiably discriminatory nature. Trade restrictions may be one of the many instruments to support environmental goals, such as the Montreal Protocol which imposes a phase-out schedule for certain chemical substances that harm the ozone layer, including a ban on trade in these substances with countries that haven’t ratified the treaty.24
Take palm oil, for example, in 2016 Greenpeace published a report stating that since 1990 Indonesia has lost 31 million hectares of forest, which is an area almost the size of
Germany.25 Between 2001 and 2010, palm oil in Indonesia alone generated up to 268 million
tonnes of carbon emissions which equates to 55 million cars or 70 coal-fired power plants, yet only 17% of worldwide palm oil production is sustainable. Palm oil creates mass
deforestation and requires burning timber which contributes to climate change. In 2008, the Roundtable on Sustainable Palm Oil (RSPO) developed a certification for sustainable palm
22 (n 18) 9.
23 Buck and Verheyen as cited in Thomas L Brewer, ‘The WTO and the Kyoto Protocol: interaction issues’ (2004) 4 Climate Policy 3, 9.
24 (n 18) 9-10.
25 ‘Cutting Deforestation out of Palm Oil’ (Greenpeace, 3 March 2016)
<www.greenpeace.org/archive-international/en/publications/Campaign-reports/Forests-Reports/Cutting-Deforestation-Out-Of-Palm-Oil/> accessed 16 July 2019.
8 oil with 68 growers and 281 palm oil mills producing 11.37 million tonnes of palm oil having been RSPO certified. The criterion require that the product doesn’t come from fragile
ecosystems or forests containing significant concentrations of biodiversity including endangered species. To qualify for certification, producers must show minimal use of pesticides and fires, fair treatment of workers and consult with local communities before developing new plantations.26 However, whether this would be considered WTO consistent is
ambiguous.
A concern for environmentalists is that countries may reject MEAs out of fear of violating WTO rules, primarily through accusations of discrimination, and alternatively MEAs designed to be compatible with WTO rules may be less appealing.27 If countries have
obligations under both the WTO and MEAs, they have to make the measure as least
restrictive as possible, however this will most likely not be as thorough and effective in their protection, making the potential dispute with their WTO obligations seem futile, although this remains to be argued through the legal analysis of WTO law. Moreover, the WTO would most likely argue that less trade-restrictive environmental measures that are found to be WTO consistent can still achieve the same desired effects.
The WTO rules outline a balance that must be sought between expanding the
production of trade in goods and services whilst preserving the environment.28 This balance
is found under Article XX, which guides possible justifications for trade restrictions, however Article XX lays out ambiguous conditions which can lead to conflicting interpretations.29
Therefore, rather than clarifying the conflict, Article XX maintains the ambiguity surrounding what policies may actually be admissible under trade law.
Trade liberalisation has both pros and cons for the environment. Increased trade can lead to a larger economy, meaning that a country has the money and resources to be able to develop environmentally viable technology and lead to further research into sustainable goods. Although, it isn’t completely clear if this would accomplish the intended goal. Trade can also lead to higher levels of greenhouse gas emissions due to the increased activity
26 Jodi Helmer, ‘The Perils of Palm Oil: How a Popular Product Leads to Deforestation’ (Fix, 9 January 2017) <www.fix.com/blog/how-palm-oil-affects-the-environment/> accessed 16 July 2019.
27 Daniel L Millimet and Jayjit Roy, ‘Multilateral environmental agreements and the WTO’ (2015) 134 Economic Letters 20, 20-1.
28 GATT ‘General Agreement on Tariffs and Trade 1994’ (April 15, 1994) Marrakesh Agreement Establishing
the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187, 33 I.L.M. 1153 (1994)
9 resulting from freer trade.30 Some critics claim that the WTO’s consistent denial of “the
validity of environmental trade measures suggests that […] the WTO, may not provide the best basis for assessing MEAs and resolving trade-environment disputes.”31 However, the
WTO doesn’t focus on the validity of the measures themselves, rather the implementation of the measures. Thus, the WTO doesn’t always reach the analysis of whether the measure actually achieves the aim it’s set out to, but instead focuses on the type of measure and implementation sought to achieve such aim.
To argue that the WTO denies the validity of environmental trade measures is short-sighted, but instead the WTO is reluctant to take a definitive position on what specific forms of implementation are WTO consistent. However, to claim that trade either positively or negatively effects the environment is a simplification of the conflict as a whole, instead there are many forces having an effect, and both developed and developing countries emit
greenhouse gases which in turn harm the environment. It can be argued that much of the anger towards the WTO should be aimed at the policy-makers in the member countries, as the WTO itself places little hinderance on those enacting environmental policies,32 giving its
members the freedom to adopt their own satisfactory measures. However, when you focus on the political feasibility of WTO consistent measures, it is evident that the WTO is in fact, naïve to the possibility of governments implementing such measures.
III. Can environmental concerns realistically be pursued in a non-discriminatory way?
This core question has several subcomponents demonstrating how it is difficult for governments to meet all of the external, competing pressures they face when deciding on how to implement environmentally friendly policies. This paper will particularly focus on the political feasibility of a measure, the disparity between developed and developing countries in their implementation and the gap between the national and international level.
Subsequently, these competing factors will be exhibited in several of the WTO’s
jurisprudence. For a measure to be realistically pursued in a non-discriminatory way, the factors contributing to a measure being created must be considered. Thus, the political
30 ‘The multilateral trading system and climate change’ (WTO Secretariat). 31 (n 2) 84-5.
