Macquarie Journal of International and Comparative Environmental Law
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Macquarie Journal of International and Comparative Environmental Law |
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ELAINE JOHNSON[∗]
The principle of sustainable development, introduced internationally in the 1970s through the Stockholm Conference on Environment and Development, promotes development which meets the needs of the present generation without compromising the ability of future generations to meet their own needs. Thus, it encompasses the ideas of intragenerational equity, as well as intergenerational equity. Essentially, this means that we must strive to protect and conserve our natural resources not only for those who need the benefits of our global resources today, but also for those who will need them tomorrow.
Sustainable development is accepted as a universal principle to be applied at international law. Accordingly, it ought to apply to all processes undertaken by the international community, including those processes which are focussed on trade and investment. The goal of trade and investment at an international level is primarily to pursue global economic development. However, such a pursuit should be centred around achievement of economic development that is environmentally sustainable in terms of both intergenerational and intragenerational equity.
It is felt by some stakeholders that there is a need to move away from concepts of trade and investment as simply processes which ought to merely incorporate the principles of sustainable development. Instead, a new conceptual framework should be developed that views these processes as a means for achieving sustainable development and environmental protection.[1] International regulation of trade and investment may create and encourage a global trading system which has detrimental effects on the environment. However, it is also believed that liberalisation of trade and investment has the potential to institute changes nationally and internationally which will have the effect of improving standards of living and environmental protection. In any case, the reality of the situation is that trade and investment liberalisation are seen by many in the international community as desirable, and this is unlikely to change in the near future. The challenge today for proponents of sustainable development is to negotiate a balance between economic growth and development through liberalisation of trade and investment mechanisms on the one hand, and conservation and equitable sharing of resources on the other.
This paper provides an overview of these issues and is set out in three parts. Part I examines the interrelations between trade, investment and sustainable development. Part II highlights key issues at the interface between trade, investment and sustainability, and analyses potential implications for sustainable development in India. Finally, Part III offers concluding comments and recommendations concerning some of the most pressing issues raised in the preceding discussions.
In order to deal with the complex interrelations between trade, investment and sustainable development, it is useful to divide the nexus into three sets of relations: trade and sustainable development; investment and sustainable development; and trade and investment. This part deals with each of these relationships by way of outlining key international instruments and aspects of the debate surrounding each.
Much has been written on the relationship between trade and sustainable development in recent years. This section of the paper outlines the basic elements of the debate surrounding that relationship on an international level. Trade in this context should be taken to mean the exchange of goods and services between nations, particularly as regulated through the World Trade Organisation.
The World Trade Organisation (WTO) was established in 1995 through the Marrakesh Agreement Establishing the World Trade Organisation (Marrakesh Agreement),[2] as the successor to the General Agreement on Tariffs and Trade (GATT). GATT was the informal name given to the de facto organisation which administered the 1947 General Agreement on Tariffs and Trade.[3] The 1947 agreement was reviewed and amended at meetings of the GATT through ‘rounds’ of negotiations. The Uruguay Round, which took place from 1986 to 1994, was the final round of GATT negotiations which ultimately established the WTO and the GATT 1994 (to be read with the 1947 agreement), as well as several key trade agreements, including the Agreement on Trade-Related Investment Measures (TRIMs),[4] the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs),[5] the Agreement on Agriculture[6] and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS).[7] It should be noted here that the GATT 1994 incorporates the 1947 agreement, therefore any reference from this point forward to the GATT should be taken to mean the current 1994 agreement, inclusive of the 1947 rules.
The WTO consists of 148 member states[8] and acts as the primary international forum for negotiations and dispute resolution on matters concerning trade between member states. India has been a member state of the WTO since its inception in 1995. As the WTO is the only international organisation dealing with the regulation of trade, it is often seen as the most relevant forum through which the relationship between trade and environment is discussed (other than through individual multilateral environmental negotiations).
The primary purpose of the WTO and the GATT is to encourage economic growth on a global scale through provisions aimed at freeing trade from certain national restrictions. The fundamental principles of the GATT are non-discrimination (or the ‘national treatment’ principle) (Article III) and the removal of quantitative restrictions in trade (Article XI). Broadly, Article III provides that trade restrictions must not be applied for the purpose of protecting domestic production. So while countries may place certain restrictions on imports, they may only do so if such restrictions are applied domestically as well. For example, a country may ban the importation of a certain pesticide only when the ban also extends to the use or production of the pesticide within the country itself.[9] Article XI (quantitative restrictions) provides for a general prohibition on the use of non-tax restrictions such as ‘quotas, import or export licences or other measures’[10] which impact on the importation or exportation of a particular product.
The fundamental principles of the GATT have the potential to come into conflict with national environmental protection measures that involve placing restrictions on trade in certain products. However, not all trade restrictions are prohibited under the WTO rules. As stated by the WTO itself, the goal of the rules is to ‘help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives’ (emphasis added).[11] To achieve this end, the GATT does provide for some general exceptions to its fundamental principles. These exceptions are contained within Article XX which reads (emphasis added):
Subject to the requirements that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures ...
(b) necessary to protect human, animal or plant life or health ... or
(g) relating to the conservation of exhaustible natural resources if such measures are made more effective in conjunction with domestic production or consumption.
It can be seen then that the environmental and health exceptions contained within the GATT are subject to certain qualifications. In the first place, they must not be arbitrarily or unjustifiably discriminatory against other member states or constitute a ‘disguised restriction on international trade’. Further, environmental protection measures must be ‘necessary’[12] while conservation measures are only permitted ‘if they are made more effective in conjunction with domestic production or consumption’. Effectively, this puts analysis of national environmental policies in the hands of the WTO where such policies are found to restrict trade. In this way, the GATT is seen as potentially conflicting with, or limiting the effectiveness of, state implementation of multilateral environmental agreements (MEAs)[13] such as the Convention on International Trade in Endangered Species,[14] the Basel Convention,[15] and the Montreal Protocol[16] which all use trade measures to promote the principles of sustainable development. It also has the potential to conflict with unilateral efforts to protect the environment that exceed the implementation of MEAs, as was the case in the two most prominent environmental disputes under the GATT regime: the Tuna-Dolphin case[17] and the Shrimp-Turtle case.[18] These cases demonstrate that to some extent, weight has been applied to environmental and health concerns in disputes over trade restrictions,[19] and that under the WTO environmental issues are being given some serious consideration.
Apart from the exceptions contained in Article XX of the GATT, the WTO as an organisation is required to give effect to the principles of sustainable development. Indeed, the opening paragraph of the Marrakesh Agreement refers to the need for Member States to recognise that trade should be conducted in a manner which allows for:
the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development (emphasis added).[20]
This clearly gives the WTO the mandate to contribute to both prevention of environmental degradation as well as to use trade to enhance the global effort to develop our resources in a sustainable and equitable way.
Following the adoption of the 1994 WTO Ministerial Decision on Trade and Environment, the Committee on Trade and Environment (CTE) was established. The CTE Special Sessions are the forum through which the trade and environment debate continues under the WTO. Summaries of the Special Sessions are submitted by the CTE Chairperson to the Trade Negotiations Committee. There is provision for some intergovernmental organisations to obtain observer status through the CTE. During the 2003 Special Sessions, the CTE invited six MEAs and the United Nations Environmental Programme to provide input and exchange of information on the issues discussed there.
