wto: issue related to environment and trade

7/31/2019 wto: issue related to environment and trade

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Vivek College Of

Commerce

SEM II (2011-12)

ECONOMICS PROJECT

TOPIC WTO: ISSUES RELATED TO

ENVIRONMENT AND TRADE

SAHAYASABILA. NADAR

T.Y.B.COM- C

ROLL. NO- 359


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WTO: Issues related to Environment and Trade, Roll.No-359

Vivek College of Commerce T.Y.B.Com C Page.No-1

CONTENTS

Reason to choose this topic Introduction Discussions of the Committee on Trade and Environment Work programme of the Committee on Trade and Environment Market access and environment Trade in domestically prohibited goods Multilateral environmental agreements and trade measures Trade rules versus environmentally sound technologies and products GATT/WTO provisions on environment and market access: implications for

developing countries

Promoting sustainable development by devising mutually sustainable tradeand environmental policies

Trade and sustainable development An outline of a South-South agenda for sustainable development Implications of environment-related issues in a future comprehensive round

for developing countries of the ESCAP region

The environmental agenda of the EU Multilateral environmental agreementsand WTO

Conclusions Reference


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Reason to choose this topic

The purpose of this paper is to introduce some of the key concerns involved in this

relationship and address the central issue: namely, the role of the North-South debate within

the trade-environment context. Economic integration was not high on the agenda when

efforts were being made to reconstruct the world trading system. GATT of 1948 did have an

indirect reference to the environment in the form of an exception clause under Article XX,

which allowed countries to side step the normal trading rules under certain circumstances.

However, the environment was not discussed until 1972 when it was put on the agenda in

preparation for the United Nations Conference on the Human Environment, held in

Stockholm.

Besides mandating the GATT Secretariat to prepare, under its own responsibility, an

analytical contribution to that Conference, the GATT Council established the Group on

Environmental Measures and International Trade (EMIT). However, this working group had

no work plan and never convened a meeting until 1991.

Environmental issues, except for the issue of domestically prohibited goods (DPGs) which

caught attention in the 1980s, had a low priority during the first four decades of GATT.

However, environmental issues gained prominence in the early 1990s, starting with the tuna-dolphin dispute between Mexico and the United States.

At the Marrakesh Ministerial Meeting in April 1994, the ministers gave WTO a mandate to

examine the relationship between the multilateral trading system and environmental policies

and measures, and to determine whether any modifications to the trading rules were required

to make trade and environmental policies mutually supportive. As a result, the Committee on

Trade and

Environment (CTE) was established in January 1995 and a work programme was outlined.


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been grouped into two clusters: the first on market access and the second on linkages

between the multilateral environment and trade agenda.

Work programme of the Committee on Trade and EnvironmentThe Committee on Trade and Environment has an agenda of 10 items for discussion:

1. The relationship between trade rules and trade measures used for environmental

purposes, including those in MEAs.

2. The relationship between trade rules and environmental policies with trade impacts.

3. a) The relationship between trade rules and environmental charges and taxes.

b) The relationship between trade rules and environmental requirements for products,

including packaging, labeling and recycling standards and regulations.4. Trade rules on the transparency (that is, full and timely disclosure) of trade measures used

for environmental purposes, and of environmental policies with trade impacts.

5. The relationship between the dispute settlement mechanisms of WTO and those of MEAs.

6. The potential for environmental measures to impede access to markets for developing

country exports, and the potential environmental benefits of removing trade restrictions and

distortions.

7. The issue of the export of domestically prohibited goods.

8. The relationship between the environment and the TRIPS Agreement.

9. The relationship between the environment and trade in services.

10. The relations of WTO with other organizations, both non-governmental and inter-

governmental. Since its creation in 1995, the Committee has been meeting at least twice a

year; however, there is a widespread feeling that so far CTE has not implemented its

mandate. The lack of concrete results achieved so far stems from the fact that many of the

developed countries want to ensure that areas of interest to them should be addressed and

progress made. CTE has been caught in a logjam for some years: some developing countries

have been demanding a discussion on issues affecting market access, while other have been

insisting on multilateral environment agreements or demanding a focus on all 10 items.

