Conscious Choice: International Trade and the Environment

January 2000

International Trade and the Environment

by Laura Williamson

"We are writing the constitution of a single global economy." — Renato Ruggerio, Ex-Director General, World Trade Organization

Over the past several decades, a clearly global economic order has emerged. Companies no longer make decisions about how to produce and distribute assets with national or even regional boundaries in mind — where to locate factories, purchase raw materials, process information and raise capital is now decided on a global basis. Recognizing this, countries around the globe have hastened over the past ten years to negotiate ever-expanding agreements to make trade among nations smoother, cheaper, and more profitable.

These agreements are having a powerful impact on the global economy. Transnational corporations now control more than one-third of the world’s productive assets. International trade is up by 50 percent since 1990.

But trade liberalization does not come without costs. International trade agreements have long been built on the assumption that increased trade always leads to greater wealth and a higher quality of life for all. But this is not necessarily the case.

International trade agreements exert enormous influence over the use — and potential abuse — of the world’s natural resources and our ability to protect consumer rights and human health. Carefully constructed international trade agreements have the potential to enhance environmental protections, ensure greater public health, and raise standards of living around the globe. But the agreements currently in place can have the sometimes unintended effect of undermining carefully crafted policies and regulations already on the books.

As written, trade rules strip nations of the power to set their own standards. Global policies designed to remove trade barriers — obstacles such as border inspections for imported food or restrictions on how fish are caught and goods are transported — too often override protections created by individual nations. This "leveling" of the playing field makes trade easier but protection of the nation’s health and environment much more difficult. Instead of increasing pressure for nations to act as responsible stewards of the earth and its assets, international trade agreements are exerting pressure in the opposite direction, forcing nations to conform to the lowest common denominator.

The United States, which, as one of the world’s largest consumers, carries considerable influence in global trade talks, has thus far done little to change the situation.

There’s Nothing "Free" About Trade: What’s Wrong with Current Multilateral Agreements

Trade liberalization, carried out by the World Trade Organization and the North American Free Trade Agreement, is lowering international standards for environmental health and public safety, particularly in the areas of sustainable development, consumer protections and food safety. If a nation wishes to have its environmental and health concerns taken into account when trade issues are considered, then existing trade agreements must be reworked.

World Trade Organization (WTO) The WTO, established in 1995, regulates trade among 134 nations from around the globe. When the WTO was created, its members promised to safeguard the environment while encouraging free trade. The United States even went so far as to insist that the WTO create a Committee on Trade and the Environment, but the experience of the past four years shows that these promises were ignored.

The WTO carries enormous authority. Its policies and decisions take precedence over laws and regulations passed by local, state, and even national governing bodies. When conflicts arise between a member country’s actions and the WTO’s rules, the WTO has final say over how these conflicts are resolved. Its trade dispute panels have the right to review any act of any member nation’s government and demand changes from or penalize that nation should its actions be found contrary to the interests of free trade.

WTO dispute panels are made up of three trade lawyers selected by the disputing countries. Only national governments can make submissions or provide testimony. Citizens’ organizations, as well as state and local governments, are denied a voice in the proceedings, even when their interests are at stake. In fact, they can’t even listen to how their concerns are being addressed: dispute panel proceedings are conducted behind closed doors.

Countries that lose dispute proceedings have little recourse; appeals are difficult and rare. More often, member countries change domestic laws in order to comply with WTO rulings. For example, the WTO ruled that a U.S. ban on shrimp imported from countries whose fishing fleets failed to protect endangered sea turtles constituted an "illegal barrier to trade." The Clinton Administration agreed to weaken the way the Endangered Species Act was being implemented to comply with the ruling. Likewise, the WTO overruled a European ban on growth hormones used to increase beef production. When the European Union refused to import the beef despite the ruling, the WTO sanctioned 100 percent tariffs by the U.S. on certain European imports.

There is no avenue of recourse for individuals or organizations concerned about how such policies are affecting the public health and natural resources. Ordinary citizens and non-governmental organizations have no voice in how countries craft and implement international trade regulations. Public interest groups and ordinary citizens are not only denied a seat at the table, they are excluded from listening at the door. All meetings of the WTO are conducted in secret.

