Sealing The Gap Between Trade & Environment

10th Oct 2014 Investments, Sustainability

Prior to 1991, protection of environment did not figure in the priority list of international trade agenda. Although, the GATT Council established the Working Group on Environmental Measures and International Trade in 1971, it did not meet for twenty years. Environment came to the forefront post the decision in the Tuna/Dolphin dispute which although not unanimously adopted by the GATT Council ushered both public and academic discourse on the importance of aligning trade and environmental interests. . The creation of WTO led to the establishment of the Committee on Trade and Environment mandated with the task to enhance deliberation on trade and environmental measures. . An effective dispute settlement body under the WTO also provided an opportunity for convergence of these disciplines.

While there isn’t any “General Agreement” on trade and environment, Member States have been accorded the flexibility to deviate from their commitments under the system if their actions fall within any of the justifiable exceptions under Article XX. Till recently, the WTO Dispute Settlement Body (DSB) followed a very textualist approach with respect to issues necessitating the implementation of environmental measures. However, in the recent EC-Seal Products dispute the Appellate Body issued a report upholding a ban on importation and marketing of seal products under Article XX(a), which upholds measures imposed for protecting public morals. In the absence of prior jurisprudence on this provision or an established test to identify what constitutes public morals the Panel placed reliance on GATS disputes (such as China Audiovisuals and US-Gambling), it becomes important to analyse the approach of both the Panel and the Appellate since such a provision may be used by Member States to advance protectionist measures under the guise of public morals.

On 21st April, 2011 a Panel was established by the DSB to adjudicate a dispute between Canada, Norway (Complainant) and EU (Respondent). The dispute focused on an EU directive, which banned the import and marketing of seal products, except subsistence hunting carried out by Inuit or other indigenous communities and by-products of marine resource management culls. Canada and Norway argued that the exceptions are discriminatory as it allowed seal products from Greenland and other EU Member States to be placed in the EU market, while excluding almost all of their like products.

In EC-Seal Products, the Panel approached the concept of public morals under the TBT and the non-discrimination provisions contained therein. After reviewing the arguments and evidence presented by both sides, the Panel observed that the occurrence of inhumane killing of seals and its correlation with the EU consumers, who may indirectly abet the inhumane hunting of seals by consuming the product, legitimizes the EU ban and upholds its necessity in preventing such inhumane killings. This, although the Panel found that the exceptions were inconsistent with Article I:1 (Most-Favoured Nation Principle) and III:4 (National Treatment Principle)Despite the fact that the exceptions were inherently discriminatory, the Panel adjudged that the EU directive was ultimately necessary and made a material contribution towards the protection of public morals in the EU. It is pertinent to note here that the Panel did observe that the exceptions did not satisfy the test of Article XX Chapeau and were indeed discriminatory.

Upon appeal, the Appellate Body observed that the Panel’s harmonious interpretation of the TBT and GATT provision wasn’t in consonance with the established jurisprudence. They opined that the relevant provisions of both Agreements are very different in scope and content. Moreover, substituting the legitimate regulatory distinction test for the established test for Article XX Chapeau without substantiating the reasons for deviation would be lead to redundancy of Article XX Chapeau, which has a completely different function and scope. The most important being that the TBT’s applicability is restricted to measures which constitute as technical regulations, whereas Article XX exception of GATT can be claimed in all measures relating to the trade of goods. The Appellate Body applied the standard established in Brazil-Retreaded Tyres, which requires an evaluation of whether the discrimination at issue is rationally connected to the objective of the measure. The Appellate Body noted that the EU did not substantiate the point of the exception made for the indigenous Inuit community considering they apply the same hunting method as commercial hunts, resulting in the very pain and suffering for seals that appealed to the moral concerns of the EU public.

Upon evaluation of the facts the Appellate Body essentially found that EU also failed to provide the same market access arrangement to Canadian Inuit communities as it did to the Greenlandic Inuit community. Hence, the Appellate Body came to the conclusion that there was no rational connection between the measure and its objective. Moreover it found that the measure was applied in an arbitrary and unjustifiable manner. After conducting a thorough necessity analysis i.e. importance of the objective, the material contribution to that objective, and the trade-restrictiveness of the measures, as well as a comparison between the challenged measure and possible alternatives the Appellate Body decided that although the seal ban was justified in its objective of protecting public morals – as outlined in GATT Article XX(a), the EU failed to establish that the measure met the overall Chapeau requirements of that same article.

One of the primary objectives of the WTO is the strike a balance between liberalization of trade and regulatory autonomy of the Member States. Some commentators have argued that the Appellate Body failed to appreciate this principle by discounting the fact that although the ban and the exceptions formed part of a consolidated scheme, the intent behind both was different. Thus by failing to dissect the purposes served by the ban and the exception respectively, the Appellate Body adopted a very broad approach towards evaluation of Article XX (a). It would have been in accordance with the principles of WTO had the Appellate Body opined that instead of the design of the exceptions itself the application was discriminatory. The two interests served by the scheme i.e. addressing public moral concerns and the interests of indigenous communities are not mutually exclusive but there is nothing within the framework of the WTO that prevents Member States from pursuing two separate objectives within a certain scheme. However, the counter theory as applied by the Appellate Body is not without merit as the same method of hunting applied by both the indigenous communities and commercial hunters would make the purpose of the ban somewhat redundant as it justify very little room for reconciliation.

The EU may still be able to save its ban by making significant changes in the carve-outs and adhere to its public moral concerns. One of the positive aspects of both the Appellate body and the Panel report is that for the first time an environmental measure was recognized as falling under the public moral exception. Interestingly this line of reasoning is in sync with thinkers such as Immanuel Kant and Jeremy Bentham. Kant believed that a person who was cruel to animals becomes equally cruel in his dealings with men. Bentham took the concept further by linking animal suffering to slavery and racial discrimination. In consonance with the utilitarian theory, Bentham argued that merely because animals can’t reason or talk should not be a ground to subject them to cruelty. Rather the fact that they suffer should be reason enough to guarantee animals rights. One may argue that these theories are intricately linked to public morals. Thus the issue of animal welfare and public morals has a philosophical basis emerging from the enlightenment era.

In a paper written on environmental concerns and trade disputes by Maria Alejandra Calle, the author argues that while the Dispute Settlement Body has recognized environmental protection as a legitimate objective for which trade may be restricted, an overwhelming majority of environmental measures have been found incompatible with WTO obligations. The author’s study revealed that although environmental concerns are recognized they generally fail to meet the requirements of the Chapeau and the necessity test. The Seals dispute marks somewhat of a departure from this trend to the extent that by changing the carve-outs, the ban will satisfy the requirements of the Chapeau.

The findings of Appellate Body may allay the fears of many commentators who believed that a public morals justification for environmental measures may be used as a tool for protectionism. This is because of the rigorous scrutiny conducted by both the Panel and the Appellate Body in determining the even-handedness of the measure and the naturally high threshold of necessity and Article XX Chapeau. Although we are far from an absolute convergence between trading and environmental interests, the Appellate Body report offers a fresh perspective towards achieving that synthesis. Nevertheless, environmental concerns must remain a continual concern for the international trading regime to the extent that it doesn’t create unnecessary and arbitrary barriers to trade.

The author is a Policy analyst at Oval Observer Foundation.  

The views expressed here are solely those of the author and do not necessarily reflect the opinion of the Foundation, its partners and affiliates.