The World Trade Organization and Sustainable Development

December 11, 2006

Does the World Trade Organization do enough to promote sustainable development and protect the environment? The WTO claims to be “the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.” Further, the WTO claims these that these six tasks are its core functions: (1) Administering WTO trade agreements, (2) Forum for trade negotiations, (3) Handling trade disputes, (4) Monitoring national trade policies, (5) Technical assistance and training for developing countries, and (6) Cooperation with other international organizations.[1]

These functions are specifically vague, and nowhere does the issue of sustainability arise. If the WTO’s mission is simply to help producers of goods and services, exporters, and importers conduct their business and leave issues of social, environmental and economic sustainability to the nations participating in trade, how can the WTO be put under the microscope regarding sustainability? Because, to the questions, “Is it a dictatorial tool of the rich and powerful?”, “Does it destroy jobs?”, and “Does it ignore the concerns of health, the environment and development?” the WTO’s answer is “Emphatically no”. Further, it claims that criticisms of the WTO are often based on fundamental misunderstandings of the way the WTO works. Since the WTO is defensive against accusations that it promotes trade to the benefit of private interests and wealthy nations, and at the expense of the environment and sustainability, its behavior regarding sustainability must be examined. This paper will first (A) define sustainable development, discuss its importance and clarify its relationship to trade and the environment. It will then (B) examine the WTO’s role in and impact on sustainable development and the environment. Following this, the paper will (C) present arguments which defend and criticize the WTO’s influence on trade as it relates to sustainable development and the environment. Finally, the paper will conclude that while the WTO has made progress in bringing the environment and sustainable development into the mainstream of WTO work there is considerable room for improvement.

A. What is sustainable development?

In reference to the concept of sustainable development, the Brundtland Commission Report of 1987 stated we must ” meet the needs of the present without compromising the ability of future generations to meet their own needs.”

To meet these needs nations trade, and to make trade more efficient and effective the World Trade Organization exists. Often lost in facilitating trade to give consumers goods at a lower cost is consideration of how much of certain resources are being used, the processes being used to extract or create these resources, and who receives access to these resources. True sustainable development takes into consideration all of the above and ensures that when trade occurs it is not at the expense of future generations’ ability to meet their needs.

Why is sustainable development important?

Sustainable development is important because nations trade to give their citizens access to a larger variety of goods at a lower price. They do this by exporting goods produced domestically, either with more efficiency or with greater value relative to other nations, and importing goods the same country could only produce at a higher cost or perhaps not at all. Without examination of the mechanisms that allow trade to happen, the very nature of these transactions seems positive for all. But, the trading of goods occurs to meet the ever growing appetite for consumption of the globe’s citizens at a considerable cost. Consider the following, “Consumption is the reason why anything gets produced, and consumption and production together are the source of all man-made stress on the natural environment. In a market economy the main responsibility for environmental degradation thus lies with the consumer. Realistically, however, ordinary consumers have very little knowledge of the links between their own consumption choices and their consequences, and have very little real power to affect the marketplace. In a highly industrialized society, knowledge and responsibility are so diffused among economic actors that no-one really feels responsible. The problem is socially irrational products, which easily follow from the narrow rationality of individuals and firms. We are subject to a ‘tyranny of small decisions’ when the unintended consequences of micro-decisions give way to irreversibility on a macro scale. After an investment or consumption decision has been made, we become a hostage to the past. For example, once the car has become the dominant mode of transport, then housing, family, work, shopping and recreation patterns are designed around it.”[2]

How is sustainable development related to trade and the environment?