32 Eric Neumayer, ‘The WTO and the environment: its past record is better than critics believe, but the future outlook is bleak’ (2004) 4 Global Environmental Politics, 1, 5.
10 feasibility of an environmental measure is the basis of determining the likelihood that a measure will be adopted.
Environmentally friendly measures are implemented by governments, and they are subject to a variety of political constraints. Democratic governments are concerned about the impact various policies will have on the electoral blocks upon which they depend,33 and they
have an aspiration to be re-elected and improve the “credibility of its policy vis-à-vis the private sector.”34 Authoritarian regimes rarely have sufficient power internally to dominate
the whole of civil society and depend upon the support of various interest groups. It is difficult or impossible for governments to implement policies that are detrimental to the interest groups upon which they depend.35 Political feasibility examines the actors and events
involved in each stage of a political policy-making process, anticipating the likely resolution of problems that occur throughout the process.36 Political feasibility analyses governmental
decisions and their effects on society,37 considering the prospects of favourable action at
several stages of the process.38
The central purpose of environmental measures is to distinguish those products that are environmentally friendly from those that aren’t, which will in turn differentiate between environmentally and non-environmentally friendly products, which can cause conflict with the rule of non-discrimination if the measure is seen as unjustifiably discriminating between like products. An issue with the political feasibility of non-discriminatory policies is that if products are subject to domestic rules then this can differentiate between domestic goods, which are likely to have prior awareness of the rule, with foreign goods who have to satisfy certain criterion to be treated in the same way. A primary example of this is a government’s introduction of mandatory eco-labels whereby “every product of the product group has to meet the environmental criteria as they are required for the award of the eco-label. According to this, market access is not given to those products of producers, who are not willing or able
33 ‘Political Feasibility’ (Umich, 16 July 2019) <www-personal.umd.umich.edu/~delittle/ch6.htm> accessed 16 July 2019.
34 ‘Causes and effects of PTAs: Is it all about preferences?’ in the WTO and Preferential Trade Agreements (World Trade Report, 2011) 95.
35 (n 33).
36 David J. Webber, ‘Analyzing Political Feasibility: Political Scientists' Unique Contribution to Policy Analysis’ (1986) 14 Policy Studies Journal 545.
37 Ibid 546. 38 (n 36) 547.
11 to ensure that those criteria are met by their products.”39 For example, the RSPO labelling of
sustainable palm oil products when compared with their non-sustainable counterparts, which will only be labelled as such if it meets certain standards. The products undergo “strict verification of the production process by accredited certifying agencies and may be withdrawn at any time on infringement of the rules and standards.”40 This could lead to
discrimination under the WTO, as it would differentiate between like products, some of which will meet the requirements and some which will not, however this has to be determined on a case-by-case basis.41
Additional discrimination can occur in this instance, when a country is determining the category of the eco-labels as it is likely that they favour domestic producers and fail to include “competing products from foreign producers, thus placing imports at a comparative disadvantage vis-à- vis the domestic products.”42 Thus, “eco-labels could be used by
countries to benefit the sale of domestic products by awarding eco-labels mostly to domestic products.”43 This issue is particularly detrimental to developing countries as they don’t have
the same capability of adapting to high requirement levels.44 This topic will be further
discussed in the next section of the paper, relating to the problems stemming from the inequality between countries, influencing their motivation to apply environmental measures fairly.
The gap between the national and international level plays a huge role in the pursuit of politically feasible, non-discriminatory environmental measures, and needs to be addressed before implementation at the international level. For a case to arrive at the WTO, economic interests play a central role for firms to lobby governments to formulate a case. Once a case reaches the WTO, a mix of political, economic and legal factors merge.45 It is logical for
39 Jasper Stein, ‘The Legal Status of Eco-Labels and Product and Process Methods in the World Trade Organization’ (2009) 1 American Journal of Economics and Business Administration
285, 286.
40 ‘RSPO Certified Sustainable Palm Oil’ (EcoLabelIndex, 16 July 2019)
<www.ecolabelindex.com/ecolabel/rspo-certified-sustainable-palm-oil> accessed 16 July 2019.
41 European Communities-Measures Affecting Asbestos and Asbestos-Containing Products (EC-Asbestos) (AB Report) [2001] WT/DS135/AB/R, paras 101 and 102.
42 Lucas Assunção and ZhongXiang Zhang, ‘Domestic climate change policies and the WTO’ (UN Conference on Trade and Development, November 2002) No. 164, 11.
43 (n 39) 286. 44 (n 42) 11. 45 (n 17) 338.
12 domestic actors to seek favouritism for domestic or local producers than foreign ones, in an attempt to improve the economy, reduce reliance on foreign goods or services and because they are often more closely intertwined. As only countries themselves can bring cases before the WTO, it is of paramount importance that the -mainly- economic and political pressures put on governments by NGOs and companies need to be tackled, resulting in countries bringing claims against other members for their pursuit of environmental protection. There is also an apparent lack of trust between actors at the domestic level and at the international level, with NGOs continuing to worry about the lack of transparency in the WTO regarding environmental issues.46 Conversely, this can be reversed with both MEAs and the WTO
worrying about the role of NGOs and political policymakers. NGOs don’t have rights to bring their concerns or disputes to the international level, since it is a sphere only for
countries, thereby their interests are lobbied at the national level and impact governments in the implementation of their policies.