The deliberations at CTE, while of limited relevance to the wider trade concerns of

developing countries may nevertheless have some implications for their trade promotion

programmes. The next few paragraphs summarize the CTE discussions, which have so far

been inconclusive, on some items that would be of interest to developing countries in the

ESCAP region.


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Market access and environment

The potential of environmental measures, including product requirements, standards and

technical regulations, eco-labeling, packaging and recycling requirements, to affect

negatively market access for the products of developing countries has been discussed. Thereis widespread concern among developing countries that environmental measures and

requirements may adversely affect their competitiveness and limit market access

opportunities for their products.

Also, CTE emphasized the impact of standards related to sanitary and phytosanitary measures

(SPS) and technical barriers to trade (TBT) on market access of developing countries. It has

observed that poverty is a basic cause of environmental degradation in many member

countries, and that the contribution trade can make to the eradication of poverty, by raising

income levels, is an indispensable requirement for the promotion of sustainable development.

Therefore, restricting market access by enforcing environmental requirements might be

counterproductive with regard to the overall objective of bringing about sustainable

development.

In view of these factors, CTE recognized that special attention should be devoted to the

environmental benefits of initiatives that could enhance the trade performance of countries

which remain only marginal participants in world trade. Further work in this regard is needed

to ensure that the implementation of environmental measures does not result in protectionism

and create unnecessary barriers to the import of goods from developing countries.

Trade in domestically prohibited goods

Domestically prohibited goods (DPGs) are products that are either banned or have severe

restrictions on their use in the country of origin, for instance, certain pesticides, cosmetics

and pharmaceuticals; however, they are freely exported to other countries. Merchants of such

materials in rich countries are still producing these goods and exporting them to poor

countries, thus putting the health and lives of millions at risk.

Ironically, the issue of DPGs was one of the first in the debate on trade and environment; it

has been discussed for the last two decades, but vested interests in countries exporting such

dangerous substances do not want to resolve it. Even in CTE, discussion goes on without any

resolution or forward movement.


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An international agreement to check the movement of these products across borders is a

pressing need. While the issue should be given first priority by those caring for the

environment, unfortunately this is not the case.

Multilateral environmental agreements and trade measures

Different views have been expressed on whether or not any modification of the WTO rules is

required to accommodate trade measures adopted pursuant to an MEA. Some countries,

including those in the EU, are demanding an amendment to GATT Article XX entailing an

additional paragraph (k), which refers to an understanding on the relationship between trade

measures taken pursuant to MEAs and WTO rules. Alternatively, they are calling for an

amendment to Article XX (b), to introduce a reference to measures necessary to protect the

environment and to measures taken pursuant to MEAs. However, most developing countries

have called the debate on MEAs a non-issue. According to them, this is a problem that does

not need fixing. Of the more than 200 MEAs, only 20 or so actually regulate trade or contain

trade measures. Of those that do have such provisions, even fewer are of notable significance

to the environment-trade interface. Further, developing countries claim that all MEAs are

working effectively without WTO intervention, and there is not a single example of an MEA

that had been prevented from coming into being as a result of WTO; therefore, WTO should

focus on more pragmatic issues as they arise. Additionally, GATT Article XX allows for

MEAs to take measures necessary for the protection of the environment. Thus, there seems

to be no immediate need to clarify or amend Article XX. For the majority of developing

countries, failure to comply with environmental obligations stems from a lack of technical

and financial capacity. Therefore, a hierarchy of measures should be recognized, starting with

positive measures, such as financial flows, transfer of technology, technical assistance and

capacity-building, and ending with trade restrictions as a last resort.

Trade rules versus environmentally sound technologies and products

An important issue, which has been discussed by CTE, is the relationship between trade rules

and environmentally sound technologies and products.

Emphasis has been placed on the generation, access to, and transfer of environmentally sound

technologies and products (EST&P), including provisions for financial and technology

transfers in selected MEAs. CTE has recalled the need to promote effective and adequate

protection of intellectual property rights and the objectives of the TRIPs Agreement with


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reference to its Preamble. It also has emphasized that the protection and enforcement of

intellectual property rights should contribute to the promotion of technological innovation

and to the transfer and dissemination of technology, which is of mutual advantage to

producers and users of technological knowledge, in a manner conducive to social and

economic welfare and to a balance of rights and obligations.

