EU Climate, Environment, Labour, Human Rights, United States

Green taxes, colour-blind trade rules

Palm OilIt’s not TTIP that will constrain our environmental rule-making. The WTO does that already. By Hosuk Lee Makiyama.








Trade rules and environmental protection have always been uneasy bedfellows. And like much of the broader trade debate in Europe these days, TTIP is the focal point of attention on this very matter. Civil society groups argue mutual recognition of food standards across the Atlantic could compromise the integrity of the EU’s food safety system, potentially leading GMO products or chlorine chicken to “leak” into the EU. Moreover, there is the question whether regulatory cooperation across the Atlantic could lead to watering down environmental standards on both sides.


The topic of “trade and environment” long predates TTIP. There is already a body of trade rules and jurisprudence under the WTO on the relationship between trade and environmental regulation. Before TTIP, environmental groups used to focus their advocacy on criticising the WTO for constraining governments right to regulate. There is some truth to that view, but multilateral rules deserve some credit too for upholding regulatory standards.


The right vs necessity to regulate?


To begin with, WTO rules explicitly grant each member the right to set its own ambitions for protecting the environment, and these ambitions may be as high as each country deems necessary. Under the so-called ‘general exceptions’ of the GATT and GATS (art XX and XIV respectively), the sovereign is practically free to use any means it has at its disposal – taxes, certification, labelling, slander, or even outright bans – to protect animal life, health, conserve natural resources, or “public morals”. This is how Saudi Arabia chokes all sale of alcohol, non-Sharia banking, and gambling, on the grounds of defending public morals – without violating any of its WTO commitments.


But a country can’t just go about such measures randomly. The key word here is “necessary.” In order to invoke GATT general exceptions (under article XX), WTO jurisprudence has set up a two-tier test: one must be able to prove the trade measure is actually indispensable to protect the environment; and one must do so in the least discriminating manner possible, by treating all countries alike.


In light of Europe’s concerns over TTIP potentially watering down its environmental regulations, it seems rather ironic that the US has been the defendant of all trade disputes concerning environmental protection: In the Shrimps/Turtles dispute, the US ban on shrimps caught with unsustainable methods was struck down by a WTO ruling in 2001 – not for blocking trade, but because the US had granted generous transition periods for its Caribbean neighbours, but not for other developing countries. The US Clean Air Act has also fell afoul of WTO rules in 1995, as it imposed stricter rules for imported gasoline than it did for domestically refined products. A Panel under the GATT (the predecessor to the WTO) ruled against a US certification scheme on “dolphin-safe” tuna in 1994 for assuming Dutch canned tuna was harmful by default, just because EU laws were different, and – arguably – laxer.


 What goes for tuna goes for Nutella?


WTO rules are also directly impacting domestic legislation. This spring, the French Parliament contemplated a proposal for a biodiversity bill that contains a ‘Nutella tax’ – a tax on “edible oil” from tropical regions, effectively blocking the import of palm oil, a key ingredient of the popular chocolate spread. As the upper and lower houses of the French parliament are currently amending the proposal into a compromise, the Senate rapporteur of the law, Senator Bignon, stopped to ask the question: Does this tax put us in trouble with the World Trade Organization (WTO)?


Senator Bignon’s question is a rare manifestation of foresight – at least for a parliamentarian. And his question is valid. The producing countries and the European food and cosmetics industry describe the ‘Nutella tax’ as protectionist and applying double standards: France has a powerful agro-industrial complex to protect, which farms olives and rapeseed for extracting oil. Given that the EU is making cuts to farming subsidies, it looks like France is seeking to compensate its farmers – at the expense of developing countries. France has already been caught holding the smoking gun before – the country supported EU dumping duties on biodiesel from Indonesia derived from palm oil, and was also a key proponent of the EU directives on renewable energy that discreetly disfavoured fuel made from foreign produce.


If the French tax passes into legislation this summer, it is guaranteed to be challenged by Asian and sub-Saharan countries in the WTO. France must explain why it singles out oil produced in tropical climates, or prove that French rapeseeds, olives or other food ingredients have never been made from cleared forests. France (represented in the WTO by the European Commission) may not only find it difficult to produce credible evidence. The question is whether France and the EU want to defend the ‘Nutella tax’ in the first place: WTO rules did not only save the exports of Dutch canned tuna. WTO rules have also helped France to successfully repeal discriminatory taxes on France’s main source of export revenues – wines – in Japan, Canada and India enacted in the name of “public health”. In the same manner that a WTO panel ruled in favour of French wines, it will also repeal a discriminatory Nutella tax.




Fundamentally, WTO rules do not necessarily conflict with green initiatives – as long as they actually have a reasonable chance to achieve what they claim to protect, and everyone is measured against the same standard. But in the real world, environmental laws are products of protracted political compromises between domestic regions and commercial interests, resigning to “we can’t do everything, but it’s at least something”.


In such compromises, foreign producers are easier to target than domestic producers. And here lies the main problem – the WTO Appellate Body has shown a particular contempt for governments who strain at a foreign gnat and swallow a home-made camel: France has turned a greater share of its territory – more than one-third – into farmland than any developing country. French farmers produce soy beans and rapeseeds that use ten times more land than palm oil for the same quantity of oil. Meanwhile, France accounts for just 1% of world imports of palm oil, whose carbon footprint is just a drop in the ocean compared to the diesel cars and trucks that France uses and exports worldwide.


This is not to say that France can do very little to save forests on the other side of the world. But development assistance and multilateral cooperation are likely to achieve more for biodiversity than trade restrictions that violate WTO rules. For example, Norway has pledged a billion dollars in aid in exchange for a moratorium on timber logging. But foreign aid and diplomacy are long-term projects, with no immediate political wins in French elections. They are also financed by overstretched government funds – not by the consumers.


Indeed, WTO rules set the limits for what a government may do in the name of environmental protection. But more importantly – the rules push governments to be courageous and consistent in their environmental policy, in a world where local politics don’t dare to ask the right questions. On this occasion, Senator Bignon is asking the right question – regardless of whether or not French opinion is ready for its answer.


Hosuk Lee Makiyama is Director at the European Centre for Interntional Political Economy in Brussels

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