The WTO was set up to facilitate free trade and, as such, operates as a single-issue forum. Because of its narrow focus, its decisions often weaken existing environmental and health protections that could get in the way of unfettered trade. For example, the U.S. set weak standards to control imported agricultural and forest pests to avoid violating WTO rules. Ironically, the weaker standards protect foreign economies while damaging our own: Currently, invasive pests cost the U.S. about $138 billion per year in lost crops, denuded forests, and termite-infested homes.

North American Free Trade Agreement (NAFTA) Opening the floodgates to trade between the United States, Canada, and Mexico undoubtedly increased pressure to produce goods for exportation, particularly in financially weak Mexico. This increased pressure led to a greater reliance on pesticides, relaxed enforcement of border controls, and clear-cutting greater expanses of native forests, among other problems.

It also opened an avenue of legal recourse for companies unhappy with U.S. environmental protections. A little-known provision, called Chapter 11, allows private companies to sue governments for passing laws or regulatory measures that have the effect of reducing investors’ returns. Initially designed to protect investors from actual seizures of property, Chapter 11 has been stretched to cover claims that regulatory action is "tantamount to" expropriation whenever a regulation reduces corporate profits. This legal theory is identical to so-called "regulatory takings" claims by property-rights advocates in the U.S. — claims that have been found to violate the U.S. Constitution.

The Chapter 11 provision may be unfamiliar to the public, but it is well known to industrial trade attorneys. The Methanex Corporation, a Canadian chemical company, filed suit against the United States in 1999 for nearly $1 billion over the state of California’s ban on MBTE, a cancer-causing gasoline additive that was leaking from fuel tanks into the state’s groundwater. Under NAFTA rules, California officials are not guaranteed a voice in the proceedings, even though it is California’s groundwater that is at risk. Only national governments hold the right to submit testimony.

Free Trade Area of the Americas (FTAA) In December 1994, the heads of state of thirty-four democracies gathered in Miami to launch the most extensive free trade agreement yet conceived. The "Free Trade Area of the Americas," scheduled for completion by 2005, would expand trade liberalization within the western hemisphere to include areas not covered by the WTO, such as international investment.

The FTAA covers every country in the western world except Cuba, from the southern tip of Argentina to the Arctic Circle, including many developing countries. This region represents a substantial market for U.S. products, accounting for 40 percent of U.S. exports in 1996, at a value of $242 billion.

But the U.S. also is one of the largest consumers in this region. For example, the U.S. imports more bananas than any other country, and relies heavily on Costa Rica for its supply. Already, the widespread use of pesticides to maintain this crop accounts for 90 percent of the destruction of Costa Rica’s coral reefs and the sterilization and poisoning of hundreds of banana workers. Making it easier to export bananas will no doubt increase pressure to produce larger crops, which will in turn lead to higher pesticide use.

It is not too late to include measures to protect agricultural workers, and the land and water used to grow export crops. Unlike previous trade agreements, the FTAA, through a special committee, was set up to offer labor, environmental, and academic groups an opportunity to present their views on issues under negotiation. But this committee has thus far failed to deliver those promised opportunities.

Multilateral Agreement on Investment (MAI) Beginning in 1995, representatives of the world’s richest nations — under the auspices of the Organization for Economic Cooperation and Development (OECD) — quietly began negotiating an expansive agreement that would have given large corporations unprecedented global authority. Designed to protect corporate property rights worldwide, the agreement would have granted businesses equal standing with nations, in effect guaranteeing them the right to sue any country that restricted their ability to make money. Under the MAI, a Maryland law restricting to Maryland residents the right to lease oyster beds could have easily been challenged, for example. Likewise, a California moratorium on new commercial fishing licenses might have been lifted to allow foreign nations the right to harvest California’s depleted salmon stocks.

The MAI also threatened to prohibit state or local governments from banning investment in foreign companies. The widespread divestment in South African companies that helped force an end to apartheid would not have been allowed under such an agreement.