Decisions regarding trade, which is driven by production (which is driven by consumption), must be made carefully. Promoting trade based on sustainable development is important because the unintended – or ignored – consequences of micro-decisions are more frequently giving way to “irreversibility” on a macro scale. At its worst, trade exploits the resources of a particular area to satisfy demand here and now with no thought to replenishment, or of where the same resources will come from tomorrow. Under this scenario, infrastructure is not developed such that the poorer nation, with its poorer workers, may continue to prosper after its relationship with a particular nation is ended. When the well dries up, the weak die off and the strong move on. This strategy worked when the world was large, commerce was localized and humans mere inhabitants on a massive planet. But today humans ravage a shrinking globe, and according to the International Institute for Sustainable Development (IISD), “All around the world, the growth and liberalization of international trade is changing the way we live and work. At $11 trillion a year, trade flows and the rules that govern them are a massive force for economic, environmental and social change. International trade is becoming an increasingly important driver of economic development, as it has been expanding at almost twice the pace of total global economic activity for the past 15 years. A growing number of developing countries look to trade and investment as a central part of their strategies for development, and trade considerations are increasingly important in shaping economic policy in all countries, developed as well as developing. At the same time, however, most of the world’s environmental indicators have been steadily deteriorating . . . It is possible, but by no means automatic, that trade and investment flows and liberalization might support the achievement of environment and development goals.”[3]

The idea of sustainable development is simple, but its execution is complicated, wrought with exploitation for short-term gains and political posturing for elections and corporate alliances. But, facilitating trade while ignoring sustainability allows for short-term gains at the expense of long-term prosperity, and for much of the world achieving prosperity is a long-term venture.

B. What is the WTO’s role in and impact on sustainable development and the environment?

One of the biggest problems with the liberalization of trade is the potential for it to negatively affect sustainable development. The IISD says, “Trade liberalization is one of the essential engines of economic growth. As such it has considerable potential as a force for sustainable development. Unfortunately, the link is not automatic. Where trade policy is in conflict with environment and development policy, it can retard or even undermine the achievement of sustainable development.”

This is why the WTO’s involvement in sustainable development is vital. If the WTO does not prevent major trade policies from conflicting with environment and development policy it will be making future trading between nations more difficult, and perhaps eventually impossible. But this is where the rub lies. The WTO has no specific agreement dealing with the environmental protection or sustainable development but does have a number of agreements which include provisions dealing with environmental concerns. Also, to address issues regarding the environment the WTO created the Trade and Environment Committee. The committee’s responsibility is broad-based and covers all areas of the multilateral trading system. Its duties are to study the relationship between trade and the environment, and to make recommendations about any changes that might be needed in the trade agreements. In addition, the committee’s work is based on two important principles.

First, the “WTO is only competent to deal with trade. In other words, in environmental issues its only task is to study questions that arise when environmental policies have a significant impact on trade. The WTO is not an environmental agency. Its members do not want it to intervene in national or international environmental policies or to set environmental standards. Other agencies that specialize in environmental issues are better qualified to undertake those tasks.”

Second, “if the committee does identify problems, its solutions must continue to uphold the principles of the WTO trading system.” These principles are outlined below:

  • Trade without discrimination
  • Most-favored nation (MFN): treating other people equally
  • National treatment: treating foreigners and locals equally 
  • Freer trade: gradually, through negotiation
  • Predictability: through binding and transparency
  • Promoting fair competition
  • Encouraging development and economic reform

Beyond these principles, “WTO members are convinced that an open, equitable and non-discriminatory multilateral trading system has a key contribution to make to national and international efforts to better protect and conserve environmental resources and promote sustainable trade.”[4]

C. What are the major arguments that defend and criticize the WTO’s influence on trade as it relates to sustainable development and the environment?

“In theory, the objectives of trade liberalization and environmental protection should be entirely compatible. Both have as their aim the optimization of the efficient use of resources, whether from the perspective of maximizing the gains from the comparative advantages of nations, through trade, or of ensuring that economic development becomes environmentally sustainable.”[5]

If what Brack says above is true, then why does the WTO not include environment issues in its trade policies? Halle argues one reason is that developing countries “fear – with some justification – that it will be used for protectionist purposes by those countries with more stringent environmental requirements. They see environment as an area where rich countries have a comparative advantage.”[6]