GATT/WTO provisions on environment and market access: implications

for developing countries

Under GATT, the usual focus of trade and environment discussions is on Articles I (most-

favored-nation treatment), III (national treatment) and XX (general exception clause). In

addition, the Uruguay Round agreement on TBT (the standard code), SPS measures andTRIPs have environmental implications and, in turn, market access implications.

1. GATT Articles I and III

Article I, which codifies the MFN treatment principle, states, among other things, that any

advantage, favor, privilege or immunity granted by any contracting party to any other country

shall be accorded immediately and unconditionally to the like product originating in or

destined for the territories of all other contracting parties. Article III calls for national

treatment on internal taxation and regulation between imported and domestic products so as

not to afford protection to domestic production. Both of these articles categorically mention

non-discrimination in terms of like products; however, the concept of like products itself has

become a matter of debate. Environmentalists argue that it is possible to produce like

products using different process and production methods (PPMs), including environmentally

damaging one s . Therefore, some environmental groups are demanding discrimination

among products based on PPMs, and a clause for the same in WTO. Currently, WTO does

not permit countries to impose trade restrictions on the basis of PPM standards. However,

developing countries are opposing any such effort to include PPMs within the preview of

WTO, as they are concerned about possibility of PPMs becoming non-tariff trade barriers.

Exporters in developing countries are apprehensive that their products may be denied access

to overseas markets or they may incur high adjustment costs in order to maintain such access

to markets. Allowing PPM-based trade practices would give many countries a greater

opportunity to protect their industries unfairly against foreign competition. Under the pretext

of environmental concerns, some countries might penalize other countries which do not

import certain goods from their domestic industries by enacting new regulations.


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In fact, in the famous trade and environment dispute (tuna-dolphin) between the Mexico and

United States, the GATT Dispute Settlement Panel in 1991 concluded that the ban on

Mexican tuna by its northern neighbor violated the national treatment requirement of GATT

Article III, which pre-empts trade measures based on production practices. The United States

had previously banned

Mexican tuna imports because the Government of Mexico was not taking steps to prevent the

killing of dolphins while catching tuna. Mexico argued that its right to sell tuna in the United

States had been violated, and had asked for the GATT Dispute Settlement Panel to adjudicate

the matter. In September 1991, the GATT

Panel concluded that the United States was in violation of its GATT obligations. However,

Mexico decided not to pursue the case further and the Panels report was not adopted.

GATT Article XX

Article XX, entitled General exceptions, allows States, subject to certain conditions, to

depart from GATT obligations in order to serve legitimate policy objectives, that is,

circumstances in which countries can impose trade restrictions, which would otherwise be in

breach of the terms of GATT. Two of the general exceptions with the greatest potential

relevance to the environment are as follows:

Exception (b) is concerned with the necessity to protect human, animal or plant life or health,

and exception (g) is related to the conservation of exhaustible natural resources, if such

measures are made effective in conjunction with restrictions on domestic production or

consumption. However, the chapeau of Article XX was designed in such a manner that the

GATT-inconsistent measures do not result in arbitrary or unjustifiable discrimination or

constitute a disguised restriction on international trade.

In the shrimp-turtle case, a ban by the United States on shrimp and shrimp products from

some developing countries was justified under Article XX by the WTO Appellate Body.

The shrimp-turtle case

In January 1997, India, Malaysia, Pakistan and Thailand took the United States to the Dispute

Settlement Panel of WTO, arguing that countrys ban on the import of shrimp and shrimp

products, pursuant to Section 609 of US Public Law 101-162, was in violation of WTO

obligations. In 1996, the United States had imposed a unilateral ban on shrimp and shrimp

products from countries which did not meet the criteria required under its national law.


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According to Section 609, the Department of State of the United States was asked to certify

countries that had a sea turtle protection programme comparable to that of the United States.

The certification process also demanded that turtle kills of exporting countries not exceed the

turtle kills of American fisher folk, and recommended that fisher folk use turtle excluder

devices (TEDs) to minimize turtle kills.

