Reproduced, with permission, from: U.S. Office of Technology Assessment. 1992. Trade and the environment: Conflicts and opportunities. Report no. OTA-BP-ITE-94. Washington, D.C.: Government Printing Office.

Chapter 2 Issues and Institutional Players

Several recent developments, highlighted briefly below, suggest the broad range of trade/environment issues now arising. Some involve the General Agreement on Tariffs and Trade (GATT), which provides a framework of rules for most of the world's trade. Environment/trade issues also have emerged in debate about a possible North American Free Trade Agreement (NAFTA), now under negotiation between the United States and Canada, which already have a free trade agreement, and Mexico. Similar environmental issues might emerge if U.S. efforts to liberalize trade are extended to other developing countries in the Western Hemisphere. The chapter also discusses policy formulation efforts in this country and in international forums, including GATT, the Organization for Economic Co-operation and Development (OECD), and the United Nations. (Chapter 5 further discusses institutional issues).

THE CONTEXT

Issues at GATT

In September 1991, a three-member GATT dispute resolution panel stated that a U.S. ban on imports of tuna violated GATT's rules of international trade.[1] (The panel's reasoning is analyzed in ch. 3.) The dispute arose when Mexico contested the ban, which was imposed under the U.S. Marine Mammal Protection Act. This law seeks (among other things) to limit incidental killing or serious injury to dolphins and other marine mammals due to commercial fishing operations.[2] The U.S. Government had put the ban into effect only after it was compelled to do so by a court order. Mexico and the United States have asked the GATT Council to postpone its consideration of the panel's report--a necessary step before the report can be adopted as an official GATT decision--while the two countries work to settle the dispute themselves.

The issue is not settled, however. In January 1992, again under court order, the U.S. Government imposed a ban on tuna from several "intermediary" nations that do not engage in the objected-to fishing practice themselves but might be reselling tuna caught by a nation that does.[3] This has resulted in political pressure for the GATT Council to adopt the panel's report despite the request of Mexico and the United States.[4] Also, any of the intermediary nations could file its own complaint. In mid-March, the European Community (EC), whose member nations France and Italy were affected by the intermediary ban, requested consultations with the United States. This is the first step toward filing a formal complaint to invoke GATT's dispute resolution process.

The United States could, under GATT's current practice, block the GATT Council's adoption of the panel's report in the Mexican case and of panel reports in any subsequent cases; it also could refuse to change its law if adverse rulings were adopted by the Council and could block the imposition of any retaliatory penalties proposed to the GATT Council by the aggrieved country or countries. However, the United States would face political pressure not to resist in these ways. Amendments to GATT under consideration would remove the right to block adverse rulings, and would make ignoring a ruling potentially more costly. (See the annex to this chapter.)

Following announcement of the GATT panel's report in the tuna/dolphin case, Congress held hearings on the report's implications and on possible environmental reforms in GATT. (See app. C.) In March 1992, the Administration proposed that Congress temporarily lift the ban on a nation's tuna if it committed to a 5-year moratorium starting March 1, 1994 on any dolphin kills, and to reduction in the absolute number of dolphin kills in the interim (though no reduction targets would be set). The Administration reported that Mexico and Venezuela were prepared to make such commitments.[5]

The potential for conflict between trade measures used in national environmental policies and GATT might increase soon. Wide-ranging changes to many aspects of GATT are being debated in the Uruguay Round.[6] Proposed changes include more attention to nontariff barriers, as well as expansion of GATT discipline for agriculture and introduction of GATT rules into areas not previously covered (such as intellectual property and services).[7] These discussions, which began in 1986, have stalled several times and a successful conclusion is not a certainty. However, environment was not a substantial consideration in drafting proposed changes, and the effect of some changes under discussion in early 1992 could be to increase the conflicts between GATT and environmental measures (see discussion later in this chapter and chs. 3 and 4).