The Fourth Ministerial Conference of the WTO held at Doha, Qatar in 2001 set out a mandate for further negotiations on a range of issues (the ‘Doha Development Agenda’) including the trade and environment debate. For the most part, the committees responsible for hosting the negotiations were to report on their progress at the Fifth Ministerial Conference at Cancún (held in 2003) and negotiations on most aspects were due to conclude on 1 January 2005. At the 2001 conference, the CTE was instructed to focus on three issues for negotiations:[21] the effects of environmental protection measures on market access (particularly in developing countries); relevant provisions of the TRIPS Agreement; and issues relating to eco-labelling. The CTE submitted its report at Cancún which set out the status of negotiations and submissions on these issues.[22]
Market access is an issue of great importance for developing countries at the trade and environment interface. Accordingly, India made a submission in 2002 to the CTE on this particular issue.[23] The CTE report states that submissions received by the CTE expressed concern that increasing market access for developing countries should not result in the lowering of environmental standards in other countries. Technical assistance, capacity building and technology transfer are seen as important elements in assisting developing countries to meet the stricter environmental standards of developed countries. Today, these standards are effectively acting as a barrier to imports from developing countries with lower environmental standards or levels of enforcement. The CTE report also states that information dissemination with respect to development of national environmental laws, and the identification of opportunities for trade to encourage sustainable development in developing countries are seen by member states as important ways to resolve the conflict between trade and sustainable development.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provides for the protection of intellectual property rights (IPRs). Some provisions of this agreement are seen by many as conflicting with the principles of sustainable development primarily in the context of intragenerational equity – the equitable sharing of resources within the present generation. Broadly, there are concerns among the international community that while the TRIPS Agreement protects the intellectual property rights of bioprospectors, it fails to adequately protect the IPRs of traditional knowledge holders. It is argued that where bioprospectors make use of local or traditional knowledge in order to access genetic or biological resources for the development of biotechnology, the traditional knowledge holders ought to be adequately informed, compensated and included in a sharing of benefits arising from the production of goods. In this way, the TRIPS Agreement comes into conflict with the provisions of the Convention on Biological Diversity (CBD)[24] which creates such rules for access and benefit sharing relating to the use of biological resources.
The 2003 report of the CTE presented at the WTO Ministerial Conference in Cancún recognises these concerns among member states, and acknowledges that some members seek amendment of the TRIPS Agreement in order to reconcile it with the provisions of the CBD. These aspects are also currently being examined by the TRIPS Council (under the WTO). However, it may be the case that the CTE is reluctant to become involved in any overlap of work between itself and the TRIPS Council, preferring to leave this issue to the work of the TRIPS Council alone.
Labelling of products as ‘environmental friendly’ (eco-labelling) is one way in which trade might be used to influence the environmental performance of manufacturers, regardless of where production is located.[25] It can also be used as a way of encouraging nations to lift their environmental standards in order for domestic products to meet labelling requirements. The basic premise of eco-labelling is therefore to encourage greater environmental performance in ‘process and production methods’ (PPMs) and the products themselves from the demand side, rather than supply side of the market.
However, eco-labelling may also be seen as a form of discrimination under the GATT between foreign and domestic products, often favouring developed countries over developing countries. This is true particularly in the case of labelling concerning ‘non-product-related’ PPMs. Such labelling standards seek to discriminate between products according to factors that cannot be detected in the product itself, such as the environmental impact of production. ‘Product-related’ PPMs on the other hand are those which are evident in the product itself, such as the production of a more fuel-efficient vehicle. So in the context of developing countries, where environmental standards, or the enforcement of such standards may be lower than in developed countries, eco-labelling based on non-product-related PPMs has the potential to indirectly discriminate against developing countries whose laws do not meet international or foreign national standards for labelling.
Concerns regarding the trade-environment relationship under eco-labelling regimes were expressed through submissions made to the CTE prior to the Cancún conference. Some members submitted that small and medium-sized enterprises in developing countries may find compliance difficult where there is a multiplicity of labelling standards in existence. Further, because of the differing environmental standards (in general) between developed and developing countries, it was suggested that there is a need to set national and international environmental standards in close consultation with developing countries, so that standards are accessible to all. The primary concern of developing countries with respect to eco-labelling is therefore an economic, rather than strictly environmental concern.[26]
Issues relating to eco-labelling do not just come under the work of the CTE. They also have implications for two more WTO agreements: the Agreement on Technical Barriers to Trade (TBT)[27] and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) (discussed below). While the TBT Agreement provides rules on regulations, standards, testing and certification procedures generally, the SPS Agreement provides for rules specifically related to food safety and animal and plant health standards. To avoid overlap between these two agreements, where a certain national action is governed by the SPS Agreement, the TBT Agreement does not apply. However, the TBT Agreement is considered to be the agreement most relevant to eco-labelling under the WTO, and is the agreement with which eco-labelling schemes primarily need to conform.[28]
The TBT Agreement is administered by the Council for the TBT (CTBT). Essentially, it aims to fill the gap between the general provisions of the GATT, which are focussed on tariff restrictions to trade, and national non-tariff restrictions which have an impact on trade between member states. The TBT Agreement deals with the use of voluntary requirements (‘standards’),[29] and mandatory requirements (‘technical regulations’) which effectively act as barriers to trade, such as national or international eco-labelling standards. It approaches these issues through the use of five key principles: non-discrimination; avoidance of unnecessary obstacles to trade; harmonisation of technical regulations and standards; equivalence and mutual recognition (ie, that member states attempt to recognise other members’ regulations as equivalent to their own until harmonisation has been achieved); and transparency in the development and implementation of regulations.
Two key issues relating to regulation of eco-labelling standards under the TBT Agreement are: the extent to which those standards come within the purview of the Agreement; and the extent to which they comply with the Agreement.[30] These issues have been discussed through the CTE and the CTBT, and the WTO is now working towards harmonising trade rules with eco-labelling regimes, particularly in the area of eco-labelling based on non-product-related PPMs.[31] This debate primarily concerns a discussion as to whether non-product-related PPMs are capable of being used to discriminate between otherwise ‘like’ products (which is prohibited by the GATT and the TBT) so that such discrimination is still consistent with both the GATT and the TBT.
The SPS Agreement was established through the Uruguay Round of negotiations and has been described as ‘[o]ne of the most significant achievements’[32] of that round of negotiations. It places restrictions on government laws and regulations which are aimed at protecting the health of humans and the environment. Essentially, the SPS Agreement gives effect to Article XX(b) (extracted above) of the GATT, which provides a human and environmental health exception to the general liberalising provisions of the GATT. It aims to ensure that measures which are used to protect the environment or human health are implemented in a manner which does not arbitrarily or unjustifiably discriminate between countries, and is necessary to protect human, animal or plant life or health. Determination of what is ‘necessary’ protection is ultimately made by the WTO. Although such a determination is to be based on ‘science’, this still raises questions of the competence of the WTO in determining the necessity of environmental protection measures, given that the general expertise of the organisation is in the field of trade, rather than sustainable development or science.
The main way in which conflict arises between trade and sustainable development in the SPS Agreement is that it gives the WTO the mandate to require removal of national health measures if they are seen as unnecessarily interfering with trade between countries. Of particular concern is the provision under Article 2.2 of the Agreement, which requires that governments ensure that any protection measure is ‘based on scientific principles and is not maintained without sufficient scientific evidence’. This places the burden on the country using the protection measures to prove that the particular import is harmful. Where scientific certainty does not exist, the SPS Agreement may disadvantage environmental protection and thus future generations of resource-users. Although the Agreement provides for the use of some form of the precautionary principle,[33] this is only allowed provisionally, ‘on the basis of available pertinent information, including that from the relevant international organisations as well as from sanitary or phytosanitary measures applied by other Members’ (Article 5.7). In this way, the SPS Agreement shies away from use of the precautionary principle as intended by the principles of sustainable development which do not limit it to any particular timeframe.[34] Further, disputes are resolved in a closed-door manner, and therefore no intervention by interested parties such as NGOs is allowed, even on an amicus curiae[35] basis, which involves only the provision of relevant information to the panel. Charnovitz recognises this as one of the aspects which needs to be addressed before the legitimacy of the WTO in its capacity under the SPS Agreement will be realised by the public.[36]
Some cases have already been heard before the WTO on bans imposed which were seen to breach the agreement. In the three cases conducted prior to the Doha Round of negotiations, the country implementing the protection measures has ultimately failed to justify their actions.[37] Issues such as bans on the importation of genetically modified organisms are likely to be of future importance in challenges under this agreement.[38]
The SPS Agreement is also one of four agreements which makes up the agreements on agriculture arising out of the Uruguay round of negotiations. The other three agreements relevant to regulation of the agricultural industry under the WTO are: the WTO Agreement on Agriculture (AoA)[39] itself, the concessions and commitments of Members on market access, domestic support and export subsidies, and the Ministerial Decision Concerning Least-Developed and Net Food-Importing Developing Countries.