This argument has validity but there is no reason environmental standards need to be applied absolutely. Requirements regarding environmental protection and sustainable development can be created and applied relative to a particular country’s ability to abide by them. One argument that supports more involvement by the WTO in environmental and sustainability issues comes from Halina Ward. Ward argues that the theoretical foundations of the GATT system – which are the basis for the WTO – “lie in the doctrine of comparative advantage, and in the idea that there are economic (and consequently social) gains from international trade and the cultivation of comparative advantage that go beyond those that can be provided by autarky.” Ward further argues, ‘these theoretical foundations say little about how the economic benefits of trade liberalization should be distributed. Neither do they concern themselves greatly with any negative social or environmental effects. The GATT system encourages a “trickle down” approach to both social justice and environmental protection. The dogma is “first secure trade liberalization, and the creation of wealth with which to protect the environment and pursue social justice will follow.” But trade liberalization is not and should not be treated as an end in itself; it is a means to an end.’ What if the wealth created by trade liberalization is not used to protect the environment and pursue social justice? Short-term gains are realized by multi-national corporation and their partners in developing nations, who often times have no intention of helping the less fortunate. It is these less fortunate people who are exploited through cheap labor and poor working conditions and these less fortunate people who have to live in a continually deteriorating environment. Ward continues, “sustainable development is concerned with the nature of democracy and with securing wide rights of access to information and of public participation in decision-making processes. It is also concerned with equality. This involves concern and respect for future generations . . . Finally, sustainable development carries with it the idea that environmental, social and economic considerations be integrated in the formulation and execution of policies.”[7]

Critiques of globalization and even trade liberalization argue making choices about policies that affect the fundamental welfare of a nation’s people should be left to the nation itself. “Traditionally, free trade rules were about constraining border measures such as tariffs and quantitative restrictions on imports. Increasingly, however, such rules include requirements and constraints addressed directly to domestic regulation.” Howse argues that these restrictions fuel the argument that globalization suffers from “a democratic deficit,” and cites two critics who argue the essence of free trade is deregulation but trade regimes like NAFTA and the WTO have tremendous power in determining rules. Presumably the point these critics are making is free trade is intended to take the regulatory power of governments out of the trade equation but has given it to an international body instead. Howse later points out the ‘Preamble of the WTO Agreement lists among these objectives, “raising standards of living, ensuring full employment and a large and steadily growing volume of real income . . .” and “optimal use of the world’s resources in accordance with sustainable development . . . .” Further, he states that many economists believe such goals are not attainable with democratic governance.[8]

One such attempt at democratic governance came prior to the 1999 Seattle ministerial meeting of the WTO. As part of the “run-up” to these meetings President Clinton signed an executive order committing the United States to conduct environmental reviews of trade agreements. Proponents of these reviews argue they allow “integration of environmental considerations into a trade policy process traditionally dominated by commercial concerns,” and “meaningful public involvement in the negotiating process.” The Seattle meeting ended in riots and suggestions that the WTO itself conduct environmental reviews garnered little support. Why? Because as mentioned earlier, developing nations believe that the reviews will work against their interests. Others think not having environmental reviews actually hurts developing nations. Salzman believes ‘it has become increasingly fashionable for political leaders to talk about “putting a human face on trade” and “promoting sustainable development”’ but turning this rhetoric into action has been difficult. He believes that environmental reviews are important because they provide the means to create trade policy that takes into account both environmental and commercial concerns.[9]

Residing in between the proponents and opponents of the environmental review of WTO trade agreements is the World Wildlife Fund (WWF). The WWF is the leading advocate of reviews, but not at the international level. The group has “focused, instead, on developing domestic capacity, hoping that higher visibility and more widespread state practice will soften opposition and gain credibility for eventual reviews at the multilateral level.”[10]

Greenpeace, which has long been a critic of the WTO, argues:

  • The WTO is secretive, non-transparent and undemocratic. Meetings are by invitation only, are hidden from public view and are closed to direct public input.
  • The WTO puts trade on the highest pedestal – before our health and the environment.
  • This is because the WTO is driven by narrow corporate interests, like genetic engineering companies and the agri-business.
  • These companies are behind the US attempt to use the WTO as a tool to force feed the world genetically engineered (GE) food.
  • The WTO threatens crucial environmental agreements, like the first legally binding global agreement that allows countries to reject genetically modified organisms, the Biosafety Protocol.
  • So-called “free” trade is speeding up the use of natural resources such as water, forests, fisheries, and minerals, much faster than they can be regenerated.
  • In essence, the WTO is a tool of rich and powerful countries. Poorer countries are losing out to the interests of the industrialised world.[11]

Further, Greenpeace argues that “environmental, social and developmental concerns are distant priorities, and tend to be a corporate focus only when they bring commercial advantage. Given this narrow agenda, the trend of powerful business lobbies influencing government positions at the WTO is worrying.”[12]

Conclusion

The arguments presented in this paper clearly demonstrate the differences in opinion regarding the WTO’s place in the world and its responsibility. They also shed light on the contradictory nature of the WTO’s mandates, actions and behavioral explanations. What is clear though, is that while governments and policy groups and NGOs debate who is responsible for what, the environment is suffering and sustainable development is not occurring.

