Regional trade and the environment: European lessons for North America.

• Author: King, Richard J.

INTRODUCTION

Regional economic integration has become an increasingly important policy issue in international trade. Although its formal origins can be traced back to the establishment of the European Coal and Steel Community in 1952, it was not until the mid-1980s that regional integration activities increased significantly.(1) Three important though unrelated events are typically seen as responsible for sparking interest in regional economic integration: the floundering of the Uruguay Round talks of the General Agreement on Tariffs and Trade (GATT),(2) the laying of plans by the European Community (EC) to complete a Single European Market,(3) and the movement towards a Canada-United States Free Trade Agreement (FTA, and subsequently a North American Free Trade Agreement (NAFTA)).(4) Faced with the prospect of an international economic order dominated by two powerful trading blocs rather than one based on the continued pursuit of multilateral trade liberalization, non-EC and non-FTA nations have, in the last decade, sought to either establish regional trade blocs of their own or join the European or North American arrangements. The establishment of new regional trade blocs and the accession by states to existing regional integration arrangements (RIAs) will most certainly continue to be a significant issue in international trade in the coming years.(5)

Another significant development in world trade policy has been the growing concern about the environmental implications of trade liberalization. The link between free trade and the environment was first made apparent by a 1991 GATT dispute settlement panel ruling (the Tuna-Dolphin case) which found unlawful a United States trade ban(6) aimed at preventing the incidental killing of marine mammals by commercial fishers.(7) This ruling mobilized environmentalists to become involved in trade policy to ensure that the progressive opening of markets did not infringe on the ability of states to establish and maintain their own national environmental protection laws. The increasing attention given to the environmental implications of trade liberalization arrangements (TLAs)(8) is evidenced by the efforts of environmental lobby groups in North America during the negotiation of the NAFTA, and the recent establishment of the World Trade Organization's(9) Committee on Trade and the Environment.(10) The increasing importance placed by the public on environmental protection, coupled with the progressive movement towards global and regional trade liberalization ensure that the trade-environment debate will remain a fixture in the development of trade policy.

While a great deal has been written about both regional economic integration and the trade-environment debate, there has been surprisingly little discussion of the link between the two issues. The purpose of this article is twofold: first, it offers a comparative look at how the world's two most economically significant RIAs deal with circumstances in which environmental policy and trade liberalization interact (and sometimes conflict); and second, it attempts to draw some insight from this comparison as to whether (and why) the particular form of RIA (i.e., a free-trade area such as NAFTA or a common market such as the EC) influences how trade-environment interactions are reconciled.

The remainder of this article is divided into four Parts. The first three Parts each deal with one of three key areas in which trade policy and environmental protection policy interact--environmental laws as non-tariff barriers to trade (NTBs), lax environmental standards as indirect subsidies, and the harmonization of environmental standards. The Introduction to each of the next three Parts will outline the potential environmental impacts associated with each of these areas, and how any negative environmental impacts might be nullified. Following this, the regimes of the EC and NAFTA with respect to each area will be detailed and compared. Part V of this article offers some thoughts as to why the EC approach to regional integration will likely be more successful than the NAFTA approach in terms of both negating the adverse environmental impacts of freer trade and improving regional environmental protection efforts in general.

2. ENVIRONMENTAL REGULATIONS AS NTBS

   1. Introduction

      All TLAs will have as a central objective the reduction or elimination of tariffs in order to allow for the free movement of goods in accordance with the principle of comparative advantage.(11) To prevent negotiated tariff reductions from being undermined, states participating in a TLA will also seek to eliminate those measures which have tariff-equivalent effects. As a result, TLAs will typically contain two provisions to eliminate NTBs: a clause prohibiting quantitative restrictions on the import or export of goods, and a clause requiring national treatment for internal taxes or charges on foreign and domestic products.

      Environmental regulations such as packaging laws or green taxes(12) in an importing country have the potential to operate in a tariff-equivalent manner. Environmentalists, therefore, want to ensure that their domestic environmental protection measures are not deemed inconsistent with the quantitative prohibition or national treatment provisions of TLAs. Proponents of free trade might agree with environmentalists that legitimate environmental protection regulations should be safeguarded, but are worried that states will use environmental regulations as disguised trade barriers, or that ineffective regulations which yield only modest environmental benefits will impose a disproportionate burden on the free flow of goods.(13)

      In order to accommodate the concerns of environmentalists and allow for the free movement of goods, the key will be to draft the agreement so as to enable bodies charged with the responsibility of interpreting it to distinguish legitimate environmental protection measures from both trade barriers masquerading as environmental regulations and trade-restrictive measures whose environmental benefits are far outweighed by the burden placed on the free flow of goods.(14) This balance is normally struck by providing general exceptions to allow states to maintain quantitative restrictions and internal charges for legitimate domestic objectives, such as protection of the environment. When faced with an NTB challenge, the preservation of legitimate domestic environmental protection measures will, therefore, depend upon the wording of the exemptions and the interpretation given to them by trade dispute panels. More specifically, the exceptions should read broadly enough to encompass environmental protection regulations, and should provide guidance to decision-makers in determining the legitimacy of environmental regulations. In addition, dispute settlement bodies responsible for interpreting the TLA should have the mandate and possess the scientific knowledge required to ensure that the environmental objectives of the regulations are given due consideration when assessing their trade-restrictiveness. As demonstrated below and discussed in Part V of this article, the ability of dispute settlement bodies to put trade liberalization and environmental protection on an equal footing will also depend on the nature of the body of law available for dispute settlement bodies to draw upon.

   2. Environmental Protection and NTBs in the European Community

      Article 30 of the Treaty of Rome prohibits quantitative restrictions on imports: "Quantitative restrictions on imports and all measures having equivalent effect shall . . . be prohibited between [the] Member States."(15) Article 36, however, lists a number of exceptions to the general prohibition in Article 30:

      The provisions of Articles 30 to 34 shall not preclude prohibitions

      or restrictions on imports, exports or goods in transit justified on

      grounds of public morality, public policy or public security; the

      protection of health and life of humans, animals or plants;

      the protection of national treasures possessing artistic, historic or

      archaeological value; or the protection of industrial or commercial

      property. Such prohibitions or restrictions shall not, however,

      constitute a means of arbitrary discrimination or a disguised restriction

      on trade between Member States.(16)

      Although "environmental protection" is not listed as a category in Article 36, the European Court of Justice (ECJ) in the Cassis de Dijon case(17) stated that the categories listed in Article 36 were not exhaustive and that the protection of Article 36 could be extended to any national measure that was a "mandatory objective" of the EC, provided that: (i) no Community legislation exists in relation to the subject matter; (ii) the measure applies equally to domestic and imported goods (i.e., the measure must be non-discriminatory); and (iii) the measure is "proportional" to the objective to be achieved.(18)

      The leading ECJ case dealing with the use of Article 36 to protect an environmental regulation is the Danish Bottles case.(19) The case dealt with Danish legislation which established: (i) a mandatory deposit-return scheme for soft drink and beer containers; and (ii) a container approval system. No corresponding legislation existed at the Community level. The Commission brought an action on behalf of importers of soft drink and beer, arguing that the legislation violated Article 30. Denmark sought to justify the legislation on conservation grounds via Article 36. With respect to the non-discrimination requirement, the ECJ sided with Denmark in finding that the Danish legislation was not discriminatory as between domestic and foreign products, but did not go into any detail as to how it arrived at such a finding. With respect to the proportionality requirement, the ECJ found that the deposit-return scheme was "an indispensable element of a system intended to ensure the re-use of containers and therefore appears to be...