At the national level, governments have the role of redistributing wealth to create a just society, however at the international level, in the absence of a global government, this is neither desirable nor possible.47 Ikenberry attained that domestic policy makers are “passive
actors that supply those trade policies demanded by the most influential interest groups.”48
Although this statement may be overly simplistic, it draws attention to the different political pressures governments face from a multitude of sources. Analysing the political feasibility of a policy needs to be more comprehensive than merely examining public opinion, and must consider action at several stages of the process when addressing an aim.49 A country’s
representative that negotiates at the international level “is a political representative,
responding (optimally) to and constrained by the political pressures it faces back home.”50
To conclude, it makes it challenging to be able to pursue environmental matters in a non-discriminatory way as there will always be underlying political motives in countries’
international relations, because their intentions will always include how to best enhance their
46 (n 18) 21.
47 Durwood Zaelke, ‘WTO High-Level Symposium on Trade and Environment’ (Center for International Environmental Law) (1999) 3.
48 Marc L Busch and Edward D. Mansfield, ‘The Political economy of Trade Policy’ (Georgetown University and University of Pennsylvania 2005) 3.
49 (n 36) 547.
50 B Peter Rosendorff, ‘Stability and Rigidity: Politics and the Design of the WTO’s Dispute Settlement Procedure’ (University of Southern California 2003) 2.
13 own country, which is a part of human nature. Furthermore, environmentally friendly policies that may be WTO consistent might not always be politically feasible as developing countries and developed countries have their own targets in the domestic sphere. The first-order motivation for governments when implementing environmental policies may be job creation and economic development, however they are nevertheless positive for the environment.51
IV. Does the inequality between developed (Northern) and developing (Southern) countries contribute to discriminatory measures?
One contributing factor to the trade/environment conflict arises through enforcement as there are “three factors that may induce non-compliance: lack of will, lack of diligence and lack of resources.”52 Lack of resources is the main problem that developing countries encounter,
which can lead to trade measures being incorporated into the emissions trading system, attempting to produce a system whereby the benefits of compliance outweigh the benefits of non-compliance.53 The North-South divide is one of the major issues within both the WTO
and Kyoto Protocol because the issue of fairness becomes central to the debate. It is claimed that “the industrialized countries are the major contributors to many environmental
problems,”54 prompting questions of unfair payment, with a US national estimated to
represent 280 times that of someone from Nepal.55 There is a feeling of dissatisfaction in the
design of the WTO and the implementation of policies by developed countries. This is based on the fact that developed countries have the power and means to pay their way out of non-compliance,56 and the lack of compliance with the DSB by some developed countries
undermines the integrity of the system.57 Only countries with big economies can accept trade
sanctions in response for refusing to lift its WTO-incompatible restrictions.58
51 Mark Wu and James Salzman, ‘The Next Generation of trade and Environment Conflicts: The Rise of Green Industrial Policy’ (2014) 108 Northwestern University Law Review 401, 473.
52 (n 2) 98-9. 53 (n 2) 98-9.
54 ‘Role of Trade Measures in Environmental Policy’ (CIESIN, 7 June 2019), 65. 55 (n 47) 3.
56 See, European Communities-Measures Concerning Meat and Meat Products (Hormones): Joint
Communication from the European Communities and the United States (2009) WT/DS26/28.
57 Mehdi Shafaeddin, ‘The Political Economy of WTO with Special Reference to NAMA Negotiations’ for The Conference on Political Economy of International Organizations, Geneva (2009) 16.
14 Governments are finding it harder to justify spending money on supporting renewable energy policies on environmental grounds alone, leading to questions of “what is in it for us.”59 To justify such spending, governments need to ensure payoff for their constituencies
through either the creation of high-paying jobs or less reliance on foreign sources of energy, ensuring that the renewable energy sector remains local.60 This justification is borne by all
governments, underscoring the difficulty for governments to implement environmental measures in a non-discriminatory way. Governments have to be able to show the benefits for their nationals, and it is especially difficult for developing countries to justify spending their sparse money on environmental measures that do not create a direct, immediate impact on its nationals in comparison with using the money on more concrete and visible policies, such as job creation.
Both the Kyoto Protocol and the WTO will not be able to bridge the disparity gap if they continue being biased in favour of developed countries. Developed countries can coerce developing countries into adopting higher environmental standards, whilst failing to account for the fact that developing countries often face additional problems and different conditions than developed countries. The developed countries distinctly are to blame “for supporting a greening of WTO rules only partially and only where it furthers their own interests.”61 Trade
can do very little to solve this problem if countries do not consider a number of issues these poorer countries face, such as health and education.62 An example of developed countries,
“coercing poorer countries into accepting greener rules”63 can be seen in the EU’s recent
trade agreements, which “shows how EU standards and rules have been spreading via trade agreements to developing and emerging countries,”64 by permitting market access upon the
condition of including a chapter on sustainable development in the agreements. For example, in the EU-Vietnam FTA, sustainable development is a condition allowing for EU market access. Article 13.5(2) stresses the “commitment to effectively implement in its domestic law
59 (n 51) 417. 60 (n 51) 417. 61 (n 32) 1.
62 Renato Ruggiero, ‘The New Multilateral Trade Negotiations, the European Union, and its Developing Country Partners: An Agenda for Action’ (18 February 1999).