The purpose of these agreements is to reduce barriers to trade in agricultural goods. Primarily, this means restricting the use of domestic subsidies in the agricultural industry so that global trade occurs unhindered at the most economically efficient prices. To this end, the Agreement provides for differential implementation requirements and concessions on reductions in tariffs for developing and least developed countries.
The AoA does make some provision for consideration of national support of domestic agricultural industries for the purposes of environmental protection. These types of exceptions, known as non-trade concerns, are recognised in two places in the Agreement: the Preamble and at Article 20 (Continuation of the Reform Process). The Preamble of the AoA sets out the agreement of Members, ‘[n]oting that commitments under the reform programme should be made in an equitable way among all Members, having regard to non-trade concerns, including food security and the need to protect the environment’. Further, Article 20 provides that Members will continue the process of reducing trade barriers in agriculture, taking into account non-trade concerns.
Free trade agreements (FTAs) are preferential trade agreements which eliminate tariffs between member countries, while maintaining tariffs between non-member countries. At the time of writing, India had signed FTAs with Thailand and Sri Lanka, and is a member of the Association of South East Asian Nations (ASEAN) Free Trade Area.
Similar issues arise with regard to FTAs as those under global trade agreements made under the WTO. Although there is considerable concern that environmental protection measures provided for under the MEAs may be compromised by the creation of FTAs some commentators express the view that such agreements are a useful approach to supporting the environmental aspects of trade.[40] It is therefore up to individual countries to deal appropriately with the provisions of an FTA to ensure that the principles of sustainable development are adhered to and promoted through trade agreements between nations.
The most well-known FTA, the North American Free Trade Agreement (NAFTA), provides that where there is an inconsistency between the NAFTA and trade provisions in environmental agreements listed under the NAFTA, the environmental trade agreements will prevail.[41] This agreement also makes provision for environmental concerns through the North American Agreement on Environmental Cooperation (NAAEC) which is the environmental side agreement to the NAFTA.[42] It is not the purpose of this paper to study in detail environmental provisions of FTAs. It is sufficient to note here that environmental protection measures can, and should, be drawn into FTAs to ensure that the principles of sustainable development are not compromised in the process of regional trade liberalisation.
Finally, it should be noted that within the trade and environment interface, international trade can in fact be used to promote the principles of sustainable development. For example, MEAs use trade and investment as tools for environmental protection measures in two ways. First, they may impose restrictions on trade in certain products between parties, or on trade with non-member states, as in agreements such as the CITES, which prohibits trade in endangered species. Second, they may use markets and investment measures to promote environmental protection. This method is provided for in the Kyoto Protocol through the proposed carbon trading system.[43]
Foreign direct investment (FDI) concerns economic investment by foreign nationals in another country. The process of FDI creates a potential situation of conflict in terms of environmental regulation of industry. On the one hand, according to the principle of national sovereignty,[44] the host state ought to have a certain level of control over the activities of foreign nationals in terms of resource use. On the other hand, the host state must be aware of the property rights of foreign nationals, and avoid excessive interference in their activities. In the context of environmental regulation, this means that the host state has the right to regulate the activities of foreign direct investors, but must do so in a manner that does not excessively interfere with the property rights of the investors. Therefore, the focus of the investment-sustainability debate is on how to achieve a balance between these two sets of rights – national sovereignty and property rights of investors. The issue is further complicated in the context of developing nations where FDI may be strongly desired by national governments in order to boost the local economy. In such cases, it is often feared that developing country governments may be inclined to lower environmental compliance requirements (or at least not increase them) in order to encourage FDI.
As the process of globalisation in business continues, transnational corporations (TNCs) are increasingly becoming significant players in FDI. The emergence of this form of foreign investor has important implications for environmental regulation by host countries. Broadly, where investors are TNCs, they often hold so much economic power that the host government may feel compelled (or at least inclined) to make certain concessions to encourage FDI from such investors. Such concessions may well include providing lax environmental standards or low-cost compliance with minimal accountability.
Accountability of TNCs is fast becoming a major issue in ensuring that such organisations behave in an environmentally responsible manner in host countries. The concern here is that because of an inability of established international legal regimes to deal with litigation concerning such diversified and complex private operators, accountability for environmental degradation is at present not always attainable. This was demonstrated in the famous Bhopal Gas Leak case in India where victims were unable to hold Union Carbide (the company responsible for devastating environmental pollution) liable in the courts of its home country (the United States) due to the application of the doctrine of forum non conveniens.[45] Another key concern is that where host countries are at a disadvantage economically, and implementation and enforcement of environmental laws is not seen as a priority in terms of governmental budgetary allocation, TNCs may be attracted to such countries in order to reduce production costs associated with environmental compliance.[46] In this way, FDI can act as a process which perpetuates poor environmental laws and therefore contributes to environmental degradation in such countries.
FDI is facilitated in a number of ways, including through bilateral and multilateral investment agreements, as well as domestic and international agreements aimed at insuring countries against breaches of the investment agreements. Investment agreements usually contain two types of key provisions: prohibition of expropriation or interference with investment; and prohibition on ‘unfair treatment’ of foreign investors.[47] This is evident in many bilateral investment agreements, such as the North American Free Trade Agreement 1994 (NAFTA).[48] NAFTA provides, at Article 1110(1) that:
No Party may directly or indirectly nationalise or expropriate an investment of an investor of another Party in its territory or take measures tantamount to nationalisation or expropriation of such an investment ...
There are, however, exceptions to this rule under NAFTA, as in other bilateral or multilateral agreements. The same Article in NAFTA provides that nationalisation or expropriation measures are allowed where they are implemented where they are taken for a public purpose, in a non-discriminatory manner, in accordance with due process, and upon payment of compensation. Further, NAFTA provides that the agreement should not prevent countries from implementing environmental protection measures (insofar as they are considered ‘appropriate’[49] by the host state) and specifies that ‘it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures’.[50]
Despite the potential drawbacks, it must be recognised that FDI is an important source of finance for some developing and middle-income countries. As with liberalisation of trade, liberalisation of investment is likely to continue into the future, and it remains the challenge of proponents of sustainable development to ensure that such liberalisation does not disadvantage the environment, and is in fact used to promote environmental protection. With greater investment, countries may be presented with the opportunity to improve domestic infrastructure in a way which is sustainable and environmentally safe. The World Summit on Sustainable Development (WSSD) recently recognised this potential through the production of a Plan of Implementation relating to investment which provides that states should ‘[f]acilitate greater flows of foreign direct investment so as to support sustainable development activities, including the development of infrastructure’.[51]
While many bilateral and some multilateral agreements on investment exist, a global agreement has proved to be more difficult to negotiate. In the mid-1990s, members of the Organisation for Economic Cooperation and Development (OECD) began negotiations for a Multilateral Agreement on Investment (MAI). The purpose of the proposed MAI was to establish a global regime for regulating transnational investment, based on the provisions of bilateral agreements such as the NAFTA or the 1994 Energy Charter Treaty.[52] A draft text was developed, however negotiations failed in 1998.
There are several reasons why the negotiations failed. In part, it was due to an inability of the members to successfully reconcile the concept of national environmental regulation of investment by the host state with the concept of prohibitions on expropriation or excessive state interference in foreign investment. It is also believed that a lack of involvement of non-government organisations (NGOs) was significant in bringing about the failure of the MAI.[53] Negotiations were conducted behind closed doors and in general did not include input from the wider international public. Because of the exclusion of NGOs from OECD negotiations, a campaign against the agreement was developed, which may have been influential in its ultimate failure. More recently the WTO has taken up the challenge of seeking to introduce such an agreement, however no such agreement has yet come into existence (discussed below).