The relationship between GATT and international environmental agreements is another concern. According to GATT, trade measures are included in 17 multilateral environmental agreements. These agreements deal with such problems as stratospheric ozone depletion, endangered species, and hazardous waste. (As shown in table 2-1, the greatest number have to do with conservation of plant and animal species.) There is the likelihood of more multilateral environmental agreements in the future, although these will not necessarily have trade provisions. For example, there has been speculation that trade measures might eventually be made part of a future international agreement to limit greenhouse gas emissions that may contribute to global warming. Such an agreement might contain provisions that tax imports of products based on greenhouse gas emissions accompanying their manufacture, or altogether ban imports of some products from nonsignatories; if such provisions were adopted, they too might be challenged under GATT. At present, however, discussions about a possible framework agreement for global warming stop short of such measures.

Several issues have emerged concerning the use of trade provisions in multilateral environmental agreements. One is their consistency with GATT. Although various GATT statements seem to favor multilateral action with respect to the environment, the trade provisions in international environmental agreements have no special status in GATT. There is thus a possibility that someday a GATT member will successfully challenge a trade measure taken by another GATT member pursuant to a multilateral agreement. Also, the possibility of GATT conflicts might discourage inclusion of trade provisions that could make environmental agreements more effective or enforceable. From both an environmental viewpoint and from a trade viewpoint, there is a need to find ways to minimize frictions between these two concerns, both of which are important for world welfare. (Chapter 3 discusses some factors that might be considered, using as illustration the Montreal Protocol on Substances That Deplete the Ozone Layer.[8] The Protocol commits signatories to phase out the use of substances, such as certain chlorofluorocarbons and halons, that deplete the Earth's ozone layer. Measures are in effect to limit trade in such substances. Also, Protocol signatories are studying the feasibility of a ban applied to nonmember countries against imports of products made with a process using such chemicals.)[9]

The North American Free Trade Agreement

Another contentious trade/environment interaction is the negotiating process underway for a North American Free Trade Agreement among Mexico, Canada, and the United States. Free trade would likely increase economic activity in Mexico and in the border area of the United States; unless adequate environmental safeguards are put in place, the additional growth could exacerbate the border region's already serious environmental problems. Concern also exists that U.S. trade negotiators might agree to provisions that would weaken U.S. environmental standards.

These concerns led Congress to caution the Administration that it needed to address environmental issues (as well as labor issues) while negotiating a NAFTA. The Administration, in seeking a congressional extension of "fast track negotiating authority" in May 1991, pledged to maintain the integrity of the U.S. regulatory process and to work cooperatively with Mexico to promote environmental improvements.[10] Under this arrangement, most environmental issues are under discussion on a "parallel" track separate from the trade negotiation itself. Some in Congress remain concerned whether the environment is receiving enough priority, however, and there have been hearings and further cautionary communications to the Administration about the need to adequately address U.S. Mexico environmental issues.[11]

The Administration's view is that freer trade and investment will generate the resources Mexico

needs for environmental protection. Since 1988, Mexico has had a law that promises relatively strong environmental protection. However, the country has limited resources for enforcement, and only recently began to take much action against violators. In February 1992, the U.S. Environmental Protection Agency (EPA) and its Mexican counterpart, SEDUE, together issued a border environmental plan,[12] and the White House released an interagency review of U.S.-Mexico environmental issues coordinated by the U.S. Trade Representative (USTR).[13] Mexico has indicated plans to spend $466 million to improve the border environment in the next 3 years; President Bush's proposed border cleanup effort for fiscal year 1993 is $201 million. These sums far exceed what was previously available, although the U.S. contribution, relative to gross national product (GNP), is proportionately much less than Mexico's.[14]

Competitiveness Concerns

Questions about Mexico's commitment to environmental protection have taken on added importance because of the possibility that freer trade between the United States and Mexico might prompt some U.S. firms in industries with high environmental compliance costs to move operations to Mexico, directly costing U.S. jobs. Over the years, Mexico's border area has attracted many U.S . firms, drawn by duty-free export processing zones, low labor costs, and close proximity to U.S markets. Some of these so called "maquiladora" factories may have relocated partly to escape higher U.S. environmental regulations. (See app. E.) Another concern is that firms manufacturing in the United States could suffer a competitive disadvantage from imports manufactured by firms in Mexico facing lower environmental costs. Environmental regulations as a factor in location decisions and trade and competitiveness in general (not limited to the U.S.-Mexico context) are discussed in appendix E; factors affecting location of U.S. firms in Mexico will be discussed in greater detail in another OTA study, expected to be issued in the summer of 1992, on U.S. trade, technology, and investment with Mexico.