63 (n 2) 100.
64 Susanne Dröge and Felix Schenuit, ‘Mobilising EU trade policy for raising environmental standards: the example of climate action’ [2018] (Science-Policy solutions for a more sustainable Europe) 1, 5.
15 and practice the multilateral environmental agreements to which it is party.”65 To stress the
inequality further, Article 13.7(2) underlines the “sovereign rights of states over their natural resources […] the Parties shall endeavour to create conditions to facilitate access to genetic resources for environmentally sound uses and not to impose restrictions that run counter to the objectives of the CBD.”66 This provision benefits the EU wholly, because Vietnam has a
rich abundance of natural resources consisting of “coal, phosphates, rare earth elements, bauxite, chromate, copper, gold, iron, manganese, silver, zinc, offshore oil and gas deposits, timber, hydropower, accounting for 9.4% of GDP.”67
The trade agreement aims to eliminate “virtually all tariffs on goods traded between the two sides […] and also includes a strong, legally binding commitment to sustainable development.”68 This provision demonstrates the EU’s ability to exploit Vietnam’s natural
resources, in return for eliminating tariffs, allowing Vietnam to access EU markets. The Trade Commissioner Cecilia Malmström, exclaimed that “Vietnam has massive potential for EU exporters and investors to do business, both now and in the future. It is one of the fastest-growing economies in Southeast Asia, with a vibrant market of more than 95 million
consumers, an emerging middle class and a young, dynamic workforce. Through our
agreements, we also help spread European high standards.”69 This statement verifies that the
EU ensures that meeting their environmental standards is a condition of any trade agreement with weaker countries. Understandably having access to the EU’s markets is a compelling argument to enter into such negotiations, however it comes with its conditions, that will positively impact the EU. In its new trade policies, the EU is “leveraging its market power to compel behavioural change beyond its borders.”70
Of course, trade agreements should be beneficial for both parties, as they have underlying political and economic advancement however, the exportation of environmental measures in return for market access can be seen as a political play for the EU to not only become a leader in the environment, but also guaranteeing that they can harmonise their
65 Article 13.5(2) EU-Vietnam FTA. 66 Article 13.7(2) EU-Vietnam FTA.
67 Natural Resources in Vietnam (factsanddetails, 16 July 2019) <factsanddetails.com/southeast-asia/Vietnam/sub5_9g/entry-3479.html> accessed 16 July 2019.
68 ‘Commission presents EU-Vietnam trade and investment agreements for signature and conclusion’ (European
Comission, 17 October 2018) <trade.ec.europa.eu/doclib/press/index.cfm?id=1921> accessed 16 July 2019.
69 Ibid. 70 (n 51) 415.
16 standards with developing countries. The FTA will remove tariffs on several EU products upon entry into force, including machinery and appliances, textile fabric, and half of EU pharmaceuticals,71 contrastingly, EU duties on imports from Vietnam will be “eliminated
progressively over a 7-year period,” with textile products from the EU being subject to the longer transition period.72 When considering the benefits the FTA brings to the EU, the
inequality of the agreement hardly seems fair, with many EU exports having immediate access to Vietnam, yet this isn’t extended vice versa. The EU-Vietnam FTA is a stark outlook that even though there are many benefits for developing countries to enter into negotiations with leading developed countries, it does come with its drawbacks. Here, whilst the EU would gain significant market access, Vietnam would lose its policy space to develop their industry “in accordance with the principal of “dynamic comparative advantage.”73 Improved
market access is argued to be an especially important objective for developing countries,74
and Mr Ruggiero, the former Director-General of the WTO, professed that “full market access in the advanced economies - should be a third pillar of a new effort in favour of least-developed countries in the trade field.”75
It is argued that richer countries adopt “more stringent environmental standards and regulations than poorer countries,”76 and that developing countries tend to perceive these
environmental concerns as self-serving.77 However, it is often developing countries that adopt
environmentally friendly measures and developed countries that seek to have them declared illegal within the WTO.78 For example, in China-Raw Materials, it was declared that China is
not allowed to use export taxes for any environmental purposes is concerning for environmentalists.79 The hypocrisy of imposing higher environmental standards upon
developing countries whilst also taking them to the WTO over such environmental measures
71 ‘EU-Vietnam Trade Agreement – memo’ (European Commission, 17 October 2018) <trade.ec.europa.eu/doclib/press/index.cfm?id=1922> accessed 16 July 2019.
72 Ibid. 73 (n 57) 33. 74 (n 62). 75 (n 62). 76 (n 2) 100. 77 (n 54) 66. 78 (n 51) 443.
79 (n 51) 446. See also, China-Measures Related to the Exportation of Various Raw Materials (China-Raw Materials) (AB Report) [2012] WT/DS394/AB/R, para 362.
17 is also demonstrated in the India-Solar Cells case in the subsequent section. It is
well-established that China is the world’s largest emitter of greenhouse gases and India will rival the US by 2030. Even if policy changes resulted in a mass greenhouse gas reduction in the US and EU, this would be fruitless if not also materialised in China and India.80
If the WTO focuses on “further trade opening in goods and services to promote economic development,” this can promote the efficient allocation of resources and economic growth that in turn provide additional possibilities for protecting the environment.”81 A
distrust has materialised through this asymmetry with developing countries suspecting the greening of WTO rules as being “old protectionism in new environmental disguise.”82 This
feeling could stem from the unilateral imposition of high standards which is also at odds with shared but differentiated responsibility when it comes to climate action, which can be
identified in the unequal conditions presented in the EU-Vietnam FTA, emphasising how developed countries appear to incite higher environmental standards only when it suits their interests, rather than solely encouraging environmental protection. In the next section, it will be demonstrated how developed countries are hypocritical when imposing unilateral
environmental measures whilst simultaneously bringing developing countries before the DSB for the same implementation methods, and how the DSB is wavering in its application of Article XX.