The case law interpreting existing bilateral agreements such as NAFTA and the Costa Rica/US bilateral agreement reveals two important aspects of investment agreements between nations.[54] First, it reveals that national environmental laws may be challenged where they are seen to ‘interfere inappropriately with the property rights of foreign investors’.[55] Second, it reveals that implementation of international environmental obligations may not be sufficient reason to reduce the amount of compensation paid to investors who are adversely affected by environmental protection measures taken by the host country.[56] Both of these results have negative implications for environmental protection at the interface between investment and sustainable development. Therefore, this interface must be closely watched by those concerned with the promotion of sustainable development and is an area in which involvement from conservation NGOs in investment negotiations is essential.
Liberalisation of trade is based on the principle of comparative advantage. According to this concept, individual countries are able to produce different goods and services more efficiently than other countries. Therefore (as the argument goes) an international trading regime should remove national restrictions on trade between countries so that goods and services can be traded at prices that reflect efficient production. However, generally speaking, developing countries tend to specialise in labour-intensive and raw material-intensive industries, while developed countries tend to specialise in knowledge-based and capital-intensive industries.[57] Therefore, according to the principle of comparative advantage, trade liberalisation is most likely to result in a continued focus on those industries in such countries.
As explained by Correa and Kumar, FDI flows occur because of ‘differences in the levels of development and bundles of created assets’.[58] Essentially this means that TNCs or multinational enterprises (MNEs) possess a bundle of intangible assets such as global brand names, intellectual property or experience in organising complex tasks, and they are able to use such assets to their own benefit when operating in countries in which local enterprises do not own such assets. Therefore, the success of their investment is dependent on the level of economic and business development in their host country. In this way, when TNCs set up a business in a developing country, they may place themselves in a position of monopoly over local enterprises,[59] unless discriminatory policies between domestic and foreign investors are put in place by the host country. Under investment agreements between nations, such discriminatory policies would be discouraged, thus supporting TNCs in industry domination.
At the interface between trade and investment, FDI is seen as one way in which countries may service foreign markets other than through existing trade regimes.[60] By offering national treatment to both foreign and domestic investors (under trade law regimes), advantage is effectively given to foreign investors because of their monopolistic position in the market. Liberalisation of trade and liberalisation of investment are therefore interconnected as they both aim to reduce barriers to domestic markets, but achieve this goal in different ways. Both processes are part of the trend towards economic globalisation which is taking place at present.
The WTO has recently become interested in the relationship between trade and investment. Following the collapse of OECD negotiations on the MAI, the WTO Doha Ministerial Declaration of 2001 called for a decision to be made as to whether negotiations on the issue of a Multilateral Framework on Investment (MFI) ought to commence.[61] The Cancún Ministerial Conference was to reach that decision by consensus. However in the July 2004 meeting, study of the relationship between trade and investment was dropped from the negotiating agenda. At the time of writing, no new negotiations are taking place on this issue in the WTO.
The WTO set up three key processes through which to analyse and possibly regulate the relationship between the two:[62]
1. The Working Group on the Relationship Between Trade and Investment;
2. The Agreement on Trade-Related Investment Measures; and
3. The General Agreement on Trade in Services.
The Working Group on the Relationship Between Trade and Investment was established in 1996 during the Ministerial Conference in Singapore.[63] It was set up primarily to perform an analytical function where no negotiating mandate existed. Annex 1 to the Singapore Ministerial Statement sets out the objectives of the Working Group in terms of proposed areas of study.[64] According to the Statement, it was anticipated that the Working Group would be responsible for:
1. examining the implications of the relationship between trade and investment for development and economic growth;
2. examining the economic relationship between trade and investment;
3. taking stock of, and analysing existing regulatory instruments in place regarding the relationship between trade and investment; and
4. analysing outcomes of their work. This involves identifying common features and overlaps in existing international instruments, recognising the advantages and disadvantages of bilateral, regional and multilateral agreements on investment, examining differential rights and obligations of home and host countries, and analysing the relationship between existing and possible future international cooperation in the fields of investment and competition policy.
The Agreement on Trade-Related Investment Measures (TRIMs) was introduced during the Uruguay Round of WTO negotiations as one of the Multilateral Agreements on Trade in Goods. The primary purpose of the agreement is to address national regulation of TNCs. In this context, the TRIMs Agreement has implications for environmental regulation in developing countries, as it places restrictions on the domestic regulation of foreign investors.
While the mandate of the WTO is trade liberalisation between nations under GATT rather than regulation of investment, government measures controlling FDI are increasingly been seen as having a negative impact on this process by introducing ‘trade-restrictive and distorting effects’[65] into the GATT regime. TRIMs is aimed at removing national controls on TNCs to allow them to act globally. As such, it prohibits trade-related investment measures that are seen as being inconsistent with the general principles of GATT 1994 – Article III (national treatment) or Article XI (quantitative restrictions). The TRIMs Agreement is administered by the Council for Trade in Goods, and also provides for the establishment of the Committee on Trade-Related Investment Measures to monitor implementation by Member states.
At its inception, member states were given a specific period of time in which to comply with the objectives and provisions of the TRIMs. Developed country Members were given two years from the time of establishment of the WTO, developing country Members five years, and least-developed country Members seven years. During the Doha Round of negotiations, the least-developed country Members sought an extension of this period. This request was set out in the Ministeral Decision of the Doha mandate, which urged the Goods Council to ‘consider positively’[66] their request.
The Annex to the TRIMs agreement sets out in an Illustrative List examples of measures considered to be inconsistent with the principles of the GATT. According to the list, prohibited trade-related investment measures include measures which are ‘mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage’[67] and:
1. require foreign enterprises to purchase or use a certain volume or value of local products in their production (known as local content requirements); or
2. place restrictions on the import or export of products by the enterprise (known as trade balancing requirements).
Local content requirements might be those which specify a certain level of local content to be used by an enterprise based on an absolute amount, or an amount relative to the export values of the enterprise. Similarly, trade balancing requirements might specify the volume or value of imports allowed by an investor according to an absolute amount, or an amount relative to its levels of exports. Trade balancing requirements might also be those which restrict levels of exports, or restrict access to foreign exchange based on an amount relative to foreign exchange brought into the country by the enterprise. These kinds of measures have an impact on trade and it is therefore in the interests of the WTO to regulate such activities.
The General Agreement on Trade in Services (GATS)[68] was established under the Uruguay Round of GATT negotiations and regulates all forms of international trade in services. It implements the ‘most-favoured nation’ (MFN) principle, which is the principle of non-discrimination. In other words, each member state must treat its trading partners equally. In the context of trade in services, this means that where foreign competition is allowed in a particular sector, all service providers of WTO members should have the same opportunity to enter that market. A number of temporary exemptions (in principle, no more than ten years) apply to the MFN principle under the GATS.
The GATS categorises the types of provision of services which it regulates under four ‘modes’ of trading services. The third mode, ‘commercial presence’, deals with services that are traded by way of a foreign corporation setting up subsidiaries in another country, and providing services from that subsidiary. Essentially, this means that GATS regulates foreign investment for the provision of services.
The preceding discussion gives some background to the key international agreements and debates concerning the relationships between trade, investment and sustainable development. The purpose of this part is to analyse the interface between trade, investment and sustainable development, and to determine some of the potential implications for India arising from regulation of all three at an international or transnational level.
With the liberalisation of trade and investment globally, FDI is facilitating the development of India’s resources to a greater extent than it has been previously. This can have both positive and negative impacts on efforts to achieve sustainable development. On the one hand, increased foreign investment may contribute to increases in the growth of the Indian economy, levels of development and efficiency of production. It is believed that increased efficiency of production, as a result of greater competition, may result in efficiency in resource use and a reduction in the creation of waste.[69] Further, it could be argued that with increased economic growth and development, demand for better environmental quality also increases. This is based on the notion that although the poor are often affected to a greater extent by environmental degradation, they often lack the means to express their demand for better environmental protection measures. As the argument goes, where trade alleviates extreme poverty, the cycle of use of the resources in an unsustainable manner in order to survive in the short-term is broken, and environmental protection measures are able to be more effectively implemented.[70] Another argument for increased FDI is that with the transfer of bundles of assets from TNCs, some of those benefits are likely to ‘spill over’ to the domestic industry,[71] increasing economic growth in domestic industries, and even leading to transfer of environmentally sound technologies.