The NAFTA discussions are unusual in that free trade is being proposed between a developed country and a developing country that share a common border. The United States and Mexico have only limited adjustment mechanisms in place to address problems arising from their different environmental, labor, and social policies and commitments. This contrasts strongly with the European Community (EC), where full economic integration between the very wealthy nations of northern Europe and the less wealthy EC member states has been preceded by years of efforts to adjust for differences among national policies. EC-wide rules aim to require all members to meet certain minimum environmental standards, although implementation has been spotty. (See box 2-A.) While NAFTA's goals stop well short of economic integration, the differences between U.S. and Mexican policies are generally more pronounced than those between the wealthy and less wealthy countries of the European Community.

Such adjustment issues and concerns also apply to U.S. trade with other developing nations, particularly as framework agreements for further trade discussions are signed between the United States and the developing countries of Latin America.[15] In general, there is concern that weaker environmental regimes abroad can give firms manufacturing abroad a cost advantage over firms manufacturing in the United States. Past studies, many conducted with data from the 1970s, do not provide definitive conclusions, in part because the costs and benefits of environmental regulation are difficult to accurately measure. On the whole, these studies suggest that U.S. environmental regulation has not contributed in a major way to relocation of U.S. industry overseas or to the deterioration of the U.S. trade posture. However, for a few sectors with high environmental compliance costs, the effects may be greater and contribute to worsened trade and investment performance. Few if any of these studies assumed free trade agreements between the United States and other nations. Moreover, U.S. environmental standards are in many cases higher today than they were a decade or more ago, and the competitive climate is tougher. (See ch. 4 and app. E for a discussion of the impact of environmental regulations on trade and competitiveness.)

Some bills introduced in the 102d Congress propose to negate any competitive advantage from other countries' weaker standards by levying countervailing duties or other taxes on products imported in these circumstances.[16]

Competitiveness concerns also surfaced in the 1990 amendments to the Clean Air Act. Congress directed the President, by May 15, 1992, to:

. . . identify and evaluat[e] the economic effects of [the differences between U.S . and foreign] air quality standards and controls,[and to propose a] strategy for addressing such economic effects through trade consultations and negotiations. [the strategy] shall include recommended options (such as the harmonization of standards and trade adjustment measures) for reducing or eliminating competitive disadvantages caused by differences in standards and controls. [17]

Other Issues

Still other trade/environment or closely related issues have come to the fore. Domestic health, safety, and environmental regulations are sometimes challenged as unduly impeding trade. Examples (described in ch. 4 and app. A) are a Danish requirement for return of beer and soft drink bottles that appears to put foreign vendors at a disadvantage, and a ban by the EC on imports of U.S. beef from cattle given certain hormones (see app A). Also, domestic laws regarding "ecolabeling," or labeling of products with information on how much their production, use, and/or disposal affects the environment, are sometimes challenged as unduly impeding imports. In the GATT tuna/dolphin case, Mexico also challenged the United States' Dolphin Protection Consumer Information Act,[18] which regulates the use of the term "dolphin-safe" on tuna fish cans. In this instance, GATT's dispute resolution panel reported that it found the law to be consistent with GATT.[19]

Although not addressed in detail in this background paper, there are many other important trade and environment issues under discussion in various contexts. Some international environmental agreements are themselves trade agreements. For example, the Basel Convention on the Control of the Transboundary Movement of Hazardous Wastes and Their Disposal, signed in March 1989 and expected to come into effect in mid-1992, would require informed consent from destination and transit countries. Although the United States has signed the convention, formal consent by the U.S. Senate has yet to occur. This has led to concern that U.S. negotiators will not be at the table when rules for implementing the agreement are worked out. Another example of an environmental trade agreement is the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), which entered into force in 1975. There is continuing discussion about what species should be covered by the convention, as well as what protected status should be given.