The rulings of the WTO Dispute Settlement Panel in this case were against the United States,

but subsequently their intensity was diluted. In April 1998, the Panel held that the import ban

on shrimp and shrimp products was clearly a threat to the multilateral trading system and

consequently was not within the scope of measures permitted under the chapeau of Article

XX. On 12 October 1998, the WTO Appellate Body overruled the initial Panel in its

reasoning, but not in its result.

Judicially, the Appellate Body did not criticize the Congress of the United States, but rather

that countrys implementing agency, the Department of State, which drafted the applicable

guidelines. The Body held that the ban was discriminatory only in the manner in which it had

been imposed, and reversed the Dispute Settlement Panels ruling that the action was not

justified under GATT Article XX.

In a way, the Body accepted that shrimps could be differentiated on the basis of the process

by which they are caught: in aquaculture, in the wild, in boats equipped with TEDs. This

differentiation opened the door to new trade disputes based on processes or production

methods. The ruling implied that countries could impose trade bans on the basis of PPMs.

Agreement on Technical Barriers to Trade

The Uruguay Round Agreement on Technical Barriers to Trade seeks to ensure that technical

regulation and standards, and their testing and certification processes, do not create

unnecessary obstacles to trade. It encourages countries to use international standards, except

when such standards are ineffective or inappropriate means for the fulfillment of the

legitimate objective being pursued.

In such cases, member countries are required to post their standards regulations, if the

regulations are likely to have significant trade effects. Another important point made in the

text is that voluntary standards would also be subject to the transparency/notification

obligations. This requirement would be of particular importance in the case of eco-labeling

schemes.

Another important feature of the agreement for developing countries in the ESCAP region is

Article 12.1, which provides for special and differential treatment for developing countries.


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control anti-competitive practices in contractual licenses. However, in some cases, the

special rules excluding the patentability of some specific processes may not provide balance

with regard to obligations undertaken by developing countries.

Agreement on Agriculture

Adopted during the Uruguay Round, the Agreement on Agriculture (AoA) seeks to reform

trade in agricultural products and provides the basis for market-oriented policies. In its

preamble, the Agreement reiterates the commitment of members to reform agriculture in a

manner which protects the environment. Under the Agreement, domestic support measures

with a minimal impact on trade (known as Green Box policies) are excluded from

reduction commitments. These include expenditures under environmental programmes,

provided that they meet certain conditions. The exemption enables members to capture

positive environmental externalities.

Promoting sustainable development by devising mutually sustainable trade

and environmental policies

Why sustainable development? The term sustainable development means different things to

different persons. The major difference is between environmentalists and developmentalists.

The former believe that, for development to be sustainable, the environment must occupy the

top place in the hierarchy of priorities. Developmentalists believe that, in the face of

underdevelopment, environmental protection measures have a lower priority than

development per se. It is also said that poverty is the biggest polluter.

Trade and sustainable development

The central concept of sustainable development was introduced to the world by the

Brundtland Commissions famous report entitled Our CommonFuture, which reads thus:

Sustainable development seeks to meet the needs and aspirations of the present without

compromising the ability to meet those of the future. Far from requiring the cessation of

economic growth, it recognizes that the problems of poverty and underdevelopment cannot

be solved unless we have a new era of growth in which developing countries play a larger

role and reap large benefits. The second sentence has been italicized in order to add

emphasis, because, more often than not, the international community tends to forget it.


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An outline of a South-South agenda for sustainable development

In order to achieve sustainable development, a balanced approach has to be taken towards the

economy, ecology and equity. The following are items which should be on any agenda for

sustainable development in the South.(a) Economy

(i) Fair terms of trade;

(ii) Honest implementation of existing WTO agreements, especially those concerning

agriculture and textiles for which the South enjoys natural advantages;

(iii) Proper implementation of special and differential treatment provisions, and, if

necessary, incorporation of changes in these provisions to help developing countries in

general, and least developed countries, in particular;

(iv) Technical assistance and enhanced cooperation in matters relating to implementation of

existing WTO agreements. A clear understanding of development-related implications of

implementation of existing agreements is required;

(v) An institutional price-support mechanism for protecting those countries whose economy

is heavily dependent on single commodity exports (for example, small island economies). At

times, a sudden drop in the world price of commodities (for example, copper) will lead to a

drop in growth rates in many countries. Also, diversification of the export basket is

required;