Widespread opposition to the MAI forced the OECD to stop negotiations this year. However, a similar agreement may be considered under the WTO.

How Trade Pacts Affect the Public’s Health, Natural Resources, and Local Government’s Ability to Make Its Own Decisions

Food Safety Food imports to the United States have doubled since the 1980s, a tremendous increase spurred largely by trade agreements such as NAFTA and the WTO. Unfortunately, the same measures that have made it easier to move food across U.S. borders — such as fewer and more relaxed border inspections — also have made it harder to protect the health and safety of our food supply: The drop in food safety inspections and the potential for unsafe food to enter the U.S. is so serious that Congress is now considering legislation to correct this problem.

Examples of unsafe food crossing U.S. borders abound. In February of 1999, more than a dozen people were hospitalized with typhoid fever — rarely seen in the United States — after consuming frozen fruit drinks imported from Guatemala. Thousands of people were sickened with cyclospora, a waterborne parasite often found in developing countries, after eating Guatemalan raspberries during the late 1990s. And in 1997, more than three hundred Michigan schoolchildren contracted hepatitis A after eating strawberries imported from Mexico.

Invasive Species Invasive species — including molds, insects, and other pests — are the second-leading threat to the health and stability of our forests. Nearly half the species listed as threatened or endangered in the U.S. are at risk because of non-native invaders. Some types of trees have been utterly wiped out by pests that hitchhiked into the country on imported logs or packaging: The American Elm and Chestnut trees that once shaded neighborhoods from Maine to Georgia were virtually eliminated by diseases imported to the United States.

Recently, a swarm of Asian long-horned beetles slipped into the United States in wooden crates and pallets imported from China. Infestations broke out in New York and Illinois, where the insects are feeding on hardwood trees and causing significant damage. If nothing is done to prevent further outbreaks, the beetle could cause substantial harm to North American forests.

The best way to prevent these bio-invasions is to stop them at the border. But WTO rules require that any regulations regarding border inspections or restrictions on imports be based on definitive proof of risk and that they hamper trade only to the extent necessary. Such inflexibility makes it difficult, if not impossible, to conduct effective inspections and stop deadly infestations before they spread.

A Department of Agriculture proposal would require fumigation of wooden packaging from China. And Vermont Senator Leahy has introduced legislation that would ban the importation of wooden pallets. But Hong Kong and Chile have both raised concerns about proposed inspections by the U.S., and such challenges would be likely to prevail under WTO rules.

Species Protection Efforts to protect endangered species in the United States face serious threats from international trade agreements. While one country may act in the interest of species protection, objections from another nation can overrule those safeguards.

For example, provisions of U.S. law intended to prevent dolphins from drowning in tuna nets were found to violate WTO rules. Congress weakened the criteria for the "dolphin-safe" tuna label, under the Marine Mammal Protection Act, to the point where tuna carrying that label may offer little, if any, protections to dolphins. Likewise, the WTO struck down a U.S. ban on shrimp caught without the use of turtle-excluder devices (TEDs) — escape hatches in shrimp nets that allow turtles to flee while shrimp are caught.

Consumers’ Right to Know: Environmental Labeling and Certification Eco-labels help consumers make choices based on the environmental impact of products they buy. Labels tell consumers, for example, when coffee is grown under traditional shaded conditions, eliminating the need for pesticides and preserving wildlife habitat. Such labels also help consumers support small farmers, who are most likely to practice these methods. California uses labels to certify socially responsible farming practices that surpass organic food standards. But both types of labeling could be eliminated under restrictions now being considered by the WTO.

Both government-mandated labels and private environmental certification programs have been challenged as inconsistent with international trade rules. California’s Proposition 65, which requires businesses to provide warnings whenever they expose "any individual to a chemical known to the state to cause cancer or reproductive toxicity," has been characterized by the European Union (EU) as a non-tariff barrier to trade. At the same time, the EU wants to label food products containing genetically modified organisms because of ethical, environmental, and health concerns. The United States is challenging this proposal through the WTO’s Committee on Technical Barriers to Trade.