INSTITUTIONAL PLAYERS

There appears to be growing recognition that trade and environmental policy, which until recently had been made in isolation of each other, must to some extent be made together, or at least coordinated. In the United States, the EC, and some other countries, trade/environment disputes and issues are now receiving more attention. Interaction between the U.S. trade community (trade officials and the private sector) and the environmental community (environmental officials and environmental advocacy organizations) is more common than before. However, progress has been slow, partly because the issues are complex, and many viewpoints exist. At least a dozen Federal departments and agencies have responsibilities relevant to trade and environmental policies.

At the international level (see table 2-2), the Organization for Economic Co-operation and Development so far has made the most systematic effort to address interactions between trade and environmental issues, beginning with the 1972 publication of guiding principles concerning trade and environment (discussed below). Its present discussions are aimed at producing a new set of guiding principles, if possible in time for approval at OECD's June 1993 Ministerial meeting. OECD's process has involved both the trade agencies and the environment agencies of its member states to a degree unmatched by other international bodies. However, it has limited capacity to set and enforce policy among its members, which consist of 24 countries from the developed world, and the EC. Moreover, the developing world has no representation in OECD (although Mexico and three Eastern European countries have been observing the trade and environment meetings). Still, new OECD principles, if judged sound by developing countries, could be used as a basis for amending GATT and for new institutional approaches to reconcile trade and environment concerns. (Developing country issues are discussed further in ch. 3.)

GATT, which has both developing and developed countries as members, has been slow to take up environmental questions. Not surprisingly, GATT's perspective on trade/environment questions tends to focus on the effects of environmental regulations on trade. Developing countries are wary that disguised protectionism (protectionism justified on environmental grounds) could be the end result if some environmental issues are taken up at GATT. GATT officials have alluded to the upcoming United Nations Conference on Environment and Development (UNCED) as an appropriate venue for addressing environmental priorities. Trade/environment interactions are pertinent to several issues on the agenda for UNCED.

Several other international agencies, including the World Bank and the United Nations Conference on Trade and Development, have been examining environment and trade interactions. A number of nongovernmental organizations (NGOs) including environmental organizations and business groups are actively addressing trade/environment issues. Among business organizations, the International Chamber of Commerce has articulated eight policy principles for addressing trade and environment questions.[20] Another organization, the Business Council for Sustainable Development, is working to articulate industry perspectives as a contribution to UNCED.

The following pages describe the status of trade and environment activities at GATT, OECD, and the United Nations. U.S. executive branch efforts to formulate policy on trade and environmental issues are also highlighted. (The EC's experience and perspective are discussed in box 2-A.)

General Agreement on Tariffs and Trade

[21]

Established in 1947, GATT provides a framework of rules for international trade among over 100 member nations that account for the great majority of world trade. GATT's purpose is to promote liberal trade (trade as free as possible) as a means to promote economic growth. According to the theory of comparative advantage, trade benefits all participating nations because it permits each nation to specialize in what it can do better relative to its neighbors. While this theory has many qualifications in practice, its basic message is considered sound, and trade is credited partly for the world's economic growth since World War II.[22]

The acronym "GATT" denotes both an international agreement and an international institution. As an institution, GATT is weak. For example, its dispute resolution powers are limited (see the annex to this chapter). Also, GATT's text did not explicitly create an international organization. Instead of providing for a general assembly or standing committees, it merely refers to the "contracting parties" acting in concert. A stronger institution, called the International Trade Organization (ITO), was proposed under United Nations auspices in 1946. But Congress did not approve the proposal, and other countries declined to form an ITO without the United States. Instead, the weaker, less inclusive GATT, initially intended as a temporary transition to an ITO, has been in effect for 45 years. [23] Nevertheless, GATT has achieved a great deal.

Under GATT's discipline,[24] import tariffs (or taxes levied on imports) have been lowered through several rounds of tariff reductions.[25] Use of quotas (restrictions on the amount of a particular good that could be imported or exported) has been curtailed in principle, although there are some exceptions. Other kinds of "nontariff barriers" have been harder to address, in part because they often involve regulations that serve legitimate nontrade functions such as environmental protection, health, and safety.[26]

Many Uruguay Round participants realize that GATT needs to address its effect on environment as well as the impact of environmental policy for trade. In particular, the tuna/dolphin case resulting from the Marine Mammal Protection Act has highlighted the fact that certain GATT provisions could conflict with measures taken for environmental protection. Some GATT provisions pertinent to environmental concerns are described in the annex to this chapter. Some who believe it impractical or unwise to inject environmental discussions into the heavily burdened Uruguay Round have stated that environment should be a top priority of a post-Uruguay GATT.

