The State of Agricultural Commodity Markets 2022


Trade and the environment: Policy responses

Trade and the rules that promote openness in global markets can contribute to negative externalities and calls are made for measures that reduce trade. Nevertheless, reducing trade would result in a change in the allocation of production across countries, generating different pressures on natural resources and the environment than the ones the world is experiencing today. It could also reduce trade’s efficiency-enhancing role in the use of natural resources.

Trade policy approaches are being revisited, a process that presents challenges and opportunities. A part of the ongoing debate about globalization and sustainable development revolves around how to ensure that trade policies and environmental protection are mutually supportive. Under the WTO rules, members can adopt trade-related measures aimed at protecting the environment.

The scope of RTAs is also RTAs have progressively advanced from facilitating purely economic exchanges to promoting deeper integration and are becoming an instrument to foster policy convergence in partner countries, such as better labour standards, human rights and environmental conservation (see also Part 4). Many RTAs have included extensive environmental provisions to provide incentives to producers to adopt sustainable practices in order to gain and maintain access to new markets.199 Other methods are also being pursued, for instance, by enacting national legislation to ensure that imports do not generate negative environmental externalities (see Box 3.2).

Multilateral principles and World Trade Organization rules

The 1992 United Nations Conference on Environment and Development adoption of the Rio Declaration underscores that to achieve sustainable development, environmental protection should constitute an integral part of the development process and countries should cooperate to transferring any harmful activities that may cause severe environmental Similarly, the United Nations 2030 Agenda for Sustainable Development in 2015 emphasizes the role of trade in promoting inclusive economic growth and as an important means to achieve the SDGs. The United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement reiterates that an open international economic system can strengthen the global response to the threat of climate change in the context of sustainable development.

Efforts to address the linkages between trade and the environment are concerted by the WTO at the multilateral level. Sustainable development, protection and the preservation of the environment are key objectives of WTO agreements. The Marrakesh Agreement sets out the WTO’s aim to reduce trade barriers and eliminate discriminatory treatment in trade, and it also identifies trade as a tool to help countries achieve important public policy goals, including the sustainable use of the world’s resources and environmental protection.

Within the WTO agreements, countries carry a significant degree of autonomy in determining their environmental objectives and the environmental legislation they enact and implement, to the extent that it respects the WTO principles (see also Part 4).200 For example, non-discrimination, a guiding principle of the WTO, specifies that a country shall not discriminate between “like” products from different trading partners, giving them equally most favoured nation (MFN) status as noted in GATT Article I. In addition, non-discrimination means that a country must provide “national treatment” and shall not discriminate between its own and “like” imported products, as contained in GATT Article, 201

WTO rules allow members to adopt trade-related measures for the protection of the environment, including through Article XX of GATT on General Exceptions,
which allows members to take all necessary measures to protect morals, human, animal or plant life or health, or relating to the conservation of exhaustible natural Trade-related measures that protect the environment may not be implemented if they restrict trade in a way that is arbitrary and results in unjustifiable discrimination between countries. The WTO rulings in the Shrimp-Turtle and the Brazil-Retreaded Tyres cases, as shown in Box 3.3, illustrate the multilateral mechanism that addresses trade-offs between trade and environmental objectives.202

BOX 3.3WTO Environmental Cases: Shrimp-Turtle and Brazil-Retreaded Tyres

The WTO members determine their own environmental objectives. This has been reaffirmed on a number of cases throughout the years, mainly through two special cases: the Shrimp-Turtle, and the Brazil-Retreaded Tyres.

In the 1997 Shrimp-Turtle case, India, Malaysia, Pakistan and Thailand brought a joint complaint against a ban imposed by the United States of America on imports of certain shrimp and shrimp products. The protection of sea turtles was a key driver of the ban. The United States of America’s Endangered Species Act of 1973 listed as endangered or threatened the five species of sea turtles that are in American waters and required that American fishing vessels use fishing gear, known as turtle-excluder devices, in their nets when fishing in areas in case sea turtles were encountered. Under the United States of America’s Public Law, which deals with imports, shrimp harvested with technology that could have a harmful effect on sea turtles may not be imported, unless the harvesting country was certified to have a regulatory programme or that the fishing environment of the harvesting country did not pose a threat to sea turtles.247