Clean Air Clean air regulations in both the United States and Canada have been successfully challenged as violations of trade rules. Canada recently agreed to permit the importation of a fuel additive it had previously banned because of human health concerns. Canada paid millions of dollars to a Virginia-based chemical manufacturer to settle a claim brought under NAFTA. Similarly, two years ago the WTO ruled in favor of Venezuela in a challenge to U.S. regulations for importing clean gasoline. The United States weakened its Clean Air Act to comply with free trade rules. Venezuela has also recently threatened to file a WTO lawsuit over Florida’s refusal to permit the construction of a power plant that would burn a tar-based Venezuelan fuel.

Timber A WTO proposal to eliminate tariffs on wood products would make forest products cheaper and easier to buy. But it would also increase pressure to clear-cut forests as consumption of wood products rises and could dilute forest management standards.

Already a battle is raging over a U.S. ban on raw log exports. To maintain sustainable logging rates (the ability to replace trees as they are cut down), the United States banned the export of raw logs from public lands. The WTO prohibits such bans. Japan, the world’s largest consumer of forest products, has threatened a challenge.

Hazardous Waste A California-based company, Metalclad, has brought an action under NAFTA seeking compensation for local opposition to its construction of a hazardous waste disposal facility in San Luis Potosi, Mexico. S.D. Myers, an Ohio company that operates hazardous waste incinerators, is seeking $10 million in damages under NAFTA for losses it says it suffered as a result of Canada’s temporary ban on the export of PCBs.

Environmental Procurement Preferences Federal, state and local laws provide preferences for the purchase of various types of environmentally friendly products to encourage the manufacture of these products and raise consumer awareness of the environmental implications of their purchase decisions. But environmental procurement preferences — including preferences for recycled products and certified forest products — have been challenged by industry and U.S. trading partners as barriers to trade and violations of the WTO’s and NAFTA’s rules.

The consequences can sometimes be unfair to U.S. companies. For example, Minnesota passed a law requiring the state government to purchase recycled paper whenever possible. Canadian and Mexican corporations sued the United States under NAFTA rules and Minnesota complied by lifting the restrictions for foreign companies only.

Where Do We Go From Here?

Future trade agreements should include provisions that encourage sustainable development and higher standards for public health and environmental protection worldwide.

The CEOs of the world’s most respected environmental organizations have agreed upon a list of general principles and priorities for change, including the following:

• Halt WTO Expansion Until Reforms are Achieved: Negotiations to expand the scope of the WTO’s authority — into forestry and investment policy, for example — should be shelved until a detailed assessment of the environmental and health impacts of current and proposed trade policies have been conducted and needed reforms have been achieved.

• Reform WTO and NAFTA Rules and Procedures: The WTO must be improved by making information available to the public and by providing for meaningful public input. Rules must be written and interpreted so that they do not overturn existing national or international environmental and public health standards. Rules must not restrict a consumer’s right to know which products are environmentally friendly. Consumers should also have a right to health and safety information regarding the products they use and the food they eat. The WTO’s Agreement on Technical Barriers to Trade (TBT) should allow and promote labeling that gives consumers this information.

• Ensure the Rights of Nations to Protect Their Citizens and Their Natural Resources: Trade agreements should be reformed to protect the right of national (and state and local) governments to develop and enforce environmental and health standards at the level they deem appropriate. International standards should establish minimum, not maximum, standards for levels of environmental and health protections.

• Take Environmental and Health Impacts Into Account: Any proposed international trade or investment pact should be examined, with input from the public, to determine its impact on the global environment and public health. Such assessments should be completed in time for consideration during negotiations.

These reforms are needed to ensure that the elimination of trade barriers across the globe will stop eroding hard-won environmental and public health policies designed to protect the world’s citizens and its natural resources.

This article was excerpted from Understanding International Trade and the Environment, a publication of the Environmental Media Services. For a copy of the entire guide, call 202-463-6670. It is also available on their web site.

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