GATT has taken some steps, however. The GATT Council (the body of member countries' permanent representatives) debated trade/environment issues in May 1991. According to the GATT Secretariat's description of the debate,[27] the members agreed on several points (e.g., GATT's proper role was to promote liberal trade and not to set environmental policy or standards; international environmental agreements were the best way to address international environmental problems; trade measures should be used only as necessary and not as a substitute for direct environmental policies; and "trade measures will not, in general, pose practical difficulties under the GATT as long as they reflect the necessary degree[28] of multilateral consensus"). The GATT Secretariat also reported disagreement over such questions as whether GATT should adopt a policy (such as the Polluter Pays Principle[29]) that environmental costs should be internalized; how GATT should treat issues concerning processes and production methods; how GATT should address possible conflicts with trade measures in environmental agreements; and whether GATT's rules properly balance trade and environmental interests.

GATT has activated its Group on Environmental Measures and International Trade, at the instigation of the European Free Trade Association. This working group was created in 1971, shortly before the first United Nations conference on the environment in Stockholm, but was never convened until the fall of 1991. It is considering:

trade provisions contained in existing multilateral environmental agreements (e.g., the Montreal Protocol, CITES, and the Basel Convention) vis-a-vis GATT principles and provisions;
multilateral transparency (i.e., openness and predictability) of national environmental regulations likely to have trade effects; and
trade effects of new packaging and labeling requirements aimed at protecting the environment.[30]

Another GATT group has been working on the export of domestically prohibited goods and other hazardous substances.[31] The chairman of the group has presented the proposed text of a draft Decision on Products Banned or Severely Restricted in the Domestic Market.[32] The proposed text would establish notification procedures for export of all products domestically banned or severely restricted because of a determination that the product would have a serious, direct danger to human, animal or plant life or the environment in its territory. While the text has been generally accepted by most members, the working group has yet to complete its task, as one member, the United States, has suggested modifications to the draft text. The United States wants to put certain products outside the scope of the decision, and also wants the instrument to be a code (to be acceded to by individual countries, see the annex to this chapter) rather than a decision applying to all contracting parties.[33]

In February, 1992, the GATT Secretariat (which cannot speak for GATT's membership) released a trade and environment analysis put forth for consideration by UNCED.[34]

The report offers several suggestions for making environmental policy consistent with GATT. It suggests that it is "no longer possible for a country to create an appropriate environmental policy entirely on its own." It calls for "multilateral rules to guide countries in formulating their own environmental policies and in responding to domestic complaints about the impact of their own and other countries' policies on international competitiveness." It also indicates that a dispute settlement procedure is needed to back up the rules (if current procedures are not adequate). However, the report stops short of suggesting a specific institution to perform this function.

The GATT report also strongly decried unilateral use of trade sanctions by individual countries to "dictate changes in environmental policies of other nations." Instead, it says, a multilateral solution should be sought. The GATT report has less to say about the possibility that trade provisions of an international environmental agreement like the Montreal Protocol might be found inconsistent with GATT. It does note, however:

[F]rom an institutional standpoint, there is a need for a careful examination of existing rules to be certain they do not hinder multilateral efforts to deal with environmental problems.

The report also notes that broad-based multilateral agreements could have enough support to get a GATT waiver (requiring two-thirds of those voting and a majority of the total GATT membership).

Environmental Issues and the Dunkel Draft

Although environment has not been a focus, the Uruguay Round contains measures that could affect the environment. In the years since the Round began, major changes to GATT were proposed and debated, but by late 1991 negotiations were at an impasse. To break this impasse, GATT's Director General Arthur Dunkel submitted a "draft final" set of amendments for consideration (called the Dunkel draft) in December 1991.[35] In January, 1992 GATT's members agreed to use the Dunkel draft as a framework for negotiations.

