Fast-Track Trade Authority: Which
Environmental Issues Are "Directly Related to Trade"?

Arlene Wilson
Economics Division
97-886 E

October 2, 1997

SUMMARY

Fast-track negotiating authority provides that Congress will consider trade agreements within mandatory deadlines, with limited debate, and without amendment. Trade negotiating objectives have generally been included in fast-track legislation to establish priorities for trade negotiators. In the Clinton Administration's fast-track proposal released September 16, 1997, two negotiating objectives refer to trade- environment issues. (See Endnote 1.) The phrase "directly related to trade" in the first negotiating objective could be interpreted to allow U.S. negotiators to address environmental measures that restrict trade, but not to address unilateral trade sanctions to enforce environmental measures or agreements to cooperate in environmental protection.

The second trade negotiating objective refers to "protection of the environment through the World Trade Organization (WTO)." This may be interpreted to mean that U.S. negotiators can address issues in the WTO that are currently being discussed by the WTO's Committee on Trade and the Environment (a wide variety of topics).

Introduction

When it grants fast-track negotiating authority, Congress agrees to consider trade agreements within mandatory deadlines, with limited debate, and without amendment. Trade negotiating objectives have generally been included in fast- track legislation to establish priorities for trade negotiators. The Administration's legislative proposal, "Export Expansion and Reciprocal Trade Agreements Act of 1997" released September 16, 1997, includes a number of negotiating objectives on issues such as trade in services, foreign investment, intellectual property, and agriculture.

The proposed fast-track legislation has two types of negotiating objectives: overall (broad priorities) and principal (more specific priorities). This report focuses on the two negotiating objectives (one an overall objective and the other a principal objective) that refer to trade and the environment. The purpose of this report is to provide examples of trade-environment issues that might be included in or excluded from these two negotiating objectives. An exhaustive list of all issues is beyond the scope of this report. (See Endnote 2.)

It is important to emphasize that this analysis reflects a judgment based on the language of the negotiating objectives. Stated another way, it is one interpretation of the terminology in the proposed legislation. Others, reviewing the same language, might come to different conclusions. Moreover, this analysis reflects a trade policy, not a legal or environmental, perspective.

Overall Negotiating Objective on the Environment

One of the "overall" trade negotiating objectives in the Administration's proposed bill is:

"To address those aspects of foreign government policies and practices regarding labor, the environment, and other matters that are directly related to trade and decrease market opportunities for United States exports or distort United States trade." (Sec.2(a)(5)).

This discussion focuses only on the environmental aspects of this provision. As of now, no Administration official has publicly defined the phrase "directly related to trade." This phrase can be interpreted in a number of ways, and may be clarified as the fast-track discussions and negotiations continue. Possibly it may not be clear until specific issues are negotiated in trade agreements.

For the purpose of this report, "directly related to trade" is defined as foreign government environmental policies and practices that affect trade flows and that decrease U.S. market opportunities or distort U.S. trade. In other words, in order to be directly related to trade, the measure must also be a foreign government policy or practice and must also decrease U.S. access to foreign markets or distort U.S. exports or imports. This section of the report gives examples of some trade-environment issues which, in this interpretation of the phrase "directly related to trade," might or might not be addressed by U.S. negotiators.

Environmental Measures that Restrict Trade

In some cases, environmental measures have, either intentionally or inadvertently, had the effect of restricting trade. An example would be encouraging the reuse of containers through the imposition of taxes on containers. The Canadian province of Ontario, in 1993, imposed a 10-cent tax on all metal beer cans sold in Canada to facilitate container reuse (a legitimate environmental purpose). Since in practice, however, most American beer is sold in cans while Canadian beer is sold in bottles, it appeared that the tax discriminated against U.S. beer exports to Canada. Also, the tax was not applied to Canadian soft drink cans, further suggesting that it was intended to restrict U.S. exports of beer. The case was resolved through bilateral negotiations.