On the other hand, increased trade and investment (and the development that often accompanies it) has the potential to degrade the environment further by magnifying poor environmental regulation. This is known as the ‘race to the bottom’ phenomenon whereby multinational investors look to move production to countries with minimal environmental standards in order to reduce production costs associated with environmental compliance. This argument is based on the notion that where governments are seeking foreign investment, they may lower or fail to raise environmental standards for fear of losing such investment. Another argument put forward against liberalisation of trade and investment is that increased development encourages an environment whereby ‘with enough wealth comes the opportunity to consume wastefully’.[72] In this context, it can be seen that in those countries which are considered ‘developed’, levels of consumption are far greater than in those countries which are considered to be ‘developing’. The implication is that with economic growth, consumption is increased to a level which is unsustainable globally if resources are to be used at the same rate in all countries as they are in developed countries today. Further, FDI may have the effect of ‘crowding out’ domestic investments, thus leading to reduced economic growth in the host country’s local markets, which may impact on the rate of development of the host economy.[73]
These issues must all be considered in the debate concerning the interface between trade, investment and sustainable development. The relationship between the three needs to be rationalised in a way which promotes and enhances the effort to achieve development that is ecologically and socially sustainable in India. In this context, several aspects of international regulation of trade and investment appear at the forefront of the trade-investment-sustainability debate: environmental regulation of transnational corporations; eco-labelling and compliance with SPS measures; and agriculture (agrobiodiversity and the equitable sharing of resources).
One of the most controversial but pressing debates concerning the interface between trade, investment and sustainable development is the environmental regulation of foreign investors, or TNCs, and how such corporations can be held accountable for environmental degradation for which they are responsible. This issue was most dramatically highlighted in India through the Bhopal Gas Leak case of the 1980s.[74] In that case, many thousands of people were killed and many more were permanently injured, when a chemical plant operated by Union Carbide India (a subsidiary of a US parent company) leaked a toxic gas into the surrounding environment. The gas leak at Bhopal was probably the most disastrous of all industrial accidents. Yet it became clear over the course of the resulting litigation that no adequate mechanisms were in place, at an international level, to ensure that victims of such incidents were properly compensated and that the company responsible was held fully accountable.
Because of the magnitude of the Bhopal tragedy, the issue of environmental regulation of TNCs and foreign investors is particularly important for India. There is a need not only to require TNCs to follow the policy and legislative objectives of their host country, but also to impose obligations on TNCs to act responsibly according to international standards when engaging in FDI in a developing or middle-income country such as India.[75] For the purposes of achieving sustainable development in India, international standards are needed where national environmental regulation may not be as stringently legislated for or enforced as in home countries.
Several attempts have been made internationally to regulate the activities of TNCs, including the draft United Nations Code of Conduct for Transnational Corporations[76] and the OECD Guidelines for Multinational Enterprises.[77] In particular, negotiations concerning the United Nations Code of Conduct recognised the need for host nations to maintain control over their environment, when it was observed that ‘transnational corporations shall respect the national sovereignty of the countries in which they operate and the right of each state to exercise its permanent sovereignty over its natural wealth and resources’.[78] However, even if such instruments provide for responsibilities of TNCs, the reality remains that such instruments are still voluntary guidelines and codes of conduct, which do not impose any obligations on TNCs. In addition, the actions of TNCs are regulated to some extent by the TRIMS and GATS Agreements under the WTO. However, such agreements do not deal comprehensively with all of the issues involved in regulating investment globally.
There is a need for binding rules to be developed governing the conduct of TNCs when operating abroad. The first step in the process is to establish the appropriate forum for negotiations on such rules and how they are to be applied. At the time of writing, negotiations for an MFI or an MAI under both the WTO and the OECD appear to have come to a standstill. However, should such negotiations resume, the WTO may well become the forum for the debate on environmental regulation of TNCs. In 2003 India made a joint submission to the WTO Working Group on the Relationship Between Trade and Investment requesting that any such investment agreement not only seek to define the rights of corporations in their host countries, but also to impose obligations on such corporations.[79] Correa and Kumar highlight the fact that international agreements and negotiations concerning investment generally contain both promotional and regulatory provisions. On the one hand, they seek to liberalise investment, while on the other hand, they seek to regulate the activities of TNCs in host countries.[80]
Correa and Kumar state that the OECD model for an MAI, if approved
would have significantly restrained the room for manoeuvre of contracting parties to adopt, at the national level, policies with regard to the admission of FDI and to establish and modify conditions for the operation of foreign investors.[81]
It is therefore imperative that any multilateral agreement on investment which appears in the future addresses concerns relating to the ability of host countries to regulate the actions of foreign investors in order to ensure environmental protection. Further, it is argued that there ought to be provision made in such an agreement for national environmental protection measures even where they may disadvantage foreign investors over domestic investors (such as requiring foreign investors to obtain additional liability insurance).[82]
Issues relating to eco-labelling, environmental certification of products, and compliance with measures under the SPS Agreement exist at the interface between trade, investment and sustainable development in India. The concept of eco-labelling is sometimes seen as one way in which trade measures can be used to raise environmental standards of foreign investors in countries such as India, where standards and enforcement levels may be lower than in other more developed countries. As the argument goes, although environmental regulation in some circumstances in India may fall below the standards set by international labelling organisations, eco-labelling requirements may create an incentive for foreign investors conducting production in India to self-regulate in order to meet international environmental standards. In this way, liberalisation of investment can be used to overcome some of the trade barriers imposed on developing countries by eco-labelling requirements, and both economic growth and environmental protection can be encouraged in developing countries such as India.
At the same time, it is also argued that eco-labelling constitutes a non-tariff trade barrier instituted by developed countries as a form of ‘eco-colonialism’ through which developed countries exclude less developed countries from trade by imposing their own standards and views on what are acceptable levels of environmental regulation in an international context.[83] There is a need to find a balance between seeking better environmental performance of foreign investors through eco-labelling and maintaining market access for developing countries. There is also a need to create international standards which encourage sustainable development in developing nations, particularly in markets in which they specialise, such as agriculture. Because of growing requirements internationally for organic produce, developing countries or middle-income countries such as India could utilise this demand for the purposes of encouraging sustainable agricultural practices and achieving economic growth.[84]
Recently, debates on trade and investment have recognised that agriculture ought to be seen as more than just a vehicle for production of food and fibre as economic commodities. Liberalisation of trade and investment do not just affect the economic functioning of the agricultural industry, but also have impacts on other aspects of agriculture, such as environmental protection and conservation of biodiversity and food and livelihood security in developing countries. This concept has been termed the ‘multifunctionality’ of agriculture, and is defined by the OECD in the following terms:
Multifunctionality refers to the fact that an economic activity may have multiple outputs and, by virtue of this, may contribute to several societal objectives at once. Multifunctionality is thus an activity-oriented concept that refers to specific properties of the production process and its multiple outputs.[85]
Although it is a concept originally introduced by the EC during the lead-up to the Doha round of negotiations, multifunctionality of agriculture could be an important concept for India in addressing agricultural issues at the trade-investment-sustainability interface. As a country with a large agrarian economy, India is in a position to use the concept of multifunctionality to address key non-trade concerns which arise from promotion of the concept of sustainable development. Examples of such non-trade concerns include maintaining the rich genetic diversity of the Indian domestic agricultural industry, as well as protecting the livelihoods and food security of local farmers in promoting the equitable sharing of resources within India. Both of these concepts – protection of biodiversity and equitable sharing of resources – are fundamental to the principle of sustainable development.
Through the WTO’s Agreement on Agriculture (AoA), the international community is attempting to reduce national protection of domestic agricultural industries. The challenge for India in this process is to achieve a balance between opening up the international agricultural market in order to gain fairer access to foreign markets, protecting those whose livelihoods depend on agriculture, ensuring that unsustainable agricultural practices are not encouraged, and ensuring that national resources are shared equitably between stakeholders.
In pursuing sustainable development in the agricultural industry in India, two factors are most relevant to the trade-investment-sustainability debate:
1. Environmental protection and conservation of biodiversity in agricultural production (‘agrobiodiversity’) should be promoted.