(vi) Removal of tariff escalation and tariff peaks is necessary to promote diversification of

exports from the South as well as for stopping the over-exploitation of natural resources;

(vii) Currently, there is not much hindrance to the movement of capital across national

boundaries. There has been spectacular growth in foreign direct investment in the last

decade. However, the movement of another factor of production, labor, is not free. Yet, the

free movement of labor (for example, in activities such as health services and repair jobs)

would help in bringing about sustainable consumption and production patterns in the North as

well as employment generation and poverty alleviation in the South;

(viii) The application of non-tariff barriers should be restricted as far as possible. If there is

any distortion in trade, then such a distortion should be addressed in the source itself.

Restriction on the movement of goods is not a remedy;

(ix) The issue of foreign direct investment should be addressed by taking into account the

development dimensions relating to the social, environmental and cultural aspects of

investment and economic growth.


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(b) Ecology

(i) The transfer of environmentally sound technologies and practices. In this regard,

provisions for technology transfer and financial assistance under different multilateral

environmental agreements (for example, the Montreal Protocol and Basel Convention) should

be explored in detail;

(ii) A ban on the export of domestically prohibited goods. In the case of toxic waste,

regulation under the framework of the Basel Convention and Prior Informed Consent

Procedure should be followed strictly. Furthermore, inter-governmental agencies (such as

UNEP) should assist the developing and least developed countries in formulating, enforcing

and monitoring regulatory mechanisms vis--vis trade in toxic wastes;

(iii) When there is a conflict between the conservation of natural resources and their

commercial exploitation (even in the public interest), provisions under the Convention on

Biological Diversity should be preferred over those of the WTO agreement on TRIPs.

(c) Equity

(i) The developed countries should adhere to their commitment to provide 0.7 per cent of

their GNP per annum in overseas development assistance (ODA). UNDP, in association with

national NGOs, should monitor the utilization of such assistance, and develop an evaluation

index to distinguish between bad performers and good performers with regard to

implementation of ODA- funded development programmes;

(ii) As for heavily indebted poor countries, there should be a once and for all amortization of

their existing debts. Furthermore, the financial resources generated under this scheme should

be used for human resources development, such as education and health care, and a proper

monitoring mechanism should be developed under the aegis of UNDP and national NGOs;

(iii) As poverty is one of the most important causes of pollution, direct poverty alleviation

programmes should be developed as people-centered programmes. In other words, citizens

right to development should be given top priority;

(iv) Countries should adopt policies regarding social safety-nets while opening their economy

to international trade. Stated simply, policies on liberalization and globalization should be

accompanied by necessary social and economic policies directed towards safeguarding the

interests of the poor and minimizing social exclusion.


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Implications of environment-related issues in a future comprehensive

round for developing countries of the ESCAP region

In the near future comprehensive round, it is unlikely that the environment as an issue will be

discussed; however, some countries, including those in the EU, supported by others such as

Japan, Norway, Republic of Korea and Switzerland might try to raise it. These countries

have a three-point agenda including MEAs, eco-labeling and the precautionary principle.

However, the EU proposal in this regard has some inherent weaknesses, which include not

having an agreed definition of what constitutes an MEA and the effectiveness and necessity

of trade measures. Such proposals could affect the balance of rights and obligations in the

system.

Developing countries, including those in the ESCAP region, have been arguing that even inthose MEAs which do have trade measures, these are to be chosen only when alternative

measures become ineffective. The first alternative should be positive measures, such as a

financial mechanism for the transfer of technology and the sale of final products. Therefore,

there seems to be no urgent need to discuss the issue of MEAs in trade negotiations. On eco-

labeling, many countries, including developing ones, feel that the issue is a complex one and

the labeling requirements place a disproportionate burden on the trade of developing

countries. The issue raises many questions, for which there are not adequate answers;

further, it cuts across other items, such as transparency, competitiveness, market access and

the relationship between environmental policies having significant trade effects and WTO

provisions. Similarly, the precautionary principle, with its potential for misuse without

appropriate balances, will prove particularly difficult to put into operation at the international

level. In many respects, the tradition of risk assessment, with its emphasis on a carefully

constructed record, is more appropriate for international organizations than for national

economies. Nevertheless, it is critical to recognize that risk assessment as practiced in the

international arena will never be the same as risk assessment practiced in a single country.

