The environment: a new challenge to GATT

Piritta Sorsa

No 980, Policy Research Working Paper Series from The World Bank

Abstract: Will environmental issues challenge the General Agreement on Tariffs and Trade (GATT)? Calls for a new round of multilateral trade negotiations on the environment have multiplied. Environmentalists have kept up pressure to modify GATT. Industries with higher environmental costs may seek protection from imports. But the GATT, as a trade forum, is not the right place to discuss environmental solutions, contends the author. Focusing on trade will only distract attention from the true causes of environmental problems. Legitimate environmental policies conflict little with GATT rules because the source of most environmental problems is not trade but prices that do not reflect environmental cost, subsidies to environmentally damaging activities, or unclear property rights. Furthermore, the GATT imposes few constraints on the setting of domestic standards and environmental policies, so there is no environmental need to modify the GATT. On the contrary, by limiting the use of trade measures, which make for poor environmental policies, GATT rules support good environmental practice. By restricting unilateral recourse to trade sanctions, Gatt rules respect sovereignty and help contain power-based abuse of the trading system. In a number of areas, however, the rules are subject to wide-ranging interpretation and would benefit from clarification. This applies especially to GATT's relationship with international agreements and also, in some cases, to the unilateral use of trade sanctions. Industries and policy-makers also call for clearer rules for the application of environmental policies with trade effects. Any attempt at unilateralism should be avoided. A closer look reveals some anomalies in the GATT with regard to environmental policy; these may merit further discussion. GATT rules on border adjustment may encourage the use of indirect policies, since these can be extended to competing imports. Indirect policies can lead to environmental costs being passed on to importers, or to double taxation of environmental costs. Legitimate policies may be left out for lack of specific reference to the environment Article XX. GATT subsidy rules may constrain burden sharing options for environmental policies. Clarification of the GATT rules would undoubtedly help counter increasing pressures to use trade instruments as a form of environmental policy - and would help redirect attention toward the true causes of environmental damage.

Keywords: Environmental Economics&Policies; Economic Theory&Research; Health Economics&Finance; Environmental Governance; Energy and Environment (search for similar items in EconPapers)
Date: 1992-09-30
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Citations: View citations in EconPapers (2)

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