7.1
Globalization of Economic Activity
The economies of the world are becoming increas-ingly integrated. This is evidenced in particular by – globalization of markets,
– increased interdependence of trade,
– greater mobility of labor, capital and knowledge, – internationalization of production and
increas-ingly complex ownership patterns,
– the predominance of multinational corporations, – the formation of large economic blocs (above all
the EU, the Nafta, the Mercosur and, in future, the Association of Pacific Economies (APEC)), each featuring a major degree of internal coordination of economic policy.
The consequences of these developments, simply put, are
– increasing international exchange of goods and commodities, resulting in growth of transport ac-tivities,
– increasing global growth rates, mainly in eastern Asia (equilibrium effect). The term equilibrium effect generally refers to the impact on economic growth rates. This is compounded by structural ef-fects involving changes in sectoral, regional and company size structures.
Intensification of competition with respect to internationally traded goods leads to
– growing international division of labor, with in-creasing sectoral specialization of countries par-ticipating in trade (structural effect),
– increasingly rapid geographical diffusion of knowledge and technologies and, in certain fields, – a mutual convergence of preferences on the part of the population – relating to lifestyles, for exam-ple, or environmental awareness.
These develoments reflect substantial global changes, and they are connected to variuos regional and global environmental effects (see WBGU, 1993 for a definition of global environmental effects).
Therefore, the issue of ‘Trade and Environment’ has
become increasingly prevalent in the public discus-sion.
Negative environmental impacts (environmental stresses) can be expected if, for example
– emissions and/or waste increases due to a higher level of transport operations (growth in the num-ber of vehicle kilometers per year) and/or the equilibrium effect (boost in economic growth), – resource consumption rises or
– industries consuming scarce environmental re-sources shift their operations to countries with lo-wer environmental standards.
Potentially positive impacts (mitigation of environ-mental stress) can arise if
– growth effects in countries severely affected by poverty create scope for more environmental pro-tection,
– exchange of goods leads to faster diffusion of in-novative, low-emission technologies or
– a higher level of environmental awareness is gen-erated via the transfer of knowledge associated with the exchange of goods and factors.
These phenomena are closely linked to general ec-onomic developments, such as the declining signifi-cance of transport costs as a percentage of the amo-unt of added value, but are also an expression of po-litical decisions, such as the integration policies of the various economic blocs. Another dimension here is that of global institutional frameworks, one of which being the General Agreement on Tariffs and Trade (GATT). This agreement
– has had a crucial influence on world trade since 1947,
– established, following adoption of the interna-tional trade agreements of the so-called Uruguay Round in Marrakech on April 15, 1995, a new phase of world trade liberalization in which envi-ronmental protection shall play a greater role in future, and which
– has attracted frequent criticism recently in con-nection with environmental issues.
Implementation of the new GATT agreement got underway in early 1995 following ratification by the U.S. Congress. In consequence, the Council now
in-7
cludes the so-called GATT regime (Helm, 1995) among the topics to be dealt with. As a first step, the policy of GATT is subjected to critical appraisal, whereby the principal focus concerns the interests and positions of the respective contracting parties.
This is followed by a description of the Marrakech decisions, and after that it GATT will be assessed in terms of broader environmental issues. (The term GATT is used in the following sections, despite the fact that this was formally superseded by the WTO on January 1, 1995.) A transition can then be made to selected recommendations for action and research.
7.2
The GATT Regime
7.2.1
Brief Outline
GATT is a multilateral trade agreement, formally speaking, although de facto it functions as an interna-tional organization (Senti, 1994). Its supreme organ is the Session of Contracting Parties consisting represe-natives of each GATT signatory, which may pass res-olutions by majority vote. Until the end of 1994, the GATT Secretariat was an administrative body with-out political powers, located in Geneva, that moni-tored compliance with the GATT provisions. Chan-ges to the rules may be made at periodic bi- or multi-lateral “rounds” of negotiations between the repre-sentatives of the member states. There is also a spe-cial procedure for resolving disputes arising from tra-de restrictions by member states and/or for tra-dealing with issues involving interpretation of the agree-ment’s provisions, in which ad hoc committees of in-dependent experts (so-called GATT panels) issue recommendations that become binding on member states once they are accepted by the Session of Con-tracting Parties. All of these agreements, institutions and procedures are commonly referred to as the GATT regime. The so-called Uruguay Round (the 8th and final multilateral round of negotiations) was opened in 1986 under this GATT regime, and finally came to an end in Marrakech in April 1994 (date of adoption) after years of tough bargaining. Following ratification by the signatories, it entered force on Jan-uary 1, 1995, thus opening a new phase of GATT pol-icymaking that will be examined more closely in a la-ter section.