Although the United States has criticized the EUs proposal on the environment as an issue,

claiming that it extends far beyond health protection for consumers and in fact creates

onerous and impractical regulatory barriers, that country does not seem to promote anything

which could run counter to WTO rules.


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The environmental agenda of the EU Multilateral environmental

agreements and WTO

The European Union (EU) considers it necessary to ensure that, when there is a dispute

concerning environment-related trade measures, the interests and the specificity of trade and

environment are taken into account and that one does not jeopardize the fulfillment of the

legitimate objectives of the other. In this context, it has demanded the following:

An amendment to GATT Article XX, entailing an additional paragraph (k), which refers to

an understanding on the relationship between trade measures taken pursuant to MEAs and

WTO rules; and/or

An amendment to Article XX (b), to introduce a reference to measures necessary to protect

the environment and to measures taken pursuant to MEAs. Such an amendment also refers toan understanding on the relationship between trade measures taken pursuant to MEAs and

WTO rules.

Eco-labeling and PPMs

The position of the EU is that, under their current voluntary form, eco-labeling schemes

based on a life-cycle assessment should be allowed per se by existing WTO rules.

The EU has proposed that two possible options should be considered by CTE with a view to

ensuring an adequate level of transparency in the development and operation of voluntary

eco-labeling schemes based on a life-cycle assessment:

(i) Seeking full coverage by the technical barriers to trade agreement, and

(ii) Negotiating an ad hoc instrument, such as a code of conduct.

Precautionary approach

The European Unions aim regarding the Precautionary Principle is fourfold. It seeks to

outline the EUs approach to using the Precautionary Principle; to establish EU guidelines for

applying it; to build a common understanding of how to assess, appraise, manage and

communicate risks that science is not yet able to evaluate fully; and to avoid unwarranted

recourse to the Precautionary Principle as a disguised form of protectionism. Importantly, the

EU emphasizes that, in the world of risk management, it is a false dichotomy to suggest that

there is a choice between a scientific approach and using the Precautionary Principle.

Instead, the Precautionary Principle is an essential element within science-based risk

management. In view of these aspects and the strong resistance from the developing world, it

is unlikely that the environment will be included as an issue for discussion in the agenda of

the next trade round.


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Vivek College of Commerce T Y B Com C Page No 16

Conclusions

Some people argue that liberal trade is adversely affecting the environment; however, the fact

of the matter is that generally it is not trade that is at the root of environmental degradation,

but rather unsustainable production and consumption patterns. Therefore, the key to the

achievement of environmental benefits is the development of more sustainable patterns of

production and consumption. As far as WTO is concerned, it has formulated the single most

important set of rules governing international trade and is therefore at the centre of the global

debate seeking to define the relationship between trade and the environment. WTO/GATT

agreements do not prevent any country from imposing necessary measures to safeguard the

environment, as detailed in Article XX (b) and (g). In such cases, the rules and regulations

that apply to imported commodities must be the same as those applied to domesticallyproduced commodities. However, in any case, WTO does not allow application of unilateral

measures to address global environmental issues. Poverty is the basic cause of environmental

degradation in many member countries. The contribution that trade can make to the

eradication of poverty by raising income levels is an indispensable requirement for the

promotion of sustainable development. There is a need to ensure that environmental

protection is not used as a cover for protectionism, and that trade, environmental and

development policies are mutually supportive. Before specifying any environmental

requirements in international agreements, clear and strong provisions for technology transfer

and financial assistance should be made. Additionally, the principle of common but

differentiated responsibility should also be kept in mind. Some feel this principle should be

applied to an examination of the introduction of new trade-related environmental measures,

which could create high adjustment costs for developing country exporters. Others have

noted that all countries have the sovereign right to make their own judgement on the

standards which they apply within their own territory and that, in this regard; there is a need

to ensure flexibility and fairness in the implementation of sustainable development strategies

in all countries.

Reference

http://www.wto.org

http://www.apec.org.au

http://www.citizen.org

http://www.unescap.org

http://www.cid.harvard.edu
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