Should the WTO be more involved in aligning trade to sustainable development and environmental protection? Yes. The solution to the problems currently created by trade liberalization will not come easily. While developing countries can not be required to operate under the same standards as developed nations, the companies from developed nations that operate in developing countries must be required to do more. The infrastructure may not exist to operate under the same standards as in the company’s home country but that does not excuse reckless business practices. The WTO must do more, either through environmental review of trade agreements or through pressuring for the development of more domestic capacity, to encourage sustainable development and environmentally friendly trade. The long-term effects of irrational behavior for short-term profits can too detrimental long-term effects to be ignored any longer.

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[1] The WTO. “Fact File.” Last updated August 31, 2006. Last viewed November 29, 2006. http://www.wto.org/english/thewto_e/thewto_e.htm

[2] Pantzar, Mika, Anu Raijas and Eva Eieskanen. Sustainable Consumption & Production. “Green Consumers? Greening Consumption?” Last updated May 27, 1999. Viewed on November 29, 2006. http://www.iisd.ca/consume/inst-pan.html

[3] International Institute for Sustainable Development. “Environment and Trade: A Handbook”, Second Edition

[4] Understanding the WTO: Cross-Cutting and New Issues, “The environment: a specific concern.” Last updated September 30, 2005. Viewed on November 29, 2006. http://www.wto.org/english/thewto_e/whatis_e/tif_e/bey2_e.htm

[5] Brack, Duncan. 1995. “Balancing Trade and the Environment.” International Affairs, 71(3): 497-514.

[6] Halle, Mark. 2006. ‘WTO and Sustainable Development (A chapter in “The WTO and East Asian Regional Integration”).’ The WTO and East Asian Regional Integration. To be published in Yasuhei Taniguchi, Alan Yanovich and Jan Bohanes (eds.), The WTO and East Asian Regional Integration (publication by the WTO expected in Winter 2006).

[7] Ward, Halina. 1996. “Common but Differentiated Debates: Environment, Labour and the World Trade Organization.” The International and Comparative Law Quarterly, 45(3): 592-632.

[8] Howse, Robert. 2000. “Democracy, Science, and Free Trade: Risk Regulation on Trial at the World Trade Organization.” Michigan Law Review, 98(7): 2329-2357.

[9] Salzman, James. 2001. “Executive Order 13,141 and the Environmental Review of Trade Agreements.” The American Journal of International Law, 95(2): 366-380.

[10] Ibid.

[11] Campaigns, “Encourage sustainable trade.” Last updated December 10, 2006. Viewed on November 29, 2006. http://www.greenpeace.org/international/campaigns/trade-and-the-environment

[12] Campaigns, “Encourage sustainable trade.” Last updated December 10, 2006. Viewed on November 29, 2006. http://www.greenpeace.org/international/campaigns/trade-and-the-environment/why-is-the-wto-a-problem

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References (not cited)

Charnovitz, Steve. 2002. “Triangulating the World Trade Organization.” The American Journal of International Law, 96(1): 28-55.

Kennedy, P. Lynn. 1999. “Key Issues and Challenges for the 1999 World Trade Organization Agriculture round.” American Journal of Agricultural Economics, 81(5): 1134-1141.

Peterson, E. Wesley F. 2000. “The Design of Supranational Organizations for the Provision of International Public Goods: Global Environmental Protection.” Review of Agricultural Economics, 22(2): 355-369.

Schultz, Jennifer. 1995. “The GATT/WTO Committee on Trade and the Environment – Toward Environmental Reform.” The American Journal of International Law, 89(2): 423-439.

Steinberg, Richard H. “Trade – Environment Negotiations in the EU, NAFTA, and WTO: Regional Trajectories of Rule Development.” The American Journal of International Law, 91(2): 231-267.

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