To this day, GATT rests on the belief that free tra-de, and the international division of labor and/or spe-cialization that ensues, serves to increase the welfare and prosperity of populations worldwide. The
princi-ples for achieving this liberalization of trade are tho-se laid down in the Agreement:
– that each signatory apply its trade regulations in the same manner to all other signatories (“most-favored nation” requirement),
– all “like” products must be granted the same treat-ment as domestic products (non-discrimination or
“national treatment” requirement) and
– reciprocal application of all GATT rules among the contracting parties (reciprocity).
In laws and treaties it is not just the key articles that are important, but especially the various excep-tion clauses. This also accounts to GATT. In customs unions and free trade zones, as well as towards devel-oping countries, exceptions may be made to the prin-ciple of most favored nation status. Article XI pro-vides for exceptions to the ban on quota restrictions, and Article XX opens up the option for trade restric-tions in order to achieve political goals of higher pri-ority. Under Article XI, export bans may also be im-posed on important goods and thus also on certain environmental assets or resources (such as animals).
In addition, Article XX allows for trade restrictions
“necessary to protect human, animal or plant life or health” or relating to “the conservation of exhaust-ible natural resources”, i.e. in pursuit of environmen-tal aims. The general stipulation of GATT is that the-se restrictions may not give rithe-se to arbitrary discrim-ination between countries or to hidden trade bar-riers.
When evaluating GATT from the environmental perspective, one has to take into consideration that the agreement was originally intended – in 1947, af-ter plans to establish an Inaf-ternational Trade Organ-ization had failed – as a provisional international treaty for liberalizing world trade. It was aimed at making the free trade paradigm a central element of world trade and at the same time at counteracting segmentation of the world economy, as had occurred to the detriment of all during the interwar period. No consideration at all was given to environmental pro-tection, since neither at national nor international le-vel was this a political issue.The fact that the term en-vironment does not appear in GATT is therefore a reflection of the particular concerns of that time, na-mely reconstruction of an efficient world economy and the desire to achieve this by trade liberalization.
In general, however, the GATT agreement was and continues to be open for further amendments and additions. There has always been scope for sup-plementary agreements or new interpretations of particular Articles (e.g. by the GATT panels), as well as the permissibility of trade measures in certain ex-ceptional cases. What is also interesting in this con-nection is that the GATT Secretariat presented a stu-dy as early as 1971 on “Industrial Pollution Control
and International Trade” (see Box 8 and 39 on envi-ronmental activities under the GATT regime). The paucity of environmental references in GATT was due primarily to the specific structure of interests on the part of the member states.
7.2.2
Interest Structures Within GATT
Interest Types
Before the text of the General Agreement, the pa-nel rulings to date, or indeed the institutional struc-tures within GATT can be properly understood, it is essential to consider the different interests of the member states. While trade liberalization probably improves a country’s overall welfare, it is also true that, with sectoral and regional variations, there are not only winners but also losers in this process – with the latter demanding protective measures from their respective governments. In the past, individual states made repeated efforts to gain competitive advantage by means of protective measures (trade restrictions), or to coerce other states to react in a certain way by
applying trade policies. In other words, despite the free trade paradigm, GATT has had to deal with pro-tectionist actions throughout its history.
To what extent trade restrictions can be enforced depends largely on the international positions of the individual states concerned. States with a high vol-ume of foreign trade have displayed the greatest ca-pacity for imposing such restrictions, with the result that important producer groups in these countries have repeatedly demanded new protectionist meas-ures from their governments. In states with little for-eign trade, interest in protectionist measures on the part of producers has usually been less, since one could assume from the outset that protectionist reg-ulations would be difficult to enforce or would trig-ger countermeasures by important trade partners.
A basic and simplified distinction can be made between the following groups of states as regards these positions of power and interest:
– the world gravitation centers, i.e. those states or combinations of states with relatively high and highly diversified foreign trade volumes,
– those states with a major interest in foreign trade on account of initial natural or economic
condi-185 Interest Structures Within GATT C 7.2.2
BOX 38
GATT and the Environment – a Chronology 1947 formal adoption of GATT (General
Agreement on Tariffs and Trade), Octo-ber 30, 1947
1971 Trade and Environment Working Com-mittee founded
1971 “Industrial Pollution Control and Inter-national Trade” study
1990 GATT panel decision on Thailand’s im-port barriers on foreign cigarettes 1991 First GATT panel decision on the
tuna-dolphin case (Box 39)
1991 Reactivation of the GATT Group on En-vironmental Measures and International Trade. The tuna-dolphin conflict marks the beginning of public debate on envi-ronmental acceptability of trade.
1992 GATT states its basic principles on the subject of trade and the environment in its “Trade and Environment Report”, ar-guing that trade and environment are es-sentially compatible, in that free trade en-ables the growth rates necessary to fi-nance environmental protection.
1993 Completion of the Uruguay Round.
En-vironmentally relevant changes are pri-marily those in the Agreement on Agri-culture, according to which payments made in the context of environmental programs are explicitly permitted, as are environmentally specific exceptions in the TRIPS agreement (Trade Related In-tellectual Property Rights), which stipu-lates that inventions can be excluded from patenting if serious damage to the environment might be the result.
