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WTO and the Environment

On The Theory of Economic Globalization and the Environment:

A Discussion on the Appropriateness of the World Trade Organization Working as a Medium to

Deal with Global Environmental Concerns

Joshua Gonzalez

Georgian Court University

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WTO and the Environment
On The Theory of Economic Globalization and the Environment:

A Discussion on the Appropriateness of the World Trade Organization Working as a Medium to

Deal with Global Environmental Concerns

In any endeavor of man to create a better world there will be those whom embrace the

initiative with support and heartfelt enthusiasm and those who will object to its mission. This is

human nature and it is this nature that gives us the internal authority to believe in our support or

antipathy to any endeavor. The world, today, is divided on an issue: economic globalization.

There are economists on one side of the boxing ring that see economic globalization as an

answer to many impoverished nations rising up from their poverty and enter into a thriving

economy for the betterment of its citizens. There are environmentalists who believe the ills of

society and environment are attributes of world trade, which are a detriment to all, who live on

Earth. As Bhagwati (2004) stated “the environmentalists thus tend to value environment over

income, whereas trade … economists conventionally tend to value income over the

environment” (p. 136). Many a foe is to blame, but there is always an archenemy that seems to

be number one on every Non-Governmental Organization’s (NGO) list: The World Trade

Organization (WTO). Environmentalist groups have sought ways to make the WTO adopt the

necessary mechanism to enforce environmental protection on trading economies. However, what

exactly is the WTO?

The World Trade Secretariat briefly describes the WTO, as ‘the only international

organization dealing with the global rules of trade between member nations. Its main function is

to ensure that trade flows as smoothly, predictably and freely as possible” (italics mine, WTO

Secretariat, 2004, p.1). The WTO’s goal is quite simple: to improve the lives of its member
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WTO and the Environment
nations’ citizens. The WTO’s functions are to administer trade agreements, hold forums for trade

negotiations, handle trade disputes between countries, monitor national trade policies, provide

technical assistance and training for developing countries, and cooperate with other international

organizations.

As early as 1970 it became evident of a possible link between trade and environmental

protection. Studies were conducted to “examine the impact of environmental policies on trade, as

well as the impact of trade on the environment” (WTO Secretariat, 2004, p.1). In the “preamble

of the Marrakech Agreement establishing the WTO, reference was made to the importance of

working towards sustainable development” (WTO Secretariat, 2004, p. 4). More importantly,

members of the WTO

recognized that their relations in the field of trade and economic endeavor should be

conducted with a view to raising standards of living… while allowing for optimal use of

the world’s resources in accordance with the objective of sustainable development,

seeking both to protect and preserve the environment and to enhance the means for doing

so in a manner consistent with their respective needs and concerns at different levels of

economic development (p. 4 -5).

The WTO does have a responsibility towards the environment, but this responsibility falls on the

member nations’s needs to economic development. The WTO is only a tool of member nations

to administer trade. As the environment has become fragile over the course of history due to

industrialization there has been a growing resentment towards globalization as the “Godzilla” of

all things ruinous relating to economic globalization. Martin Wolf in his book Why Globalization
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WTO and the Environment
Works (2004), points out “it is widely accepted among critics of market-driven globalization that

it is inherently inimical to protection of the environment” (p.188). This is really nonsense, as we

will show in this discussion. Tabling this thought, should the WTO become the appropriate

organization to deal with global environmental concerns?

One thing that should be made clear is that the WTO was not established as the world’s

watchdog for environmental protection. Countries have their own agencies whose mission is to

ensure the fair balance of optimal use of resources and minimal harm to the environment. The

Environmental Protection Agency of the United States, for example, is charged with protecting

human health and the environment. American NGOs that want to change environmental damage

patterns should begin systemic lobbies with the EPA for change in policies, not with the WTO.

Jagdish Bhagwati while economic policy adviser to Arthur Denkel, the GATT director

general, worked on a special report (appearing in the 1991 GATT Annual Report) showing that,

“contrary to the environmentalists’ pessimistic certainties, economic welfare increased with trade

liberalization even though ideal environmental policies were not in place, and that the

environment improved also” (Bhagwati, 2004, p. 138). The report showed how the agricultural

trade liberalization in the Uruguay Round “would shift agricultural production from higher-cost,

pesticide-intensive European agriculture to lower-cost, manure-using agriculture in the poor

countries” (p. 138) so that poor countries would receive an economic boost and the environment

would also improve. There are scores of examples like this one where free trade has helped not

only income needing countries, but the environment as well. Why? As countries gain economic

income through globalization its citizens gain a financial freedom where they can afford

appliances that are healthier for the environment, such as gas or electric stoves instead of coal
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WTO and the Environment
burning fireplaces, for example.