V. Does the WTO’s DSB’s jurisprudence undermine growing environmental concerns?
There has been much debate around the WTO’s DSB, with many environmentalists claiming that it undermines environmental concerns, by failing to acknowledge their legitimacy under trade law. Several cases will be used to highlight the WTO’s wavering environmental action, showcasing their reservation to judge on the applicability of environmental measures. The AB has often been reluctant to take a definitive position on environmental measures, and has “limited the scope of its analysis such that it cannot carry out this responsibility
effectively.”83 The AB’s current problem lies with balancing authentic environmental policy
80 (n 51) 449.
81 Introduction to Trade and Environment in the WTO (WTO E-Learning), 3. 82 (n 32) 7.
83 Joel P. Trachtman, ‘WTO Trade and Environment Jurisprudence: Avoiding Environmental Catastrophe’ [2017] Harvard International Law Journal, 273.
18 goals with protectionist measures using the disguise of environmental protection. As it will be shown in the following cases, it is evidently one of the main purposes of environmental measures to discriminate and it seems perplexing to find both politically feasible measures and non-discriminatory measures. Much of the anger towards the WTO’s DSB should be aimed at the policy-makers in the member countries, as contrary to environmentalist arguments, the WTO judicial system is not intrinsically biased against the environment.84
However, the lack of precedent has led to conflicting outcomes that has generated some anger amongst those advocating for increased environmental protection. The WTO needs to
become more understanding of the political feasibility for member governments
implementing environmental measures, and find a way to be more definitive when applying the balancing rules.
A. US-Tuna
US-Tuna was a controversial case regarding the US’s act prohibiting the taking of marine
mammals “by any person or vessel subject to the jurisdiction of the US, or within any area subject to the fisheries jurisdiction of the United States.”85 US-Tuna highlights what used to
be the case under the GATT when the DSB was faced with environmental trade measures.
US-Tuna represents how the WTO represents the members intentions, and under this
jurisprudence, Article XX could not be considered to reflect the members intention to change their policy measures in pursuit of the US’s environmental measure, and cannot be
considered an explicit determination of the relinquishment of WTO rights or obligations.86 US-Tuna emphasised how the unilateral implementation by one country could not represent
the common intentions of all members.
The Panel was tasked with interpreting Article XX in order to balance the right for members to enact their policies in pursuit of environmental measures with members’ intention of liberalised trade, concluding that one state should not be able to enforce its policies outside of its territory. The Panel stated that it wasn’t the validity of the
environmental objectives that was the problem, but rather whether a member could impose
84 Johannes Troper, ‘Could EU-import restrictions for environmental purposes be legal under international law?’ (ESThinkTank, 16 July 2019)
<www.esthinktank.com/2016/05/12/could-eu-import-restrictions-for-environmental-purposes-be-legal-under-international-law/> accessed 16 July 2019.
85 United States-Restrictions on Imports of Tuna (US-Tuna II) (Panel Report) [1994] DS29/R, para 2.6. 86 US-Tuna II, para 5.34.
19 trade embargos to force others to change their policies within their own jurisdiction, but when looking at the interpretation there was no support reflected in Article XX.87 Furthermore, the
panel noted that the “relationship between environmental and trade measures would be considered in the context of preparations for the WTO.”88 It can be argued that the WTO is a
biased forum when faced with environmental trade measures, as the parties have committed to reducing trade barriers but not all of them have additionally signed MEAs that have trade implications, thus trade liberalisation is the common intention of the parties. US-Tuna is a prime example of why dealing with a wide array of possible environmental measures is not appropriate in the WTO because it is the DSB’s job to look at the viability of a measure from the context of the GATT and in light of the other WTO members rights, not all WTO
members intend to sign MEAs and the WTO has little knowledge about Kyoto Protocol members’ individual targets.
B. US-Shrimp
US-Shrimp encompassed an important change in the DSB’s jurisprudence as it was
concluded that it’s possible for countries to use trade measures to protect natural resources. The AB also suggested that it is possible for restrictions to be based on process and
production measures if they are not arbitrary and don’t unjustifiably discriminate between different counters.89 The AB rather focused on the lack of transparency in the methods of
granting certification, claiming that when a measure leads to the suspension of other members’ treaty rights, then such application must meet rigorous compliance.90 US-Shrimp was a standout case as the AB concluded that living resources can be as
exhaustible as items such as fuel.91 The case also highlighted how multilateral solutions were
preferred over unilateral measures which could in turn, undermine the WTO and its
members’ rights. Cooperation was shown to be desired under the WTO, and would possibly have led to a different outcome under this jurisprudence had the US not have adopted a unilateral measure that lacked transparency.
87 US-Tuna II, para 5.42. 88 US-Tuna II, para 5.43.
89 (n 18) 15. See also, United States-Import Prohibition of Certain Shrimp and Shrimp Products (US-Shrimp) (AB Report) [2001] WT/DS58/23, paras 102 and 103.