1994 Second GATT panel decision on the tuna-dolphin case (Box 39)
4/1994 Ministerial Decision on Trade and Envi-ronment adopted in Marrakesh: environ-mental aspects of trade are anchored in the new WTO, especially through the def-inition in the Preamble of sustainable de-velopment as an objective, through the establishment of the Committee on Trade and Environment and the admission of environmental experts in conflict resolu-tion procedures.
6/1994 First public hearing of NGOs at GATT headquarters, further consultations bet-ween the WTO Environment and Trade Committee and NGOs are planned.
tions (e.g. the members of the so-called “Cairns”
Group during the Uruguay Round) (this group, which derives its name from the Australian city where the first session of the member states was held, was formed during the Uruguay Round, in-cluded the principal exporters of agricultural pro-duce and opposed protectionist measures aimed at influencing these commodity flows. Its mem-bers are Argentina, Australia, Brazil, Canada, Chi-le, Columbia, Hungary, Indonesia, Malaysia, New Zealand, the Philippines, Thailand and Uruguay), – states with a powerful interest, on account of their high economic growth potential, in the intensified integration of world trade (especially the growth economies in Asia),
– states which function primarily as suppliers of ba-sic commodities (above all the OPEC nations and the states in the former Soviet Union),
– states with a priority interest in inexpensive im-ports, on account of their low economic growth potential in the short term (e.g. Black Africa).
This is a simplified classification to the extent that allocation of a particular country to either of the two categories “protectionism” or “free trade” will de-pend on the sector or sectors concerned, and need not apply across all sectors. The USA, as a hegemo-nial power, has promoted and secured a liberal world trade, but this has not prevented it from pursuing protectionist policies in agriculture and textiles, for example.
However, this rough classification shows the di-versity of interests brought together at the GATT ne-gotiations and the respective “clout” of their repre-sentatives. The dominating position of the world gravitation centers within the world trade system renders it virtually impossible to make decisions against their interests, since they can threaten to ex-clude others from their markets. For representatives of other groups of states, the realization of such threats would always mean economic drawbacks that could not be offset by any unilateral measures. This explains why mainly the world gravitation centers were able to impose and enforce numerous barriers to free world trade (Grossmann et al., 1994). Their intervention has resulted in the exclusion of entire sectors from the GATT regime (agriculture, textiles, aircraft construction), and the imprecise operational-ization of the anti-dumping and anti-subsidy meas-ures offered scope for actions fired by protectionist ambitions (Mavroidis, 1993). This also explains the numerous exceptions for regional associations and hence the continued formation of economic trading blocs (Borrmann and Koopmann, 1994). The latter took advantage of available options, above all for preferential agreements with individual states on the lifting of trade restrictions, for example the
preferen-tial treatment afforded by the EU to the so-called ACP states, i.e. the previous colonies of the EU mem-ber states in Africa, the Caribbean and the Pacific (as regards preferential treatment regulations, see DIW, 1994).
The concentration of GATT efforts on the elimi-nation of tariffs also led to a rise in nontariff trade barriers (nontariff trade barriers are measures that cannot be construed as customs duties, e.g. quality standards for products and processes, import quotas or restricted access to official approval procedures for the commencement of production and marketing activities. Whereas in the case of customs duties the barrier to trade is effected through a direct increase in the cost of the good, non-tarifficated restrictions do not exert a direct influence on price). Typical of these are “voluntary” self-restrictions by exporters, by means of which the world gravitation centers es-pecially have been able to exert influence on other states.
This corresponded with the way in which the im-plementation of decisions within GATT itself was or-ganized. A panel comprised of independent trade ex-perts adjudicated on violations of GATT rules. How-ever, the recommendations of such panels did not ob-tain binding force unless all contracting parties gave their unanimous approval, thus permitting the pow-erful trading nations to block any trade restrictions not in their favor. Because the possible sanctioning of violations must be carried out in the respective sector by the states bringing the action, disciplinary effects can only be brought about by the world gravitation centers, since a high market potential is required for trade restrictions to have any noticeable impact on the volume of foreign trade of the states against which action is taken. Despite the free trade postu-late, the GATT regime has seen a fragmentation of trade flows and numerous regulations that bolster the dominant position of the world gravitation cen-ters – developments that GATT was originally sup-posed to prevent.
In contrast, the countries with low per capita in-come exploit their exemption from the principle of reciprocity by not reducing barriers to trade in their trade laws. This lack of willingness to make conces-sions, on the one hand, and the strong negotiating po-sition of the world gravitation centers, on the other, led to past multilateral negotiations achieving little genuine progress beyond the reduction of certain tar-iffs.
Implications for Envir onmental Policy The interests outlined above reveal clearly why environmental concerns have played a minor role in GATT so far. As already shown, protection of the en-vironment may not have been a socially or politically