The Appellate Body of the WTO Dispute Settlement Mechanism noted that under WTO rules, countries have the right to take trade action to protect the environment, in particular endangered species and exhaustible resources, and that measures to protect sea turtles would be legitimate under GATT Article XX (which deals with various exceptions to the WTO’s trade rules, including for certain environmental reasons) provided certain criteria, such as non-discrimination were met. In this case, it was considered that the ban imposed by the United States of America was inconsistent with GATT Article XI (which limits the use of import prohibitions or restrictions) and could not be justified under GATT Article XX. The reason given was that the United States of America discriminated between WTO members, as it provided countries in the western hemisphere with technical and financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices, while it did not offer the same advantages to the four Asian countries (India, Malaysia, Pakistan and Thailand) that filed the complaint.

Similarly, the 2007 case Measures Affecting Imports of Retreaded Tyres dealt with the import prohibition of retreaded tyres from the European Union into Brazil.248 Retreading tyres is a practice that lengthens the lifespan of the original tyre. Used tyres are refurbished for further use by stripping the worn tread from the outline and replacing it with a new tread. Since it expands the lifespan of a tyre, recycling used tyres is generally an environmentally friendly practice, but Brazil claimed that international trade in already retreaded tyres negatively affected the environment and public health in importing countries. Specifically, it argued that the collection of waste tyres poses risks to human life or health, such as mosquito-borne diseases, for example, dengue and yellow fever, tyre fires and toxic leaching, all of which adversely affect human health and the environment. Brazil argued that its measures were justified under GATT Article XX (b) which allows measures “necessary to protect human, animal or plant life or health.”249

The Appellate Body concluded that Brazil’s import prohibition on retreaded tyres and the fines imposed by Brazil were inconsistent with GATT Article XI:1 (prohibition on quantitative restrictions); Article III:4 (national treatment – domestic laws and regulations); Article XX (general exceptions) and Article XX(d) (exceptions – necessary to secure compliance with laws); and Article XX(b) (general exceptions – necessary to protect human life or health). More specifically, the exemptions of retreaded tyres imported from Mercosur members, Argentina, Paraguay and Uruguay, from the import ban and fines resulted in the import ban being applied in a manner that constitutes arbitrary or unjustifiable discrimination.

These two cases are considered milestones for using environmental concerns as justified measures to impede trade. Both rulings lost under discriminatory – and not environmental – grounds.

NOTE: GATT Article XX on General Exceptions provides grounds for some specific cases in which WTO members may be exempt from GATT rules. WTO members are entitled to adopt policy measures that are inconsistent with GATT disciplines, except when (a) necessary to protect human, animal or plant life or health, or (b) relating to the conservation of exhaustible natural resources. The measures, however, should not be a disguised restriction on international trade, and applied in a way to create arbitrary or unjustifiable discrimination between countries where the same conditions prevail.

Regional trade agreements and the environment

RTAs have rapidly increased in terms of number and regulatory coverage and evolved directly referencing sustainable development and including environment-related provisions (ERPs).ah RTAs offer an opportunity for like-minded countries to agree on disciplines that address environmental issues. With respect to WTO rules, RTAs can provide an additional layer of discipline by reaffirming the WTO rules, agreeing to deepen or expand multilateral commitments, or agreeing to refrain from taking counteractive actions between the signatories of the agreements.203

Countries have increasingly used trade agreements to cooperate on environmental matters in the past few decades. In fact, the first agreement to include a provision related to the environment dates to 1957, when the Treaty of Rome establishing the European Economic Community included a general exception allowing a party to prohibit or restrict imports, exports or goods in transit on the grounds of protecting the health and life of animals or plants if such prohibitions or restrictions were not arbitrary or Since then, environmental provisions started to rise slowly, and between 1957 and 2019, out of the 318 trade agreements that were established, 131 included at least one ERP (See Figure 3.4). Of these 131 agreements, 71 incorporate provisions that display an interaction between the environment and agriculture.aj

FIGURE 3.4Agreements with Environment-Related Provisions, 1957–2019

SOURCE: Mattoo, A., Rocha, N. & Ruta, M. 2020. Handbook of Deep Trade Agreements. Washington, DC, World Bank.
NOTE: The provisions that were analysed are obligations that are outside the current mandate of the WTO.
SOURCE: Mattoo, A., Rocha, N. & Ruta, M. 2020. Handbook of Deep Trade Agreements. Washington, DC, World Bank.