90 US-Shrimp, para 182. 91 US-Shrimp, para 128.
20 The dispute was regarding the US’s required use of approved turtle excluder devices (TEDs) at all times, and in all areas where shrimp trawling was likely, with certain
exceptions,92 and the regulations didn’t apply to nations that were certified.93 Additionally,
countries could be certified if they provided documents proving that they have adopted a programme comparable to the US programme.94 The AB not only looked at the measure
alone, but also whether the type of a measure, if it were to be adopted by others, would threaten the system.95 The AB decided that the involuntary certification requirement, and
evidence that a programme had to be not merely comparable but essentially the same as the US’s, required other countries to impose practically the same measures, making the measure stringent in order to gain access to the US market.96
The AB proclaimed that it is unacceptable for a WTO member to require others to adopt essentially the same programme to achieve a policy goal, without considering different conditions in other territories.97 This jurisprudence exhibits the hypocrisy of developed
countries within the WTO, for example the US’s complaint that China’s adoption of wind power equipment subsidies by “hinders the efforts of WTO Members to collectively ensure that each government is playing by the rules,”98 whilst adopting similar unilateral measures
itself.
The AB stressed that although the measure was legitimate and WTO members are free to adopt such measures, they are still required to comply with their WTO obligations.99
The DSB emphasised the need for international cooperation to adopt environmental
measures, by stating that the unilateral character of the application “heightens the disruptive and discriminatory influence of the import prohibition and underscores its unjustifiability.”100
The use of “heightens” thus implies that the unilateral nature is not the sole reason for 92 US-Shrimp para 2. 93 US-Shrimp, para 3. 94 US-Shrimp, para 4. 95 US-Shrimp, para 112. 96 US-Shrimp, para 162-3. 97 US-Shrimp, para 164.
98 China Ends Wind Power Equipment Subsidies Challenged by the United States in WTO Dispute (USTR, 6th July 2011) <ustr.gov/about-us/policy-offices/press-office/press-releases/2011/june/china-ends-wind-power-equipment-subsidies-challenged> accessed 16 July 2019.
99 US-Shrimp, para 186. 100 US-Shrimp, para 172.
21 discrimination, but results in further discrimination since the measure wasn’t sought out multilaterally.
Therefore, whilst environmentalists blame the DSB in failing to account for the environment, rather it is the WTO members and their discriminatory measures that truly undermine these policies. This jurisprudence illustrates how difficult it is for governments to use measures that are politically available and non-discriminatory, and how governments find multilateral action time-consuming, instead resorting to unilateral measures.101
C. Canada-Feed In
The dispute concerned the FIT Programme implemented by Ontario’s government in which generators of electricity produced from certain types of renewable energy are paid per kWh and delivered to Ontario’s electricity system in contracts.102 Only projects that satisfied the
eligibility requirements would be offered a contract.103 The joint appellees argued that this
resulted in prohibited subsidises and less favourable treatment for foreign renewable energy equipment, than their like domestic products.104 Canada argued that the programme fell
within Article III:8(a) of the GATT which isn’t subject to the other national treatment obligations of Article III,105 however, the Panel disagreed.106 Japan and the EU both argued
that, if Canada’s position of “with a view to commercial resale” requiring a profit was accepted, then this would result in WTO members escaping their obligations under Article III, by stating that such purchase didn’t result in profit, thus a member would have an unlimited ability to override the national treatment requirement.107
The AB highlighted that the right to discriminate in government purchases is subject to Article III:8(a)’s exception which is a “scope provision.”108 This highlights that the WTO
isn’t opposed to exceptions to the national treatment rule, as long as this meets certain requirements. This claim distinguishes between international and national law, emphasising the government’s sovereignty in the domestic legal system. Scope is defined as “the extent of
101 (n 51) 436.
102 Canada-Feed In, para 1.3. 103 Canada-Feed In, para 1.3. 104 Canada-Feed In, para 1.6. 105 Canada-Feed In, para 1.10. 106 Canada-Feed In, para 1.13. 107 Canada-Feed In, para 2.24. 108 Canada-Feed In, para 5.27.
22 the area or subject matter that something deals with or to which it is relevant,”109 implying
that for the measure to qualify under this article, it must have a considerable part of it stemming from “laws, regulations or requirements,” requiring the purchase.110 National
treatment is a “cornerstone of the multilateral trading system since its inception,”111
exhibiting that the objectives of the WTO’s DSB is not to prevent a member from adopting the measures it chooses, but rather to ensure that foreign and domestic producers, products, exports etc are awarded equal treatment. Therefore, the alleged discriminated products must be in a competitive relationship with the purchased product, which is not the case here and therefore the measure is not covered by Article III:8(a).112
The AB’s argument that generation equipment and electricity are not in a competitive relationship is not entirely convincing as the Panel had found that because generation
equipment is needed and used to create electricity, there is a close relationship between the products.113 In Korea-Alcoholic Beverages, it was decided that products are in competition or
are substitutable for one another when they are interchangeable or if they offer “alternative ways of satisfying a particular need or taste.”114 Furthermore, it was concluded that this is the
case particularly in a market where there are regulatory barriers to trade or to competition,115
and where products “are, nonetheless, capable of being substituted for one another.”116 The
domestic content requirements (DCR) for electricity generation equipment is a condition that must be met in order for generators to participate in the FIT programme, and the electricity produced is using the very same generation equipment that is subject to the DCR.117 Hence,
there must be competition between foreign and domestic electricity generation equipment because if the DCR requires domestic equipment to be used in order for generators to be eligible for the FIT programme, then this means there is discrimination against foreign
109 English Oxford Living Dictionaries (Oxford Dictionaries, 16 July 2019) <en.oxforddictionaries.com/definition/scope> accessed 16 July 2019. 110 (n 1) art III: 8(a).