“As real incomes rise, the demand for environmental quality rises. This translates into

environmental progress under the right conditions – democracy, effective regulation, and

externalities that are largely confined within national borders and are therefore amenable to

national regulation” (Frankel p. 1). As Frankel (2005), Harpel Professor, points out in his paper

The Environment and Globalization, and Bhagwati (2004), in his book In Defense of

Globalization, multilateral institutions are the vehicle and multilateral environmental agreements

(MEA) are the wheels that move it. Although the WTO is not a medium for global

environmental issues, there is the reference to sustainable development in its Marrakech

preamble. As an international organization representing 150 nations, there should be a sense of

responsibility to encourage environmental protection as well as persuade member nations to

implement environmental measures provided the measures do not unnecessarily discriminate

among producer countries. But the WTO’s “competence in the field of trade and environment is

limited to trade policies and to the trade-related aspects of environmental policies which have a

significant effect on trade” (WTO Secretariat, 2001, p. 6). As its primary function is to

administer trade agreements, the WTO ensures that environmental policies do not hamper trade,

and that rules on trade do not deter reasonable domestic environmental protection.

The WTO, however, can become a springboard for international cooperation, “a system

in which countries interact under a set of multilateral rules determined in multilateral

negotiations and monitored by multilateral institutions” (Frankel, 2005, p. 4). In essence,

member nations can create protocols that once accepted and ratified by their parliaments, could

become a world directive in what Bhagwati (2004) describes as “an appropriate environmental
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WTO and the Environment
policy in place, to look after the environment, and then to pursue free trade to reap the gains

from trade” (p. 141).

International externalities, spillover effects, are environmental problems that cross

national borders. These spillover effects have a peculiar way of making nations talk on the

damage other countries may inadvertently be directing on their sovereign soil. The major

examples of global externalities are “chemicals that deplete the stratospheric ozone layer,

greenhouse gases that lead to global climate change, and habitat destruction that impairs

biological diversity” (Frankel, 2005, p. 8). Individual countries will not have much success

taking on global externalities on their own. It is through MEAs that they will find a resolution

towards a conflict with other nations. The fact that the majority of the world’s powers are

member nations to the WTO makes the WTO inadvertently, a springboard for forums on global

effects of environmental issues whether or not trade may be involved.

The issue concerning Multilateral Environmental Agreements is not so much that

countries have signed on to them and therefore, agreeing to curb their pollution even if it may

lose revenues, but the fact that other member countries may not want to sign these MEAs, while

directly benefiting from them, because on “grounds of efficiency and fairness” (Bhagwati, 2004,

p.159). As the effects of globalization cross state borders, how can polluters be persuaded to

become more sensitive to ‘protection of the environment’ issues? Moreover what can be done to

persuade these free riders to become more sensitive to this issue of signing on to agreements that

will help preserve the environment?

As countries enter the global-market they begin industrializing which brings in a certain
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WTO and the Environment
amount of pollution. This pollution can cross national borders, and “in recent years there has

been an increase in such activities, known as transnational or global public goods” (Sandler,

2001, para.1). An example of what may occur when global public goods cross national borders is

the row the governments of Argentina and Uruguay are having of the construction of pulp mills

near the Uruguay River on Uruguay’s soil. The conflict is owed to a 1975 treaty, where both

countries must agree all issues concerning the River Uruguay. Argentina wants the construction

stopped due to environmental damage to the river’s fragile ecosystem, while Uruguay states that

environmental damage is unsupported. Furthermore, Uruguay states the mills will use the latest

technology to avoid pollution. However, this concern only affects the countries of Argentina and

Uruguay for now, possibly affecting the South American region in the future that benefits from

the clean waters of the Uruguay River. What about other forms of pollution that can affect a

whole hemisphere?

Just as the WTO secretariat was aware as early as 1970 of an evident possible link

between trade and environmental protection, economic “globalization has highlighted the need to

take a closer look at the challenges, from reducing pollution to tightening disease control, whose

consequences are shared across the world” (Sandler, 2001, ¶ 1). Twenty years ago in the 1980s

when 16-inch aerosol hairspray cans were en vogue, chlorofluorocarbons (CFCs) were used for

propulsion in just about every type of can (hairspray, deodorant, perfumes, cleaning, etc.) and

refrigeration equipment. These products are now known to deplete the fragile stratospheric ozone

layer that blocks the sun’s harmful ultra-violet (UV) rays. As people in developed and emerging

economies began to worry more about the environment, media reports began informing the

public of the ozone hole depletion and thus “helped mobilize nations to conclude the Montreal
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WTO and the Environment
Protocol on reducing CFC emissions” (Sandler, 2001, ¶ 7) which as of November 2006, 191

countries are parties to the protocol. This type of MEA was created to conserve the deteriorating

ozone while not hampering global trade. However, there are cases when not virtually every

nation becomes party to an international treaty. It is here where we must find a common ground

to persuade those who have not signed to become more sensitive to global issues that will affect

the environment for generations. It is here where free riders must be dealt with, but with caution.

According to Musgrave (1989),

The free rider problem exists when people enjoy the benefits of government provided

goods independent of whether they pay for them. In the analyses of economics and

political science, free riders are actors who take more than their fair share of the benefits

or do not shoulder their fair share of the costs of their use of a resource. The free rider

problem is the question of how to prevent free riding from taking place, or at least limit

its effects (p. 42).