The Dunkel draft, if adopted, would address some patterns of production and trade in ways that could be environmentally preferable to the current regime. For example, the draft would limit the use of agricultural subsidies, which contribute to overuse of pesticides and other activities that tend to cause environmental problems in some developed countries (see ch. 3).[36] The draft would also exempt certain subsidies for land conservation and agricultural R&D (including environmental R&D related to agriculture).[37]

Other aspects of the Dunkel draft have prompted concern in environmental quarters.[38] For example, the draft does not attempt to address GATT's potential to prohibit trade restrictions based on processes used abroad; such trade restrictions might at times be necessary or desirable to achieve environmental goals (see ch. 3), but, if challenged, might be found to violate the current GATT. Nor would the draft establish routine channels for communication and participation by environmental groups and other NGOs (see ch. 5 and the annex to this chapter). Also, some of the draft's provisions might be interpreted at times to require a heavy burden of proof in order to justify a country's technical regulations, including health, safety, and environmental regulations (see ch. 4).

GATT's dispute resolution process would be strengthened. This would substantially enhance GATT's ability to achieve its goals of liberal trade. However, it might magnify the problems mentioned above by making it harder for nations to stave off adverse GATT rulings if their environmental laws are challenged and potentially more costly to disregard such rulings once made (see the annex to this chapter).

The Dunkel draft would transform GATT into a Multilateral Trading Organization (MTO), giving it an institutional presence more comparable to the International Trade Organization proposed in 1946. This would not necessarily have any particular effect on the environment. However, some environmental groups feel that environmental concerns ought to be addressed when sweeping changes, an expanded agenda, and a stronger institutional footing for

GATT are proposed. Some environmental groups object that the preamble to the agreement establishing an MTO does not clearly state the goal of sustainable development,[39] and that the agreement mentions the need for GATT to cooperate with the International Monetary Fund and the World Bank but not specifically with any international environmental organizations.[40]

It does not appear that these various provisions or omissions were intended or expected to exacerbate existing environmental concerns. However, for reasons such as those given above, U.S. environmental groups have mounted opposition to the Dunkel text.[41] GATT's apparent inattention to environmental issues since 1972 may have added to the difficulty of successfully concluding the Uruguay Round.

The Organization for Economic Co-operation and Development

OECD does not have the authority to change GATT or other trade and environmental agreements, but it does offer a forum for industrialized countries to discuss the issues. The 24 industrialized countries that comprise OECD together account for three fourths of world trade.

In 1991, OECD initiated a series of member state discussions on trade and environmental issues. These discussions are unusual as they are jointly supported by two OECD directorates, the Trade Directorate and the Environment Directorate, and member country trade and environmental agencies are meeting to develop national positions. This process, in theory, could produce guidelines for application by OECD members which address both trade and environmental policy concerns. OECD is attempting to consider developing country concerns in its discussions. The absence of developing countries from OECD membership, however, is a major limitation that is unlikely to be overcome by the observer status given to Mexico and a few Eastern European countries.

OECD has periodically addressed environmental questions related to sector-specific trade (such as chemicals). In 1972, OECD published a set of "Guiding Principles Concerning the International Economic Aspects of Environmental Policies."[42] OECD put forward four principles:

1. Polluter Pays Principle: If national authorities consider a regulation necessary to protect the environment, then polluters should bear the costs of satisfying that regulation. (The polluter may pass those costs on to customers.) The guideline allows exceptions, particularly for transitions, that do not greatly distort international trade and investment. As subsequently interpreted,[43] the departures might include government help (in exceptional circumstances) to address socio-economic problems arising from rapid implementation of stringent pollution controls. Aid to stimulate experimentation with new pollution-control technologies and development of new pollution-abatement equipment would not necessarily be incompatible with the polluter-pays principle.

2. Harmonization Principle: Governments should seek to harmonize environmental policies (i.e., make their regulations similar), unless valid reasons for differences exist. (Valid reasons would include differences from country to country of the environment's capacity to absorb pollution, social priorities, degrees of industrialization, and population density.)

3. National Treatment and Nondiscrimination Principle: Environmental measures should follow GATT's principles of national treatment and nondiscrimination, meaning that they should apply alike to domestic and foreign products, and should not discriminate between imports from different countries, respectively.