111 Canada-Feed In, para 5.55.
112 Canada-Feed In, para 5.79 and 5.84. 113 Canada-Feed In, para 5.76.
114 Korea-Taxes on Alcoholic Beverages (Korea-Alcoholic Beverages) (AB Report) [1999] WT/DS75/AB/R WT/DS84/AB/R, para 115.
115 Korea-Alcoholic Beverages, para 115. 116 Korea-Alcoholic Beverages, para 114. 117 Canada-Feed In, para 5.77.
23 equipment in favour of domestic, otherwise the FIT programme would cease to exist. This therefore results in foreign electricity generation equipment being placed at a disadvantage in comparison with domestic equipment. The AB went on to discuss how the parties have given no evidence substantiating that the products are in a competitive relationship,118 however the
AB has given little evidence regarding their reasoning that such products are not in a competitive relationship.
The AB then reversed the Panel’s finding that there is no benefit, as it didn’t start by analysing the relevant market.119 It is a government’s choice to use a supply-mix of energy,120
but the Panel focused solely on the consumer preference, rather than the purchase decisions that are shaped by its definitions of mixed energy supply.121 A government’s definition of
mixed energy will often reflect various policies such as reducing reliance on fossil fuels and the sustainability of energy markets.122 Government considerations of the choice of
energy-supply mix may be imperative in the sustainability of the electricity market and they
intervene in favour of substituting fossil fuels for renewable energy.123 There could be many
factors shaping government decisions, for instance political pressures at the domestic level, which was overlooked by the Panel. The AB however, prioritised an analysis of the factors that may influence a government’s decision in supporting a market and adopting such measures which is imperative in assessing the compatibility of a measure with its intended effect. This is a situation in which domestic pressure is likely to play a large role in the governmental policy, however this wasn’t considered. The AB stated, that a distinction between government intervention that create markets that otherwise wouldn’t exist, and intervention to support players in an already existing market, should be made, as the former wouldn’t distort the market, whereas the latter may if they amount to financial contributions, or support by conferring benefits.124 The AB’s analysis distinguishes between a government’s
sovereign right to create domestic markets that don’t exist, in its pursuit of competitiveness on the international scale, with governments using protectionist measures by benefiting
118 Canada-Feed In, para 5.79. 119 Canada-Feed In, para 5.169. 120 Canada-Feed In, para 5.175. 121 Canada-Feed In, para 5.176. 122 Canada-Feed In, para 5.177. 123 Canada-Feed In, para 5.186. 124 Canada-Feed In, para 5.188.
24 domestic over foreign producers through granting subsidies, resulting in a distorted market. The former being WTO consistent and the latter not.
The AB and Panel agreed where “government intervention that internalizes social costs and benefits is limited to defining the broad parameters of the market, significant scope will remain for private actors to operate within those parameters, on the basis of commercial considerations."125 This denotes that there is room for private actors to work within the
market boundaries set by governments, implying that international law has no bearing on the workings of the domestic market, distinguishing the two separate spheres.
The AB refrained from completing the analysis of the benefit due to the complexity of the dispute and the Panel’s failure to fully explore these issues, leading to concerns about due process rights.126 This encompasses the arguments that the AB refuses to address the conflict
between trade and the environment, and avoids ruling on whether granting subsidies to domestic producers of greener energy would result in a benefit that in turn discriminates against foreign production. Although the AB concluded on some aspects of the dispute, it avoided ruling on the question that would explicitly decide whether subsidies of greener energy would contravene the non-discrimination provision. This jurisprudence highlights that it still appears necessary in order for policies to be politically feasible, to also be
discriminatory which could stem from the fact policies are implemented by governments, and governments are subject to a variety of political constraints.127 The AB seems unsure of how
far to go when assessing such obstacles, and how far it can encroach on national law before overstepping its boundary. However, a failure to adjudicate on such aspects only increases the likelihood of similar problems arising in the future.
D. India-Solar Cells
This case is an example of India relying “on the grounds that they secure India's compliance with “laws or regulations” requiring it to take steps to promote sustainable development,”128
as a justification for an alleged WTO violation. The case concerned a dispute arising out of a DCR measure imposed by India on solar power developers, (SPDs) who were selling
125 Canada-Feed In, para 5.189.
126 Canada-Feed In, para 5.244 and 6.1(b)(iii). 127 (n 33).
25 electricity to governmental agencies.129 The objective was to "establish India as a global
leader in solar energy, by creating the policy conditions for its diffusion across the country as quickly as possible.”130 Each power purchase agreement (PPA) guaranteed a rate for a
25-year term, where electricity generated by an SPD would be bought by the government, who in turn would resell it to consumers.131 India appealed the Panel’s finding that the DCR
measures weren’t covered under Article III:8(a) as India’s government purchases, and the discrimination under the DCR measures, related to solar cells and modules.132 The Panel
commented that there was a threshold matter of the applicability of Article III:8(a) regarding the “products purchased” under the DCR measures, which was a “dispositive factor” for the AB in Canada-Feed In, stating that a competitive relationship was required.
