Rules
The WTO and the environment
The World Trade Organization is not an environmental body, but its rules shape what governments can do to protect the environment when those measures affect trade. Here is how the system works, in general terms.
The World Trade Organization (WTO) administers a set of agreements that govern trade between its members, provides a forum for negotiations, and runs a system for settling disputes. Its founding agreement mentions sustainable development and the protection of the environment in its preamble, alongside raising living standards and expanding trade. In practice, the relationship between trade rules and environmental policy is worked out through a handful of core principles and exceptions.
The starting point: non-discrimination
Two principles sit at the heart of the trading system.
- Most-favoured-nation treatment. A member must not discriminate between its trading partners. An advantage given to products from one country must be extended to like products from all members.
- National treatment. Once imported goods have entered a market, they must not be treated less favourably than like domestic products, for example through internal taxes or regulations.
Environmental measures often distinguish between products. A key legal question is therefore whether two products are “like” each other, and whether a measure treats imports less favourably. A product made with more emissions may look identical to one made with fewer, which is why measures based on production methods have long been debated.
The general exceptions
Even when a measure conflicts with a basic rule, it can be justified under the general exceptions in Article XX of the General Agreement on Tariffs and Trade (GATT). Two paragraphs are especially relevant to environmental policy:
- Paragraph (b) covers measures necessary to protect human, animal or plant life or health.
- Paragraph (g) covers measures relating to the conservation of exhaustible natural resources, if they are applied together with restrictions on domestic production or consumption.
Meeting one of these paragraphs is not enough. The introductory clause of Article XX, often called the chapeau, requires that measures are not applied in a way that amounts to arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade.
A frequently cited example is the dispute over a United States ban on shrimp caught without devices that let sea turtles escape from nets. The Appellate Body found that protecting sea turtles could in principle fall under paragraph (g), but that the way the measure was originally applied was discriminatory, partly because some countries had been given more time and more help than others. After the measure was revised, it was found to be consistent with the rules. The case is often read as showing that trade rules can accommodate environmental measures, including ones that look at how products are made, as long as they are applied even-handedly and with genuine efforts at cooperation.
Technical regulations and labels
Many environmental measures take the form of product requirements: energy efficiency standards, limits on hazardous substances, labelling rules or packaging requirements. These are covered by the Agreement on Technical Barriers to Trade (TBT). In broad terms, it requires that:
- technical regulations do not discriminate between domestic and imported products, or between trading partners;
- they are not more trade-restrictive than necessary to fulfil a legitimate objective, and protecting the environment is recognised as one;
- members base their regulations on relevant international standards where these exist and are appropriate;
- draft regulations are notified to other members so they can comment before adoption.
Measures to protect food safety and animal and plant health have their own agreement, on Sanitary and Phytosanitary Measures (SPS), which places weight on scientific justification.
Subsidies
Governments use subsidies to support clean energy and green industry, and also to support fossil fuels, fishing fleets and agriculture in ways that can harm the environment. The Agreement on Subsidies and Countervailing Measures disciplines subsidies that distort trade. Members have also negotiated an agreement to curb harmful fisheries subsidies, one of the clearest cases of trade rules being used for an environmental purpose. Discussions about fossil fuel subsidy reform continue among groups of members.
Transparency
Transparency is one of the less visible but most important functions of the WTO. It helps members understand each other’s measures before disputes arise.
| Mechanism | What it does |
|---|---|
| Notifications | Members inform others about new or changed measures, such as technical regulations, subsidies or trade restrictions. |
| Committee discussions | Members raise “specific trade concerns” about each other’s measures in committees such as the TBT Committee. |
| Trade policy reviews | Each member’s trade policies are reviewed periodically by the membership as a whole. |
| Environmental database | The WTO compiles environment-related notifications and measures, making them easier to search. |
Critics point out that notification obligations are not always met in full or on time, and that the information is not always easy for outsiders to use. Improving transparency, including about environmental measures and the support governments give to particular sectors, is a recurring theme in reform discussions.
Where environment is discussed
The WTO has a Committee on Trade and Environment, a standing body where members discuss how trade and environmental policies interact. Over time, groups of members have also launched initiatives on specific topics, such as trade and environmental sustainability, plastics pollution and fossil fuel subsidies. These do not always involve all members and do not automatically produce binding rules, but they allow ideas to be developed and shared.
Relations with multilateral environmental agreements, such as those on endangered species or ozone-depleting substances, are another long-standing topic. Several of these agreements use trade measures, and no WTO dispute has so far challenged a measure taken under one of them, but the precise legal relationship has not been fully settled.
Disputes
Members can bring disputes when they believe another member has broken the rules. Panels hear cases first. Appeals have traditionally gone to the Appellate Body, but it has been unable to hear new appeals for several years because members have not agreed on appointing its members. Some members use alternative arrangements for appeals among themselves. This situation affects all disputes, including any that might concern environmental measures.
The bottom line
WTO rules do not prevent governments from protecting the environment. They require that measures do not discriminate unjustifiably and are not protectionism in disguise. As climate and sustainability policies increasingly target how goods are made, including through border carbon adjustments and sustainability requirements, these principles are being tested in new ways.