Another example of an environmental measure that restricted trade is the tuna-dolphin dispute that occurred a few years ago. Pursuant to the U.S. Marine Mammal Protection Act, imports of certain kinds of tuna from Mexico were prohibited since they did not meet U.S. dolphin protection standards. A General Agreement on Tariffs and Trade (GATT) panel, to which the dispute was referred, ruled (among other things) that Article XX of the GATT (concerning general exceptions to GATT obligations) does not allow trade restrictions to enforce a country's own laws outside its jurisdiction.

In the current context, it appears that negotiators would be able to address environmental measures imposed by foreign governments that restrict trade since they fall into the definition of "directly related to trade" used here. There are precedents for including such provisions in both the North American Free Trade Agreement (NAFTA) and the Uruguay Round Agreement. The NAFTA, in Chapters 7 and 9, distinguishes between legitimate environmental measures and those which are primarily protectionist. For example, Article 904.4 states "No Party may prepare, adopt, maintain or apply any standards- related measure with a view to or with the effect of creating an unnecessary obstacle to trade between the Parties." In another example, the Uruguay Round Agreement on Sanitary and Phytosanitary Standards includes the sentence "Sanitary and phytosanitary standards shall not be applied in a manner which would constitute a disguised restriction on international trade."

Trade Sanctions to Enforce Environmental Measures

Multilateral environmental agreements (MEAs) have been negotiated on issues such as international transport of hazardous waste and trade in endangered species. Some of the MEAs require trade sanctions to enforce the MEA. The NAFTA addressed this issue explicitly by including a provision in which U.S. obligations under three international environmental treaties must be respected. Article 104 of the NAFTA provides that, in the event of an inconsistency between NAFTA and an MEA, the MEA shall prevail, provided that the alternative chosen is the least inconsistent with the other provisions of the NAFTA.

It appears that trade sanctions in MEAs could be addressed by U.S. negotiators based on the definition used in this report of "directly related to trade." Moreover, they might also be addressed through the WTO under the principal negotiating objective on "seeking to ensure that trade and environmental protection are mutually supportive," discussed more fully on page 4.

Unilateral trade sanctions to force other countries to raise their domestic environmental standards would probably be excluded from the phrase "directly related to trade," as used in this report. Since developed countries such as the United States have the highest environmental standards, a provision requiring other countries to raise their domestic standards might not be "addressing those aspects of foreign government policies and practices..." in the negotiating objective.

Agreements to Cooperate on Environmental Protection

Measures such as those in the side agreement to the NAFTA and the U.S.-Mexico bilateral agreement (both of which are funded and authorized in NAFTA implementing legislation) that are generally directed toward improving the environment could be interpreted to be not "directly related to trade." For example, the NAFTA side agreement:

-- Establishes a Commission for Environmental Cooperation to address environmental or natural resource issues.

-- Includes commitments by each country to ensure that its laws and regulations provide for high levels of environmental protection and that these laws are effectively enforced.

The U.S.-Mexico bilateral agreement:

-- Establishes a Border Environmental Cooperation Commission to help local communities plan and coordinate environmental infrastructure projects.

-- Establishes the North American Development Bank (NADBank) to help generate financial resources for the construction of environmental infrastructure projects.

Principal Trade Negotiating Objective on the Environment

One of the "principal" trade negotiating objectives in the Administration's proposed bill, Sec. 2(b)(7), is to provide worker rights and environmental protection through the World Trade Organization (WTO). With respect to environmental matters, the negotiating objectives are:

"(D) to promote sustainable development; and (E) to seek to ensure that trade and environmental protection are mutually supportive, including through further clarification of the relationship between them."

Sections (D) and (E) are quite vague and it is difficult to specify what issues might be included. However, the phrase "through the World Trade Organization" provides some guidance. A WTO Committee on Trade and the Environment was established at the Marrakesh Ministerial Meeting in 1994. The Committee's responsibilities were to identify the relationships between trade and environmental measures in order to promote development, and to make recommendations on whether any modifications to the multilateral trading system are required.