2. Resources should be shared equitably so that those people who are dependent on agriculture as part of a particular community or cultural group are not disenfranchised when trade and investment liberalisation occurs.
Agricultural production has the potential to both degrade the natural environment, and prevent it from greater destruction as a result of industrialisation.[86] It also has the potential to either conserve or reduce the diversity of genetic resources. As highlighted by Damodaran, many agrarian economies in the countries of Asia and Africa are rich in genetic resources.[87] This concept may be referred to as ‘agrobiodiversity’ or ‘ecosystemic multifunctioning’. ‘Ecosystemic multi-functionality’ is defined by Damodaran as:
ecological diversity, characteristic of agricultural systems in developing countries, which involve integrated and symbiotic use of private and common property resources, for the generation of multiple crops and sources of energy, germane to the livelihood needs of human and animal communities.[88]
In India, ‘agro-ecosystems’ such as those in Central India, North-West India and the Chota Nagpur and Deccan areas are considered to be important in conserving agrobiodiversity and protecting the environment because of the use of traditional land practices which promote diversity of crops and sustainable land management.[89] For example, such land practices involve complementary uses of land for harvesting and for grazing, whereby in the post-harvest periods, lands convert to communal grazing lands, which in turn supplies manure and protein back to the soil. Traditional land practices have evolved to cope with changing climatic conditions such as drought or floods, and therefore are able to support subsistence communities in ways that industrialised agriculture cannot.
With the process of trade and investment liberalisation, there is a risk of large multinational or transnational agribusinesses entering the domestic market at the expense of local production. Where such investment involves the replacement of subsistence crops, rich in biodiversity, with non-diverse crops (or monocultures) such as genetically modified organisms (GMOs), the ‘agrobiodiversity’ and sustainability which exists today in the agricultural community in India is at risk of being lost. There is a need for special and differentiated treatment under trade and investment regimes with respect to agriculture for developing countries with genetically diverse and ecologically sustainable agrarian economies. This may require allowing continuing domestic support of non-commercial farming communities in such countries under the AoA.[90]
This last point raises the issue of liberalisation of trade and investment in agriculture and the impact it has on local farmers. It addresses the equitable sharing of resources in a way which ensures that the cultural and social aspects of agriculture are maintained. This is necessary particularly in regions of India where agriculture constitutes a way of life and culture, as well as providing a source of food and income at the local level.
Because of the economic and social dependence of many developing countries on agriculture, it is seen as an issue of great importance that developed and developing countries are differentially responsible for reducing national protection, with more flexibility given to developing countries in implementing WTO agreements. In many respects, the implementation of the AoA by developed and developing countries has not given effect to this concern for differential treatment, and farmers in developing countries are often disadvantaged by the impact of trade liberalisation in the agricultural sectors. This impacts negatively in terms of implementation of the principle of sustainable development, as resources are not being used or shared in an equitable way. Instead, developed countries are gaining access through trade and investment measures to resources in developing countries, while citizens of developing countries are losing access to the resources upon which they once survived.
Following the preceding discussions outlining key international instruments and aspects of the trade, investment and sustainability debates, and highlighting issues of current importance for India, it is useful to provide some concluding comments and recommendations arising from an analysis of these issues. This Part sets out such comments in an attempt to consolidate the issues presented above.
There is a need for greater involvement of NGOs in the trade, investment and environment debate in order to ensure that the objectives of sustainable development are fully realised. Such involvement should be more than merely participatory or by way of observer status, but should include meaningful contributions to trade and investment decisions concerning environmental protection or issues relating to sustainable development. It is of particular importance that representation is provided in the case of developing or middle-income nations such as India, where both environmental protection and sustainability are of urgent importance in raising the standard of living of all citizens.
Global organisations such as the WTO cannot continue to function without the input of the representatives of those whom their policies affect. This includes representatives of the environment. Representation from governments alone at meetings of the WTO is not sufficient in ensuring that the interests of the environment and those who depend locally on natural resources are heard.
This debate also raises the issue as to whether the WTO is the most appropriate forum for determining the ‘necessity’ of national environmental protection measures. Although the CTE makes provision for participation of some NGOs by way of observer status, ultimately trade decisions affecting the environment are left in the hands of trade experts, not environmental or scientific experts. In pursuit of balanced and fair decisions on issues surrounding the interface between trade, investment and sustainable development, there is a need for NGOs and experts to have the opportunity to meaningfully influence such decisions in more ways than simply providing submissions to the decision-making body.
In the context of liberalisation of foreign investment, regulation and accountability of TNCs for actions which degrade the environment of a host country is a primary concern in ensuring that the principles of sustainable development are adhered to and promoted internationally. Development of the OECD Guidelines for Multinational Enterprises or the UN Code of Conduct for Transnational Corporations may be one way forward in resolving this issue, however such instruments are voluntary and therefore non-binding on investors and home countries.
In any further negotiations concerning a MIF or MAI, it is important that such an agreement not only sets out the rights of TNCs, but also includes obligations for TNCs, particularly with reference to protection of the environment and human health. If such an agreement can create rights for TNCs or home governments to bring an action against a host government for breach of investment provisions, then in turn host governments ought to have the capacity to bring actions against TNCs or home governments in order to hold TNCs accountable for breaches.[91] This is particularly important, given that many TNCs or multinational corporations possess a large amount of economic and political power, yet operate outside the intergovernmental regimes which impose international responsibilities. There is potential for this to be achieved through a MFI negotiated under the WTO which places obligations as well as rights on TNCs and holds home governments accountable for the actions of their TNCs.[92]
Again, with respect to environmental regulation of TNCs, the question must be asked whether an organisation such as the WTO is the most appropriate forum for negotiations on a new MIF or MAI which has the potential to impact on domestic environmental laws. Given that such an agreement will have far-reaching implications for issues of national sovereignty as well as regulation of resource use, it must be contemplated whether the United Nations could in fact be a more appropriate forum in which all of these issues can be addressed together.[93] As Kumar explains, because there is a clear North-South divide on this issue due to the fact that developed countries tend to identify with the needs of investors and TNCs, while developing countries generally take up the position of the host country,[94] it is necessary to hold negotiations in a more neutral forum such as the UN rather than in a trade environment such as the WTO system.[95]
Finally, it should be noted that environmental regulation of TNCs necessarily involves appropriate provision for liability insurance. It is important that environmental liability insurance be required for foreign investors in India to ensure that any environmental victims of poor industry practice are adequately compensated and the site can be properly rehabilitated. However, this concept needs to be reconciled with the general provisions of the GATT, and the WTO rules where a conflict arises.
There is a need for the development of eco-labelling standards which are inclusive of all economies, or alternatively of standards which take into account the fact that economies differ across the globe. This may involve implementing differential treatment in standard setting to ensure that market access is not restricted under trade agreements for those companies operating in countries with different policy priorities. The use of a more streamlined international standard through an organisation such as the International Organisation for Standardisation (ISO) (to which India is a member) would be useful in resolving some of the issues surrounding eco-labelling and market access.
In determining whether national measures to protect human and environmental health which also impact upon trade are ‘necessary’ under the SPS and TBT Agreements, a change in structure of the decision-making process is necessary if the views of other interest groups, such as environmental NGOs or other stakeholders are to be adequately incorporated. Although the assessment under the SPS and TBT Agreements is based on ‘science’, it is still in the hands of the WTO to determine finally which scientific view they will subscribe to, and how necessary certain national environmental or health protection measures are. This creates a problem for implementation of the precautionary principle which is intrinsically linked with the pursuit of sustainable development. For example, on the issue of importation of genetically modified organisms (GMOs) a certain level of scientific uncertainty remains as to whether or not such organisms may be harmful to the environment. It is therefore questionable whether an organisation such as the WTO has sufficient scientific expertise to determine this matter, given that the scientific community itself is unable to reach a conclusion.
In short, there needs to be greater involvement of NGOs, experts and other interested parties in decisions under these agreements. Further, there needs to be greater transparency in the decision-making process which is currently operated in a closed-door manner.
