Sustainability and the WTO

Is the World Trade Organization’s (WTO) legal framework jeopardising the fight against climate change? If the question sounds provocative, it is because when addressing environmental sustainability issues discussing the actual capability of international trade law is essential.

The key objective of the WTO - and its funding principle - is the progressive liberalization of trade, not product discrimination according to the different Process and Production Methods (the so-called PPMs) to incentivize trade of “eco-friendly” goods. Indeed, one of the WTO’s main provisions entails non-discrimination among products and Countries through the Most Favoured Nation Treatment principles (MFN), which by definition does not allow a different treatment between goods that have been produced using inefficient energy practices - or fossil fuels - and goods produced using environmentally sustainable methods. Arguably, broader carbon adjustment measures could be justified under the general environmental exceptions clause of General Agreement on Tariffs and Trade (GATT), Art. XX, without violating WTO requirements. As a result the answer is no: WTO law does not prevent countries from taking immediate and effective action to tackle climate change.

Within the WTO framework, energy efficiency can be easily regarded as a determining factor for a product’s “properties” and “qualities” under the criterion of the physical characteristics of the products, commonly used to determine likeness of products. Moreover, since the list of the four criteria used by the WTO adjudicatory body to determine the likeness among products is not finished nor closed, because the jurisprudence is constantly evolving, a dispute settlement panel might - in light of the global concern about sustainability - consider to include energy efficiency as an additional criterion.

The feasibility and lawfulness of the process is supported by the US – Shrimp case. On that occasion, the WTO Appellate Body made clear that environmental measures distinguishing products on the basis of their PPMs can be WTO-compliant under the above mentioned general exceptions clause if they are enacted in good faith and with the coordination or cooperation efforts of the affected exporting states. But, the consequences that such a policy might have for countries with little ability or interest in aligning with such agreements, like the Kyoto Protocol and the Paris Accords, is that they will continue to export goods manufactured using environmentally harmful methods.

In addition, the EC – Asbestos case indicates that public policy objectives, like climate mitigation, and the health risks associated with a product can shape the interpretation of “likeness”. Thus, the decisions issued by the Appellate Body can legitimize measures of discrimination between non-product related (NRP) PPMs, meaning that identical products can be manufactured through different methods having different environmental footprints - such as electricity. That being said, such differentiation should be applied in a sufficiently flexible manner to permit compliance as well as transparency. Being able to discriminate between products manufactured in different ways could allow importing countries to apply different duties and tariffs, which is currently not possible for similar products, and discourage trade of products from inefficient PPM's.

In this scenario, it is more likely for the WTO legal framework to implement PPM distinctions when the environmental sustainability argument is relevant, rather than use it as a greenwashing attempt to increase credibility towards the WTO itself or to disguise State’s potential protectionism aims. It appears reasonable for policy makers to try to find a multilateral solution first, rather than imposing unilateral measures which could distort the ongoing and politically sensitive negotiations of future international agreements on climate change.

With this in mind, adding the environmental and energy criterion as a form of discrimination seems the better and controlled option to adjust the existing law because it it incentivises the trade of more sustainable and energy efficient products. Besides, the tight time frame dictated by climate change should add impetus and encourage the Appellate Body to accommodate the existing case law without the need to draft a new system from scratch. Ultimately, the implementation and progressive institutionalization of sustainability criteria to determine the likeness of products - and therefore the possibility for a discrimination in case of different NRP PPM’s - may overturn the wary and cautious attitude that most of the public has towards the WTO and international organisations.