4. Compensating Import Levies and Export Rebates Principle: Countries should not try to neutralize the economic effect of differences in environmental policies by means of import duties and export rebates, or equivalent measures. In other words, if producers in one country have higher costs of environmental compliance than producers in a second country, the first country's government should not try to neutralize that advantage by extra taxes on imports or by tax rebates or other subsidies on exports. (OECD stated that if the first three principles are followed, there should be no need for import levies or export rebates.)

The ongoing joint discussions supported by the Trade Directorate and Environment Directorate aim at further examination of trade/environment interactions. While it would appear that the four guiding principles are still relevant, some new areas of concern are being addressed at the meetings with the possibility that guidelines will be developed in time. Among the subjects under consideration:

Trade Measures in International Environmental Agreements: Rules could be needed to guide the effective and least trade-distorting use of trade measures in the context of environmental accords made at the international level.
Effects of Trade Policies on the Environment: Recommendations could be needed for increasing the environmental sensitivity of trade policies and trade agreements, and for ensuring that their environmental effects are adequately taken into account.
Application to the Developing Countries: The extent to which the OECD Guiding Principles might be applied to help internalize environmental costs and mitigate potential trade problems in developing countries may need to be reviewed.

At one time, the United States hoped that recommended guidelines might be developed in time for consideration at OECD's May 1992 Ministerial meeting. While a progress report will be made at this meeting, any specific guidelines will likely be delayed at least until the June 1993 Ministerial.

United Nations

The United Nations is broadly concerned with both environment and economic development. The United Nations Environment Program, United Nations Development Program, the United Nations Industrial Development Organization and the United Nations Conference on Trade and Development are major focal points for these issues; many specialized UN agencies also address specific environmental and/or development concerns. These agencies and functions may be reorganized or restructured in the near future. Possible UN restructuring in general is under consideration by the new UN Secretary General. Institutional arrangements are also expected to be a key issue at the United Nations Conference on Environment and Development, which will take place in Rio de Janeiro in June 1992.[44]

UNCED is intended to provide an agenda for cooperation between the developed and developing world for addressing environmental needs within a development context. The conference will examine ways to strengthen international cooperation for environmental management and protection. A large number of issues are under consideration (see box 2-B for a partial list of topics included in UNCED's wide ranging agenda, called Agenda 21).

Trade and environment interactions are considered cross-cutting concerns, and are addressed in some individual agenda items. Delegates to the final preparatory meeting for UNCED agreed on several objectives and activities intended to make trade and environment mutually supportive.[45] The findings drew in part on a February 1992 session of UNCTAD which reviewed environment/trade interactions within the context of sustainable development. (See ch. 5 and box 5-A for further discussion.)

Much of the preparatory debate for UNCED has focused on what role the developed world should play in helping the developing countries meet their development needs in an environmentally acceptable fashion. A particularly contentious question has been whether and how the developed countries should pay additional costs arising from environmental actions agreed to in principle at UNCED. Financial resources will continue to be the crux of key issues and discussions at the Rio de Janeiro meeting. At the third preparatory meeting in the fall of 1991, a group of developing countries, known as the Group of 77, proposed a negotiating text calling for greatly expanded aid from developed countries, through "new and additional resources" in a separate "green fund" (see box 3-B). The United States opposes this approach and favors a process in which donor countries and multilateral lenders will consider funding for projects and activities identified by individual countries. At the final preparatory meeting in March 1992, the United States appeared to soften its previous stance and stated its acceptance that "new and additional resources" would be needed for implementing UNCED agenda items.

U.S. Government Efforts To Address Trade and Environment Issues

A large number of agencies have responsibilities that touch on environment and trade interactions. (See table 2-3.) Key agencies include the Office of the U.S. Trade Representative (USTR), the Environmental Protection Agency (EPA), various agencies of the Department of Commerce, and the State Department, which is responsible for negotiating international environmental agreements. To date, however, the effort appears to be a "bottom-up" effort, with little visible guidance from Congress about the potential goals and objectives of U.S. policy. Thus, there is a possibility that U.S. positions will gel out of a largely informal and hidden interagency process.

lnteragency Task Force-- Since 1990, an executive branch working group has been developing information to help formulate U.S. policy, particularly for the OECD discussions.[46] The USTR chairs this group. A partial list of other agencies include EPA (which previously cochaired the group), the State Department, the Department of Commerce, the Department of Agriculture, and the Treasury Department.[47] The USTR and EPA cochair the U.S. delegation to OECD meetings. Recently, two NGO representatives (one from business and one from environmental groups) have accompanied the U.S. delegation to some of the OECD meetings.