Today, many RTAs contain some reference to the environment, and the inclusion of ERPs followed a pattern that has evolved over the years (see Figure 3.4). Prior to the early 2000s, the number of RTAs with substantive environmental clauses was limited, with some notable exceptions, for example, NAFTA, which became effective in 1994 and its successor, USMCA, which became effective in 2020.

A significant change in this trend can be observed from 2005 when RTAs started to include more specific ERPs.204 This is especially relevant for the RTAs negotiated by some developed countries, such as Canada, the European Free Trade Association (EFTA) countries, the European Union, and the United States of America. Many RTAs with higher environmental standards were negotiated between developing and developed countries, with the latter being among the active proponents.205 Likewise, ERPs are included more often when the trade agreement has a vast and diverse geographical scope and encompasses a significant market size.206 This is the case with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). ERPs also tend to be more comprehensive in those agreements negotiated between countries with a significant difference in their environmental performances, suggesting an attempt to ensure that trade results in positive environmental outcomes.207 Over time, developing countries started to include these types of provisions in their RTAs with other developing partners, as in the case of the East African Community.

The number of agreements and the level of detail of these provisions have expanded since 2012 and address specific environmental issues, including biodiversity, sustainable management of forests and fisheries, and climate change. Moreover, depending on the structure of the inclusion of the environmental-related provisions, some directly refer to agriculture. For instance, the Common Market for Eastern and Southern Africa (COMESA), where the parties commit to take steps to control transboundary, air and water pollution arising from mining, fishing and agricultural activities, and to discourage the excessive use of agricultural chemicals and fertilizers.ak

Designing the scope of environment-related provisions

Many of the environment-related provisions are defined as WTO-plus provisions, as they set commitments that go beyond the WTO agreements. Other environmental exception clauses in the main type of WTO-like agreements are modelled on Article XX of the GATT, or on Article XIV of the General Agreement on Trade in Services (GATS).208 In practice, most RTAs with environment-related provisions include a combination of both the WTO-like and the WTO-plus environment-related provisions.

The reasons for including environment-related provisions in RTAs are manifold. Countries may have policies requiring the inclusion of ERPs in RTAs to match domestic legislation that limits environmental externalities and fosters harmonization of related non-tariff measures between trade partners.209 Others may be pressured to include ERPs in response to concerns by domestic industry or consumers.210 Countries may also wish to avoid having their trade partners lower their domestic environmental protection levels to increase production and attract investments.211

The lack of ERPs could strengthen competition from trade partners with less stringent environmental requirements making them more price competitive. This would displace domestic producers and other exporters that comply with environmental standards resulting in negative environmental This is reflected in some ERPs that strive for a balance between fulfilling environment-related policy objectives and trade/investment goals, such as RTAs between Canada-Colombia, Canada-Honduras and NAFTA (as shown in Figure 3.5). This is more nuanced in the EFTA-China, Hong Kong SAR agreement, which discourages weakening environmental protection laws in order to gain competitive trade advantage (see the excerpt from the agreement in Table 3.1).

FIGURE 3.5Selected agreements with a range of types of environment-related provisions

SOURCE: Monteiro, J. & Trachtman, J. 2020. Environmental Laws. In Mattoo, A., Rocha, M., Ruta, N., eds. Handbook of Deep Trade Agreements. Washington, DC. World Bank.
SOURCE: Monteiro, J. & Trachtman, J. 2020. Environmental Laws. In Mattoo, A., Rocha, M., Ruta, N., eds. Handbook of Deep Trade Agreements. Washington, DC. World Bank.


