Heavy Fuel: Trade and Environment in the GATT/WTO Case Law

• Date: 01 November 2014
• Author: Petros C. Mavroidis,Aaron Cosbey
• DOI: http://doi.org/10.1111/reel.12089
• Published date: 01 November 2014

Heavy Fuel: Trade and Environment in the GATT/

WTO Case Law

Aaron Cosbey and Petros C. Mavroidis*

This article discusses the evolution of case law regard-

ing the treatment of cases that the authors qualify as

‘trade and environment’ in the case law of the General

Agreement on Tariffs and Trade (GATT) and the

World Trade Organization (WTO). The main argu-

ment is that, as in many domestic jurisdictions, GATT/

WTO courts moved from an original ‘hostile’ position

towards environmental protection that incidentally

affected trade flows to a more nuanced, even friendly

attitude towards those measures that were legiti-

mately ‘green’. WTO courts, like other courts before

them, saw the signs of times. They did not have to

‘make’ law, though, in order to change their attitude

towards environmental concerns. They only had to

correct a clear mistake they committed in the late

1980s in the notorious tuna-dolphin dispute, and start

interpreting the GATT/WTO as it was meant to be by

its framers: societal preferences, to the extent they are

non-discriminatory, trump obligations to liberalize

trade.

LAW STOOD STILL (CASE LAW

MOVED . . . A LOT)

The framers of the General Agreement on Tariffs and

Trade (GATT),1for reasons that have adequately been

explained in the literature,2focused on the disciplining

of trade instruments (e.g., import and export quotas,

tariffs). Domestic instruments (e.g., environmental

policies) would be designed in national capitals and,

unlike tariffs, would not be the subject matter of

international negotiations. The only legal rule that they

should observe would be non-discrimination: they

would apply in the same way to both domestic as

well as imported ‘like’ goods. By contracting non-

discrimination with respect to domestic instruments in

the GATT, the framers wanted to avoid the erosion of

the value of tariff concessions negotiated internation-

ally. Indeed, what would be the value of lowering an

import duty on cars to 5%, if ‘Home’ could subsequently

impose a consumption tax of 0% on domestic cars,

while without any further justification imposing a con-

sumption tax on imported like goods of 25%? And why

would ‘Foreign’ pay consideration for Home’s import

tariff on cars without some insurance policy that it

would receive what it paid for?

Non-discrimination with respect to domestic instru-

ments was conceived as akin to the insurance policy

that Foreign was looking for. Home retains discretion

to regulate in an area, but retains no discretion as to the

class of products that would come under its regulations:

all domestic and imported ‘like’ goods would be

subjected to the same fiscal or non-fiscal regulatory

treatment.

Uncertainty persists, for example, with regard to the

level of taxation that Home will choose to impose on

cars. There is no uncertainty nevertheless, with respect

to the class of products that will be subjected to it.

Foreign, when negotiating import tariffs with Home,

knows that whatever level it negotiates will be the

maximum imposition that its products will be burdened

with beyond and above the impositions on Home’s own

like goods. Protection, an elusive notion by any reason-

able benchmark, thus becomes negotiable, and this is

the magic of the GATT.

Following their tariff negotiation, Home and Foreign

can go back to the drawing board and design any envi-

ronmental policy they wish. All they have to do is

ensure it applies in an even-handed manner to domes-

tic and foreign ‘like’ goods. This is the quintessential

attitude of the world trading system towards environ-

mental policies (and all other domestic instruments

indeed), and it does sound simple, trivial indeed. How

can it be then, that the panels of the GATT and the

World Trade Organization (WTO) could not get it right

from day one?

It is, of course, anything but easy to define the indepen-

dent variables here. Some Panels lost sight of the forest

described above by insisting on the understanding of

specific trees. Should ‘like products’ be understood as

* Corresponding author: Email: pm2030@columbia.edu.

1General Agreement on Tariffs and Trade 1994 (Marrakesh, 15 April

1994; in force 1 January 1995).

2See, e.g., J.H. Jackson, World Trade and the Law of the GATT

(Bobbs-Merrill, 1969); R.E. Baldwin, Non-tariff Distortions in Interna-

tional Trade (Brookings Institution, 1970); K. Bagwell and R.W.

Staiger, The Economics of the World Trading System (MIT Press,

2002); D.A. Irwin, P.C. Mavroidis and A.O. Sykes, The Genesis of the

GATT (Cambridge University Press, 2008).

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Review of European Community & International Environmental Law

RECIEL 23 (3) 2014. ISSN 2050-0386 DOI: 10.1111/reel.12089

© 2014 John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

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