In 1991, the task force circulated drafts of a concept paper on the link between trade and environmental policy. The paper considered the relationship between trade policy goals and environmental goals, the effect of environmental regulations on trade and competitiveness, the impact of trade rules and trade patterns on the environment, the use of trade measures for environmental purposes, and GATT provisions regarding such use of trade measures. In addition, several draft background papers on key issues are under preparation as U.S. contributions to the OECD discussions. These have been circulated among the task force, although only two had been released as of March 20, 1992.[48]

Activities Related to the North American Free Trade Agreement--The USTR has appointed an environmentalist to serve on the top-level Advisory Committee on Trade Policy and Negotiations as well as a total of five environmentalist to serve on five sectoral trade policy committees.[49] These committees have broader responsibility than NAFTA. USTR also coordinated the previously mentioned review of U.S.-Mexican environmental issues.

EPA also has some input into the NAFTA negotiations process, through its participation in the interagency work groups set up for NAFTA. The agency monitors meetings in all work groups, but is especially active in seven (standards, dispute resolution, investments, automotive, agriculture, energy, and land transportation).

As mentioned, U.S.-Mexican environmental issues for the most part are being addressed on a "parallel" track with the NAFTA negotiations. EPA is the lead agency for most parallel track activities on the environment. It was responsible for preparation of the integrated border environmental plan in conjunction with the Mexican environment agency, SEDUE, and also played an important role in the environmental review coordinated by USTR.

Other Relevant Federal Activities--The EPA Administrator has asked the National Advisory Council for Environmental Policy and Technology (NACEPT) to make recommendations concerning the interaction of trade and environment. (Members of the Council include representatives from industry, environmental groups, and academia.) NACEPT has a Committee on Trade and Environment, with working groups on GATT, Industrialized Countries/ OECD, and Western Hemisphere. The GATT group is considering worldwide issues and whether and how GATT should be amended. The Industrialized Country/OECD group is examining such issues as "sound science" as the basis for standards and the effects of environmental regulations on industrial competitiveness--issues of special concern to developed countries. The Western Hemisphere group is considering NAFTA and the possible free trade negotiations that might follow from the Enterprise for the Americas Initiative, and is particularly concerned with developing country issues. The NACEPT meetings are open to the public, thus contributing to broader public debate about these issues.[50]

Several agencies provide environmental assistance of different kinds to developing countries. The Agency for International Development (AID), the primary U.S. foreign assistance agency, provides substantial financial and technical support related to the environment. It is the lead agency of the Administration's recently announced U.S.-Asia Environmental Partnership (US-AEP). US-AEP involves over 20 Federal agencies and seeks to promote the use of U.S. expertise and technology for solving environmental problems in Asia. AID also supports energy efficiency projects. Several other agencies, including the Environmental Protection Agency (EPA) and the Department of Energy (DOE) provide technical and project assistance to developing and restructuring economies. DOE leads the interagency Committee on Renewable Energy Commerce and Trade while EPA is assembling a directory of U.S. environmental firms. EPA also supports the recently inaugurated U.S. Environmental Training Institute which will bring developing country business executives and officials to the United States for professional and technical training by the private sector.

Other federal programs facilitate U.S. exports of environmental technologies and services. (See app. D.) The Trade and Development Program funds project feasibility studies. The Department of Commerce provides export assistance and organizes trade shows, sometimes in cooperation with EPA and AID. The Overseas Private Investment Corporation (OPIC), the Export-Import Bank, and the Small Business Administration provide support for U.S. exporters and investors that can involve environmental projects. OPIC provides information, investment missions, project financing, and insurance programs for U.S. investors in developing, Eastern European, and former Soviet countries. In addition to its general and regional funds, a new Environment Investment Fund has been started. The ExportImport Bank provides credit and insurance for exporters of U.S. goods, including environmental goods.