Environmental Protectionism, North-South Trade, and the Uruguay Round


WP/95/6-EA
Environmental Protectionism,
North-South Trade, and the Uruguay Round by Piritta Sorsa

The paper seeks to provide an overview of the present state of debate on
trade, environment, and the GATT for developing countries. The threat of green
protectionism can arise from the use of environmental product regulations for
protectionist purposes, from extraterritorial use of trade measures to influence
environmental behavior in other countries, and from the use of trade measures to
enforce compliance with international environmental agreements. At present, the
protectionist threat seems exaggerated as available information suggests that
the use of green trade barriers is still small compared with traditional trade
barriers against developing country exports.

To prevent the threat from becoming a reality, the paper contends that
developing countries have an interest in seeing that some GATT rules are reviewed,
while others are maintained. First, in some areas, existing GATT rules may be too
flexible and may not cover all potential environment-related product measures.
Further discussion is likely to take place on how to shield eco-labeling from
protectionist abuse; how to deal with measures that resemble product standards but
have no impact on consumption externalities in the importing country such as
recycling content requirements; and how border adjustment of taxes may undermine
the environmental objectives of the measures. Second, extraterritoriality is
unlikely to be accepted in the trade rules in the context of environmental goals,
and existing GATT rules protect developing countries against it. This is not only
a North-South issue, but one between large and small countries.

Third, the use of trade measures with international environmental agreements
is more controversial and will be a topic for debate in the World Trade
Organization (WTO), especially between developing and industrial countries. Here,
political consideration is likely to call for some action from the international
community. Developing countries should oversee that, if trade measures are used to
induce participation in or enforcement of environmental agreements, their use
remains limited under clear criteria and a last resort, and that an international
environmental agreement has the widest possible participation.

The Uruguay Round will have a number of direct and indirect effects on trade
and environment. The Round was important, not only in reducing all protectionist
pressures, but also in preserving and reinforcing the multilateral framework to
deal with new and old trade issues. In addition, the results of the Round in
improving growth, in general, and market access for labor-intensive products, in
particular, can be beneficial for improved environmental quality in developing
countries. Some rules with links to the environment are modified, and new sectors
added to the debate. The paper believes more focus is also needed on the
environment's broader links with trade, sustainable development, and other economic
policies.

However, developing countries will need to pay more attention to environmental
issues. Much of the increase in green standards is a market phenomenon reflecting
the increased environmental awareness of consumers. In many cases producers in
developing countries have no choice but to adjust or lose markets.