The Committee has been meeting periodically since January 1995 to address the ten items on its agenda. Discussions include issues such as the transparency of trade measures used for environmental purposes and exports of domestically prohibited goods. Considerable attention has focused on two issues: the use of trade sanctions to enforce multilateral environmental agreements (MEAs), and ecolabeling (the process of attaching a label to a product providing consumers with environmental information). Some are concerned that ecolabeling or trade sanctions to enforce MEAs might be used as disguised barriers to trade.

This principal objective could be interpreted to allow U.S. negotiators to address, through the WTO, all ten items on the agenda of the Committee on Trade and the Environment (which cover a wide variety of trade-environment issues and are listed below). If other agenda items are added in the future, they might also be included.

It is important to note that progress in the Committee on Trade and the Environment has been slow. In November 1996, the Committee issued a report in which it summarized the discussions and analyses it had undertaken, but made no major recommendations. The WTO's Singapore Ministerial Declaration of December 13, 1996 stated, among other things, that the Committee made an important contribution towards fulfilling its work program, but further work needs to be undertaken. The Declaration directed the Committee to carry out its work under its existing terms of reference.

Ten Agenda Items of the WTO Trade and Environment Committee
(See Endnote 3.)

1. The relationship between the provisions of the multilateral trading system and trade measures for environmental purposes, including those pursuant to multilateral environmental agreements.

2. The relationship between environmental policies relevant to trade and environmental measures with significant trade effects and the provisions of the multilateral trading system.

3(a). The relationship between the provisions of the multilateral trading system and charges and taxes for environmental purposes.

3(b). The relationship between the provisions of the multilateral trading system and requirements for environmental purposes relating to products, including standards and technical regulations, packaging, labelling and recycling.

4. The provisions of the multilateral trading system with respect to the transparency of trade measures used for environmental purposes and environmental measures and requirements which have significant trade effects.

5. The relationship between the dispute settlement mechanisms in the multilateral trading system and those found in multilateral environmental agreements.

6. The effect of environmental measures on market access, especially in relation to developing countries, in particular to the least developing among them, and environmental benefits of removing trade restrictions and distortions.

7. The issue of exports of domestically prohibited goods.

8. The relevant provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights.

9. The work program envisaged in the Decision on Trade in Services and the Environment.

10. Input to the relevant bodies in respect of appropriate arrangements for relations with intergovernmental and non-governmental organizations referred to in Article V of the WTO.

Guidance for Negotiators

Sec. 2(c) of the proposed legislation provides guidance for U.S. negotiators in pursuing the principal negotiating objectives. U.S. negotiators are required to take into account domestic objectives including, among other things, environmental interests and the law and regulations thereto. This provision might be interpreted to mean that the U.S. right to maintain its own environmental standards could be addressed by U.S. negotiators.

The NAFTA provides an example of a provision in a trade agreement which protects a country's own standards. Article 713.3 of the NAFTA provides that:

"Nothing in Paragraph 1 shall be construed to prevent a Party from adopting, maintaining or applying, in accordance with other provisions of this Section, a sanitary or phytosanitary measure that is more stringent than the relevant international standard, guideline or recommendation."

ENDNOTES

(1) None of the fifteen negotiating objectives in the fast- track bill approved by the Senate Finance Committee on October 1, 1997 is specifically on the environment, although three of these objectives (trade in services, foreign investment, and regulatory competition) include environmental issues.

(2) See also U.S. Library of Congress. Congressional Research Service. Fast-Track Authority: Debate Over the President's Proposal. Report No. 97-876 E, by George Holliday. Environment in Fast-Track Trade Authority: Summary of the Clinton Administration Proposal, Report No. 97-879 ENR, by Susan R. Fletcher and Trade Agreements: Renewing the Negotiating and Fast-Track Implementing Authority, Issue Brief 97016, continually updated, by Vladimir N. Pregelj.

(3) World Trade Organization. Report of the Committee on Trade and Environment. WT/CTE/1, Nov. 12, 1996, pp. 39-47. In Report of the General Council to the 1996 Ministerial Conference. Volume 1. 9-13 December 1996.