SOURCE: Compiled by FAO based on the original trade agreements. SOURCE: Compiled by FAO based on the original trade agreements.
NOTE: Types of options include: side agreements, which are separate agreements from the trade treaties they accompany, and which provide the institutional space for strong proactive environmental agendas covering capacity building, harmonization of regulation, cooperation and monitoring; an environment chapter within an agreement, which can deal with trade-related environmental matters such as failure to enforce domestic environmental laws in ways that affect trade, trade-related environmental commitments related to MEAs (such chapter embedded within the agreement allows for such commitments to be enforceable through the main agreement’s dispute settlement mechanism, if the signatories choose to use it); sustainable development chapters may include both environmental and labour commitments, as some European Union agreements do, or may simply set environmental commitments within a broader context of sustainable development; and side letters, which may set out joint commitments that are difficult to achieve within the context of the agreement, either because there are multiple parties that cannot agree, or because their content is too sensitive to form a part of the legally agreed treaty.
SOURCE: Compiled by FAO based on the original trade agreements.

ERPs in RTAs differ in terms of their scope and take a range of shapes and forms in terms of the extent of the environmental issues covered and the actions to address them.212 The location of the clauses in the agreement also differs. ERPs can be included in the preamble and the main body of the agreement, in an annex, a protocol, a side agreement – as for USMCA – or be clarified through a letter exchange, such as the Canada-Peru letter on Understanding Regarding Biodiversity and Traditional Knowledge (see Table 3.1).213 Some ERPs are aspirational and include language adhering to multilateral environmental agreements (MEAs), such as the Paris Several RTAs explicitly include provisions related to MEAs, such as those of the United States of America-Republic of Korea, NAFTA, and Canada-Colombia. In fact, the United States of America-Republic of Korea agreement has nine different provisions related to complying with MEAs (as shown in Figure 3.5 under the MEA Compliance category of provisions).214 Other RTAs make specific commitments based on domestic environmental law, while restating the right of the parties to regulate environmental matters.

Many RTAs overtly mention cooperation in environmental issues, as for example, the agreement between New Zealand and China in which the parties consider their national priorities and available resources, agree to cooperate on environmental matters and jointly decide specific environment cooperative activities (See Table 3.1). RTAs that aim at deeper integration, adopt a more concrete approach, and they include clauses establishing stronger cooperation, including on environmental regulations and standards. This is the case with many recent agreements negotiated by the European Union, Canada and the United States of America. For example, the United States of America-Central America Free Trade Agreement-Dominican Republic (US-CAFTA-DR), where the parties agree to cooperate to protect, improve and conserve the environment, including natural resources, and specify the establishment of a framework for such cooperation among the parties (See Table 3.1).

Often, these types of agreements foresee the set-up of ad hoc institutional arrangements to facilitate the enforcement of commitments, such as environmental committees to discuss and oversee the implementation of the ERPs, and mechanisms to solve the disputes related to the environment arising between the parties.215 In fact, many RTAs with a comprehensive environment chapter or a side agreement, for example, the Canada-Colombia and United States of America-Republic of Korea agreements, establish such ad hoc institutional arrangements and have four different types of provisions related to enforcement mechanisms (see Figure 3.5).

Enforcement mechanisms are included in RTAs mostly through dispute settlement procedures that allow signatories to identify, demonstrate and retaliate against any violations of an agreement within a framework indicated by the agreement. The language on enforceability of ERPs varies across RTAs, as some are nuanced in non-binding terms, while others are formulated in binding terms.216

Dispute settlement mechanisms can be an effective way to enforce compliance with ERPs. Enforcement measures may differ in relation to the ability of countries to impose monetary remedies or trade sanctions. For instance, the procedure established under the environmental chapters of many RTAs signed by the United States of America usually includes the possibility of imposing retaliatory actions. On the contrary, those shown under the sustainability chapters of the most recent RTAs enacted by the European Union explicitly exclude the possibility of imposing trade sanctions.217

Environmental impact assessments are instrumental in assessing the impacts of Such assessments trace the potential impacts of ERPs on markets, technology and regulations, and are currently mandated for all agreements signed by Canada, the European Union and the United States of America.218 Many ERPs establish a mechanism to review such impact assessments.219

The process by which ERPs are negotiated, implemented and monitored at the national level is vital. For example, public participation enables stakeholders from all potentially affected sectors to contribute.220 This is especially important for addressing environmental issues, since public participation may be limited during the negotiation process of trade agreements and sectors, such as the environment, may be often underrepresented (see also Box 4.2).221

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