There is a need for greater recognition through instruments such as the WTO Agreement on Agriculture for a differentiation between agribusiness and agriculture which exists for the purposes of subsistence or livelihood of producers.[96] Further, there needs to be special and differentiated treatment for developed and developing countries to ensure the protection of ‘agrobiodiversity’ in these countries, and to promote the equitable sharing of resources.[97] Strengthening subsistence agriculture and local, small-scale markets are important in promoting these aspects of the principle of sustainable development.[98]
Accordingly, future negotiations in the WTO should include submissions to amend the AoA in order to give greater effect to the principle of sustainable development. This may involve further defining terms such as ‘resource poor farmer’ (Article 6(2) and Annexure 2) and ‘regionally disadvantaged’ (Annexure 2) which are used in the Agreement in order to make special and differentiated treatment for agrarian economies in India possible under the Agreement. Similarly, the concept of ‘livestock’ under the AoA needs to be adjusted so as to incorporate the multiple and subsistence uses of livestock in agrarian economies beyond merely use as a factor of production.[99]
Finally, if the ‘ecosystemic multifunctionality’ argument is successfully advanced by countries like India with reference to their domestic non-commercial agricultural production, it may, as suggested by Damodaran,[100] be possible to use this concept to promote international funding, or ‘green financing’ to support traditional land practices.
[∗] BEnvMgmt/LLB (Hons) Macquarie University, Sydney. This paper was completed as part of an internship with the Centre for Environmental Law, WWF-India, New Delhi. The author wishes to thank Dr Nagesh Kumar (Director General, Research and Information System for the Non-Aligned and Other Developing Countries (RIS), New Delhi) and Rajesh Sehgal (Senior Law Officer, Centre for Environmental Law, WWF-India, New Delhi) for their input and sharing their thoughts in the preparation of this paper and Mr Tish Malhotra (Publication Officer, RIS, New Delhi) for his assistance in locating resources.
[1] World Wide Fund for Nature, WWF’s Trade and Investment Programme: New ways of making trade and investment work for people and the planet (2004) <www.panda.org/downloads/ policy/wwftip.pdf> 27 December 2004.
[2] Marrakesh Agreement Establishing the World Trade Organisation, opened for signature 15 April 1994, 1867 UNTS 154.
[3] General Agreement on Tariffs and Trade, opened for signature 30 October 1947, 55 UNTS 194 (GATT 1947).
[4] Agreement on Trade Related Investment Measures, WTO Doc LT/UR/A-1A/13 (1994).
[5] Agreement on Trade Related Intellectual Property Rights WTO Doc LT/UR/A-1C/IP/1 (1994).
[6] Agreement on Agriculture, WTO Doc LT/UR/A-1A/2 (1994).
[7] Agreement on the Application of Sanitary and Phytosanitary Measures WTO Doc LT/UR/A-1A/12 (1994).
[8] As at 16 February 2005: World Trade Organisation, Members and Observers (2005) <http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm> 23 April 2005.
[9] Shyam Divan and Armin Rosencranz, Environmental Law and Policy in India (2nd ed, 2001).
[10] GATT, above n 3, art XI.
[11] World Trade Organisation, ‘Understanding The WTO: Basics – What is the World Trade Organisation?’ (2004) <http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm> 21 December 2004.
[12] See European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WTO Doc WT/DS135/AB/R, AB-2000-11 (2001) for a recent analysis of this provision which favoured protection measures. This case found that a measure is ‘necessary’ if no alternative which would be either GATT – consistent or less GATT – inconsistent is reasonably available: Appellate Body Report, paras 170-71.
[13] Donna Craig, ‘Introduction to Trade and Environment’ in Donna Craig, Nicholas Robinson and Koh Kheng-Lian (eds), Capacity Building for Environmental Law in the Asian and Pacific Region: Approaches and Resources (2nd ed, 2003) vol II.
[14] Convention on International Trade in Endangered Species of Wild Fauna and Flora, opened for signature 3 March 1973, 993 UNTS 243 (entered into force 1 July 1975).
[15] Basel Convention On The Control Of Transboundary Movements Of Hazardous Wastes And Their Disposal, opened for signature 22 March 1989, UN Doc UNEP/IG.80/3 (entered into force 5 May 1992).
[16] Montreal Protocol on Substances that Deplete the Ozone Layer, opened for signature 16 September 1987, 26 ILM 1541 (entered into force 1 January 1989).
[17] Tuna/Dolphin I (1991) 30 ILM 1594; Tuna/Dolphin II (1994) 33 ILM 839.
[18] United States – Import Prohibition of Certain Shrimp and Shrimp Products, WTO Doc WT/DS58/AB/R (1999) (Report of the Appellate Body).
[19] Phillipe Sands, Principles of International Environmental Law (2nd ed, 2003) 976.
[20] Marrakesh Agreement, above n 2, Preamble.
[21] Doha Ministerial Declaration, WTO Doc WT/MIN(01)/DEC/1 (2001) paras 32-33.
[22] Report to the 5th Session of the WTO Ministerial Conference in Cancún, WTO Doc WT/CTE/8 (2003) (Report from the Committee on Trade and Environment).
[23] The effects of environmental measures on market access, especially in relation to developing countries, in particular the least-developed among them, WTO Doc WT/CTE/W/207 (2002) (Submission from India on paragraph 32(i) of the Doha Ministerial Declaration).
[24] Convention on Biological Diversity, opened for signature 5 June 1992, reprinted in (1922) 31 ILM. 822 (entered into force 29 December 1993).
[25] Other forms of environmental labelling include: ‘single-issue labels’ which specify one aspect of production, such as ‘dolphin safe’ tuna; and ‘negative labels’ which specify hazards or dangers in products, such as anti-smoking labels on cigarette packets.
[26] See, eg, Arthur Appleton, ‘Environmental Labelling Schemes Revisited: WTO Law and Developing Country Implications’ in Gary Sampson and W Bradnee Chambers (eds), Trade, Environment and the Millenium (2nd ed, 2002) 242.
[27] Agreement on Technical Barriers to Trade WTO Doc LT/UR/A-1A/10
[28] See generally, Doaa Abdel Motaal, ‘The Agreement on Technical Barriers to Trade, the Committee on Trade and Environment, and Eco-labelling’ in Gary Sampson and W Bradnee Chambers (eds), Trade, Environment and the Millenium (2nd ed, 2002) for a discussion of the relationship of the TBT with to eco-labelling standards and requirements.
[29] Regulated through the Code of Good Practice for the Preparation, Adoption and Application of Standards (Annex 3 of the TBT Agreement).
[30] Motaal, above n 28, 268.
[31] Ibid.
[32] Steve Charnovitz, ‘Improving the Agreement on Sanitary and Phytosanitary Standards’ in Gary Sampson and W Bradnee Chambers, Trade Environment, and the Millenium (2nd ed, 2002) 207.
[33] See United Nations Environment Programme, Rio Declaration on Environment and Development (1992) 31 ILM 874 (‘Rio Declaration’) Principle 15.
[34] See Charnovitz, above n 32, 228-9 for an alternative view.
[35] A Latin term meaning ‘friend of the court’. This term is usually used to refer to a process whereby interested people/organisations not actually party to proceedings submit information to that court to assist it in making its decision.
[36] Ibid 224.
[37] EC – Measures Concerning Meat and Meat Products (Hormones) WTO Doc WT/DS26, WT/DS48 (Report of the Panel); modified by AB-1997-4 (1998) (Report of the Appellate Body); Australia – Measures Affecting the Importation of Salmon, WTO Doc WT/DS18 (Report of the Panel); modified by AB-1998-5 (1998) (Report of the Appellate Body); Japan – Measures Affecting the Agricultural Products, WTO Doc WT/DS76 (Report of the Panel); modified by AB-1998-8 (1999) Report of the Appellate Body.
[38] Charnovitz above n 32, 209.
[39] Agreement on Agriculture, WTO Doc LT/UR/A-1A/2 (1994).
[40] See, eg, Craig, above n 13, 492.
[41] NAFTA (1993) 32 ILM 296, Art 104.
[42] See Sands, above n 19, 1005-1007 for a concise overview of this agreement.