There is a striking correlation between polluters and free riders. Free riders must be

persuaded somehow to board the ship to help curtail global pollution. A classic example deals

with the Kyoto Protocol and the United States who has not signed due to objections “on grounds

of efficiency and fairness” (Bhagwati, 2004, p. 159). Exactly how can the WTO appropriate

mandatory outlines to global warming if its competence is not on the environment but in world

trade? More especially the WTO ensures that environmental policies do not hamper trade, and

that rules on trade do not deter reasonable domestic environmental protection. The United

Nations aegis for Climate Control created a Multilateral Environmental Agreement amongst the

160 countries that are party to the agreement to oversee that those who are party to this protocol
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WTO and the Environment
oblige to their commitments. If the United States is discriminated upon because of their free rider

status to the Kyoto Protocol, as Bhagwati (2004) questions, “what if these free riders and

defectors are WTO members and are entitled to Most Favored Nation MFN treatment (italics

mine, p.159)?

As a method for compromise, “an exception would have to be formally built into the

WTO to allow the selective and discriminatory use of trade restrictions…” (Bhagwati, 2004, p.

159) or as the Directorate for Food, Agriculture and Fisheries of the Organization for Economic

Co-operation and Development (OECD) study (2000), Production Effects of Agri-Environmental

Policy Measures: Reconciling Trade and Environmental Objectives recommends, “multilateral

co-operation, possibly in the form of a harmonization of environmental standards agreed to in

multilateral agreements, might be necessary to overcome possible free-rider problems and

maintain or improve international environmental quality” (p. 22). However, the exception built

into the WTO must be unanimously accepted by all member nations. MEAs are another method

of compromise, a multilateral co-operation that can create agreements where free rider problems

may be overcome or in the least be so dwarfish they are inconspicuous and not worth the fuss.

Bhagwati speaks of conditional MFN treatment as a clear (2002),

way of ensuring reciprocity between any pair of nations, in whatever way it is defined,

since no “unrequited” concessions are made to third nations. No third country gets a “free

lunch”. A third nation gets only the right to get to the dining table, not the right to sit

down and sup. To receive, it must give (p. 19).

So nations may apply a ‘quid pro quo’ treatment to each other if they wish to benefit from the

litigations of other countries in either the WTO Rounds, or MEA negotiations. However, if
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WTO and the Environment
nations really do wish to save the environment and reap the rewards of trade they will by virtue

of conscience want to do the right thing. The best methods are to, diplomatically use the world

institutions to persuade nations to sign on to treaties and do their part to adjust the collapsing

treatment of the planet. Diplomatic dialogue that reaches a consensus toward the signing of an

international treaty will resolve the issue of free riders.

Revisiting the Kyoto Protocol, a dialogue with consensus could help persuade the United

States to sign on by what they feel is morally correct. Domestically, the US uses a Superfund

where companies must clean up any environmental damage. The Superfund is used to clean the

nations worst environmentally damaged sites. A burdening fact of the Kyoto Protocol that the

United States objects to is that it “does not require developing countries to share the burden of

meeting targets to reduce carbon emissions” (Bhagwati, 2004, p. 160). As suggested by

Bhagwati (2004),

The Protocol can thus be redesigned and repackaged in a way that both appeals to current

American principles of public policy and generates results for the distribution of cost

burdens between the rich and poor countries not greatly dissimilar to what the present

Kyoto treaty does (p. 161).

Bhagwati shows that diplomatic persuasion can be an effective weapon to combat free riders

than impose sanctions against them. Through dialogue in negotiations, headway may be

achieved to persuade countries to board the bus to a better future.

Dialogue, diplomacy and persuasion may be the best way of to promote global awareness

of the environment through ‘safe’ trade. Imposing sanctions on countries can only create a

deeper divide in an already fragile issue of where players find deficiency on protocols. Sanctions
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WTO and the Environment
may create possible litigation with the WTO’s Dispute Settlement Mechanism, prolonging any

real solution towards an agreement by free riders. Powerhouses with the degree of influence of

the United States still have an Achilles heel. Finding this Achilles heel and using it in multi-

lateral negotiations to persuade these free riders to sign on can be the answer. The Kyoto

Protocol’s 160 members could talk to redesign the treaty so that it could be acceptable to the

United States government, paving the way to the signing and ratification of the treaty. As the

new economies begin to emerge and contribute to environmental pollution it will become more

and more necessary to create a treaty for the protection of our environment while reaping the

rewards of free trade.

More importantly, the responsibility does not rest with the WTO, which is not the best

solution for dealing with global environmental concerns. The responsibility does not rest with

protocols, but with the people of this world. The perceptions of governments are the

representation of the electorate. If change is wanted it will be the people who eventually will

demand it. As Thomas Friedman wrote (2006),

In the future, globalization is going to be increasingly driven by the individuals who

understand the flat world, adapt themselves quickly to its processes and technologies, and

start to march forward—without any treaties or advice from the IMF, WTO, NGOs, or

MEAs. They will be of every color of the rainbow and from every corner of the world

(italics mine, p. 215).

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WTO and the Environment
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