India argued that the Panel “mechanically applied the AB’s test of competitive relationship developed in Canada-Feed In and refused to consider the facts, evidence and legal arguments advanced by India,"133 such as ignoring a “fundamental basis of India’s
argument that solar cells and modules are "indistinguishable" from solar power generation.”134 The AB claims that India didn’t argue before the Panel a competitive
relationship between electricity and solar cells and modules.135 Under Article III:8(a) the
purchased product has to be “like”, “directly competitive”, “substitutable for” or “in a competitive relationship with” for the foreign product to be subject to discrimination, and although a consideration of inputs and processes may inform the competitive relationship, it arises only after the competitive relationship is found.136
Turning to the justification put forward by India under Article XX(j), a product has to be in “general or local short supply,” which the Panel interpreted as meaning that the supply of a product doesn’t meet its demand in “the relevant geographical area or market.”137 There is no
129 India-Certain measures Relating to Solar Cells and Solar Modules (India-Solar Cells) (AB Report) [2018] WT/DS456/20, para 1.1.
130 India-Solar Cells, para 1.2. 131 India-Solar Cells, para 1.3. 132 India-Solar Cells, para 5.1. 133 India-Solar Cells, para 5.12. 134 India-Solar Cells, para 5.13. 135 India-Solar Cells, para 5.25. 136 India-Solar Cells, para 5.40. 137 India-Solar Cells, para 5.47.
26 reference to the origin of the production or source of the products under this exception,138 and
the Panel argues that India’s interpretation that the article meant “products in general or local short production” could lead to a principle claiming that all members are entitled to an equitable share in the international production of products in short supply.139
The Panel’s interpretation is questionable here as Article XX(j) refers to “general or local short supply.” The word “or” implies that these words are not consecutive and that both the general and the local supply don’t need to be lacking to be justified. The Panel decided that both supplies need to be depleted for India to be able to rely on said provision. However, just because there is an international supply doesn’t always make it feasible to consume the supply, as this would again lead to India relying on other markets. Furthermore, this
argument seems developed country biased by claiming that developing countries should not be encouraged to advance, by denying them opportunities to focus on its domestic production in an effort to equalise the playing field so that they also have a share in production. This seems to counterbalance the assumption that relying on other countries markets can lead to risks which was also argued by India.140
The Panel read Article XX(j) narrowly by claiming that only “imminent risks of such shortage would be covered.”141 However, “short supply” relates to situations in which the
supply is less than expected, implying that the realisation of such shortage could link to the immediacy of the risk, especially in a country whereby access to such technology is already sparse. Looking at “short supply” alone extends the meaning to the “international supply” which can in turn have little correlation with a developing country’s market if it is too expensive to import such measures. This case highlights the-almost-naivety of the WTO when addressing non-discrimination as it fails to consider the political feasibility of a measure. It can be argued that solar cells can be considered in short supply to the extent that it may not be politically feasible for India to justify paying for solar cells to be imported from another country, rather than relying on their own supply and domestic producers. Thus, it places India in a delicate situation as they wish to rely on more environmentally friendly power, however it is difficult to justify spending money on environmentally friendly power originating in another country rather than domestically. This case emphasises the tension
138 India-Solar Cells, para 5.48. 139 India-Solar Cells, para 5.48. 140 India-Solar Cells, para 5.75. 141 India-Solar Cells, para 5.50.
27 governments face in balancing their WTO obligations to implement non-discriminatory environmental trade measures and national political pressure of favouring or advancing their own country.
This is the first case in which the AB has interpreted Article XX(j), and by looking at other jurisprudence of Article XX, found that a defence includes an initial threshold test of the challenged measure,142 the design and necessity elements, including its content, structure
and operation.143 If it was argued that the design, structure, content and expected operation
revealed that the measure was incapable of addressing the “acquisition or distribution of products in general or local short supply […] then there is no relationship that meets the required design element.”144 The necessity analysis is a process of weighing and balancing
several factors, particularly focusing on “the relative importance of the societal interests or values that the measure is intended to protect; and the trade-restrictiveness of the challenged measure.”145
The AB is supposed to consider the relative importance of societal interests or values, and it can be argued that this wasn’t done in this jurisprudence because developing countries not only are under pressure to adopt the same standards as developed countries, even though they have different conditions, but they also have to contend with disease and high poverty levels that are not present in developed countries. Therefore, as developed countries may face national political pressure to implement environmentally friendly standards, they don’t have to simultaneously contend with the fact that high percentages of their population are living in dire conditions. As a result, it is probably easier for developed countries to justify
environmental standards, yet even in developed countries there is still pressure to implement these standards in favour of their domestic producers, shown through the fact that the US and the EU are respondents in the most cases.146 Thus, it can be argued that the AB should place
more weight on considering these competing interests and the differing conditions faced by WTO members when looking at possible justifications.
The AB noted that Article XX(j) doesn’t limit the scope of potential sources of supply to “domestic products,” nor does it exclude the possibility that products from sources outside
142 India-Solar Cells, para 5.58. 143 India-Solar Cells, para 5.60. 144 India-Solar Cells, para 5.60. 145 India-Solar Cells, para 5.63.
146 Disputes by member (WTO, 16 July 2019)