[43] See, generally, Duncan Brack, ‘Environmental Treaties and Trade: Multilateral Environmental Agreements and the Multilateral Trading System’ in Gary Sampson and W Bradnee Chambers, Trade, Environment, and the Millenium (2nd ed, 2002).
[44] See, eg, Rio Declaration, above n 33, Principle 2 which reads: ‘States have ... the sovereign right to exploit their own resources pursuant to their own environmental and developmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction’.
[45] In re Union Carbide Corporation Gas Plant Disaster at Bhopal India in December 1984 634 F Supp 842 (SDNY 1986). Forum non conveniens is a Latin term meaning ‘inconvenient forum’. This is used to get a case heard in a forum which is more convenient than the one it is being heard in.
[46] See, eg, Pradeep Mehta, ‘Lessons from the MAI: A view from the South’ in Part IV ‘Environmental Regulation and International Investment’ in Halina Ward and Duncan Brack (eds), Trade, Investment and the Environment (2000).
[47] Sands, above n 19, 1058.
[48] North American Free Trade Agreement (1993) 32 ILM 296 (‘NAFTA’). See also the 1994 Energy Charter Treaty (1995) 34 ILM 381 (‘Energy Charter’) for similar provisions.
[49] Ibid Art 1114(1).
[50] Ibid Art 1114(2).
[51] World Summit on Sustainable Development, Plan of Implementation (2002) para 78.
[52] Energy Charter (1995) 34 ILM 381.
[53] See, eg, Damien Geradin, ‘Overview: A Lawyer’s View’ in Part III ‘Resolving Key WTO Issues’ in Halina Ward and Duncan Brack (eds), Trade, Investment and the Environment (2000); Jan Hunter, ‘Lessons from the Multilateral Agreement on Investment: A view from the negotiating table’ in Part IV ‘Environmental Regulation and International Investment’ in Halina Ward and Duncan Brack, above n 46.
[54] See, Ethyl Corporation v Canada, Jurisdiction Phase (1999) 38 ILM 708; S D Myers, Inc v Government of Canada, Second Partial Award P 311-12 (2002); Metalclad Corp v The United Mexican States, ICSID Case No ARB(AF)/97/1, Award (2000); Methanex Corp v United States, First Partial Award (2002); Compania del Desarrollo de Santa Elena S A v Costa Rica, ICSID, Award (2000) 39 ILM 1317.
[55] Sands, above n 19, 1072.
[56] Compania del Desarrollo de Santa Elena S A v Costa Rica, above n 54.
[57] Carlos M Correa and Nagesh Kumar, Protecting Foreign Investment: Implications of a WTO regime and policy options (2003) 126.
[58] Ibid.
[59] Ibid.
[60] Research and Information System for the Non-Aligned and Other Developing Countries (‘RIS’) ‘Cancun Agenda: Trade and Investment: The way forward for developing countries’ (2003) Policy Briefs 4.
[61] Doha Ministerial Declaration, WTO Doc WT/MIN(01)/DEC/1 (2001) paras 20-22.
[62] World Trade Organisation, Trade and Investment (2004) <http://www.wto.org/english/
tratop_e/invest_e/invest_e.htm> 12 December 2004.
[63] Established under the Singapore Ministerial Declaration WTO Doc WT/MIN(96)DEC (1996) para 20.
[64] Report (1998) of the Working Group on the Relationship Between Trade and Investment to the General Council, WTO Doc WT/WGTI/2 (1998) Annex 1.
[65] World Trade Organisation, Trade and Investment (2004) <http://www.wto.org/english/
tratop_e/invest_e/invest_e.htm> 12 December 2004.
[66] Ministerial Decision: Implementation-Related Issues and Concerns, WTO Doc WT/MIN(01)/17 (2001) Section 6.
[67] Agreement on Trade-Related Investment Measures, WTO Doc LT/UR/A-1A/13 (1994) (‘TRIMs Agreement’) Annex 1.
[68] General Agreement on Trade in Services WTO Doc LT/UR/A-1B/S/1 (1994).
[69] Aaron Cosbey, ‘The Trade and Environment Interface’ in Shahrukh Rafi Khan (ed), Trade and Environment: Difficult Policy Choices at the Interface (2002) 7-16.
[70] Ibid 9.
[71] Nagesh Kumar ‘Investment on the WTO Agenda: A developing country perspective and the way forward for the Cancun Ministerial Conference’ (2003) RIS Discussion Paper #56 5.
[72] Cosbey, above n 69, 10.
[73] Kumar, above n 71, 5.
[74] See Divan and Rosencranz, above n 5, Chapter 13 for a detailed discussion of the background and environmental and TNC issues in this case.
[75] See, generally, Correa and Kumar, above n 57 for a detailed discussion of the impact of FDI on national policy initiatives.
[76] United Nations Code of Conduct for Transnational Corporations (1984) 23 ILM 626. In Report on the Special Session (7-18 March and 9-21 May 1983) of the Commission on Transnational Corporations, UN Doc (E/1983/17/Rev 1 (1983), Annex II, 12-27.
[77] OECD Guidelines for Multinational Enterprises, reprinted in (2000) 40 ILM 237.
[78] United Nations, ‘The United Nations Code of Conduct on Transnational Corporations’, United Nations Centre on Transnational Corporations (‘UNCTC’) Current Series (1986) Series A, No 4.
[79] Governments of China, Cuba, India, Kenya, Pakistan and Zimbabwe, Submission to the Working Group on the Relationship Between Trade and Investment: Investors’ and home governments’ obligations, WT/WGTI/W/152 (2003).
[80] Correa and Kumar, above n 57, 30-31.
[81] Ibid 110.
[82] WWF International, Is the Multilateral Agreement on Investment Sustainable? (1997) cited in ibid 160.
[83] See, eg, Sachin Chaturvedi and Gunjan Nagpal, ‘Product Standards and Trade in Environmentally Sensitive Goods: A study of South Asian experience’ (2001) RIS Discussion Papers #22 for a discussion on developing country perspective on eco-labelling requirements and exclusion from certain markets.
[84] See, eg, Nick Robins, ‘Building Sustainable Markets’ in Halina Ward and Duncan Brack (eds), Trade, Investment and the Environment (2000) 58 for discussion on global importance of the organic produce market.
[85] Organisation for Economic Cooperation and Development (‘OECD’) Multifunctionality: Towards an Analytical Framework (2001) <http://www.oecd.org/dataoecd/43/31/1894469.
pdf> 22 December 2004.
[86] Biswajit Dhar, ‘The Non-Trade Concerns in the Agreement on Agriculture’ (2001) RIS Occasional Paper #60, 8.
[87] A Damodaran, ‘Ecosystemic Multifunctionality – A proposal for special and differentiated treatment for developing country agriculture in the Doha round of negotiations’ (2003) RIS Discussion Paper #60.
[88] Ibid 3
[89] Ibid 4.
[90] Ibid, eg, argument posed by Damodaran.
[91] See argument set out by Kumar, above n 71, 12-13. See also Fred Bergsten and Edward Graham, ‘Needed: New international rules for foreign direct investment’ (1992) 7(1) The International Trade Journal 124 cited in Kumar, above n 71, 12-13.
[92] See Correa and Kumar, above n 57, 155-157, for a list of ways in which investors could be given greater responsibilities under a possible MFI.
[93] See, eg, ibid for a discussion on the appropriateness of the WTO as a forum for negotiating a new MAI or MFI.
[94] Dr Nagesh Kumar notes that 74% of FDI outflows originate from the ten most industrially and technological countries: Kumar, above n 71, 3.
[95] Ibid.
[96] See, eg, Damodaran, above n 87.
[97] Ibid.
[98] See, eg, World Bank (Environmentally and Socially Sustainable Development Network), Netherlands Ministry of Foreign Affairs (Department for Environment and Water), International Centre for Trade and Sustainable Development and World Wide Fund for Nature (Macroeconomic Program Office) ‘From Trade Negotiations to Global Adjustment’ (2004) Preparatory Phase Summary Report 6.
[99] See, eg, Damodaran, above n 87, 8.
[100] Ibid 5-6.
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