International Trade and the Environment: Institutional Solutions

Eliza Patterson

Editors' Summary: To practice environmental law in the 1990s, it is necessary to be familiar with international trade. Trade concerns affect every aspect of environmental law from agricultural subsidies to the disparate impact of pollution abatement regulation on pricing. The following two Dialogues present an overview of the issues and insight on the relationship between international trade and the environment. The first, by a member of the Trade and Environmental Committees of the U.S. Council for International Business, explains how the historic tension between environment and trade can be alleviated by incorporating environmental concerns into the international trade framework. The second, by counsel to the International Trade Commission, delineates specific measures to ensure that environmental concerns are incorporated into international trade decisions. Together these Dialogues familiarize environmental lawyers with international trade and argue for unifying environmental improvement with liberal trade.

Ms. Patterson is a trade attorney with the U.S. International Trade Commission. She served as a resident scholar at the GATT Secretariat in Geneva. The views expressed in this Dialogue are hers, and do not necessarily reflect those of the U.S. government or the GATT Secretariat.

[21 ELR 10599]

International trade and environmental protection are rapidly growing in importance. This growth spawns intense debate over the linkages between these two critical areas. There is no doubt that trade has environmental implications and environmental measures have trade implications. So too, the rules governing the conduct of international trade have major implications for the environment and countries' ability to protect it. This Dialogue proposes specific suggestions for building a framework to incorporate environmental concerns into the international trade framework.¹

Introduction to GATT

The General Agreement on Tariffs and Trade, better known as GATT,² is the principal — in fact, the only — multilateral agreement setting forth rules governing the conduct of international trade. GATT also functions as a forum in which the over 100 member countries discuss trade problems, negotiate reductions in trade barriers, and address other matters that distort competition. The underlying objective of GATT is to maintain a flow of goods between parties.³ Since its entry into force in 1948, GATT has evolved in response to major changes in the world economic scene.

Member countries are in the midst of negotiations aimed at bringing GATT up to date by expanding its coverage to include "new areas": agriculture, investment, intellectual property, and services, and by "up-dating" certain rules to better address current governmental and industry practices. With the end of these negotiations in sight, member nations are turning their attention to another "new area" — the environment. They seek to minimize the impact of domestic environmental protection measures on trade liberalization.

Reacting to this focus, the environmentalists argue that GATT and its liberal trade policies are inimical to a healthy environment.⁴ While it is useful to focus attention on the intersection of trade and environmental policies, the environmentalist position is overstated and oversimplified. Although there are areas of conflict, with proper regulation, liberal trade and environmental protection are largely compatible.

The rules governing international trade embodied in GATT provide a comprehensive regulatory framework for governmental actions that affect trade both directly and indirectly. As such, they play a critical role in determining the environmental impact of international trade. Well-targeted rules can promote a proper balance of environmental and trade policy considerations, minimize the areas of potential conflict, ensure that trade generally enhances environmental protection, and limit adverse effects on liberal trade.

Environmentalists, no less than the liberal traders, should work to strengthen and reform the GATT framework of trade rules.

Relevant GATT Rules

While GATT does not specifically address the environment, many articles bear on environmental protection. Amending and clarifying these rules are critical to guarantee the future health of the environment.

Current Rules

The "cornerstone" of GATT is the principle of nondiscrimination, prohibiting discrimination among countries and against imports. A second basic principle is that where protection is given to domestic industry, it should be extended through the tariff, which is set at negotiated levels. A related provision is the general prohibition on import and export quotas. A major and growing role of GATT is the promotion of "fair" competition. For example, several articles and codes regulate the practices of "dumping" products on foreign markets⁵ and subsidizing domestic industries.⁶

While the aim of GATT is "to liberalize world trade,"⁷ it recognizes countries' rights to consider other policies and goals. Recognizing that governments may need to offer domestic industry temporary protection from imports, GATT spells out carefully defined circumstances in which countries may "escape" from their GATT obligations and impose import restrictions.⁸ GATT also recognizes that special treatment may be necessary for developing countries to assist their economic development.⁹ Finally, GATT provides exceptions from its obligations for certain public policy measures, such as protection of health and safety and conservation of natural resources.¹⁰

Resolution of trade disputes is a fundamental function of GATT. Heavy emphasis is placed on resolution through bilateral consultations. Only if this fails is there resort to a [21 ELR 10600] more formal trial-like proceeding with panels of experts ruling on GATT violations and issuing recommendations.¹¹

Negotiated Supplemental Rules

Over the years, agreements have been negotiated covering subjects inadequately dealt with in the basic GATT articles. Codes apply only to countries that sign them. Signatories need not be GATT members and GATT members need not be signatories. The Agreement on Technical Barriers to Trade,¹² more commonly known as the Standards Code, requires that technical regulations or standards, adopted for reasons of safety, health, consumer or environmental protection, or other purposes, as well as the testing and certification schemes related to them, do not create unnecessary obstacles to trade. The code contains its own dispute resolution procedures, which provide for technical expert groups to assist the panel in its role as judge.¹³

Recommended Amendments

The preamble of GATT states the objectives of the agreement: "raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of resources of the world and expanding the production and exchange of goods." Although it does not provide any specific right or obligation, the preamble is important in providing guidance to countries regarding policy decisions not explicitly or clearly covered by GATT rules. For example, "developing the full use of resources of the world and expanding production" can be read to encourage resource exploitation. Environmentalists should seek to amend this phrase to promote such environmental policy goals as conservation of exhaustible resources and sustainable development.

Article I sets forth the most-favored-nation (MFN) obligation. It requires that "any advantage, favor, privilege or immunity" granted by a member country to any product originating in or destined for any other country must be accorded to the "like product" originating in or destined for any other member country. The obligation applies expressly to customs duties and rules and to internal taxes, charges, and regulations affecting their internal sale, distribution, or use.

Article III provides the companion "national treatment" obligation, requiring that imported products receive the same treatment as that accorded "like domestic products" with respect to internal taxes and regulations and requirements affecting their sale, distribution, or use.

These two articles would seem to limit a country's ability to protect its environment in several ways. The critical concept is "like product." The term is not defined in GATT and has been interpreted on a case-by-case basis. Adequate environmental protection requires that countries be able to distinguish between products based on the environmental impact of both the product and its production method. Environmentalists should seek clarification that environmental impact is a relevant factor in defining "likeness" so that countries will be able to impose special fees and regulations on products based on environmentally harmful characteristics of their production process or an otherwise nondistinguishing characteristic of the good itself, such as the size or weight of a car,¹⁴ or sin the inclusion of proscribed substances.¹⁵

Under Article II, countries agree to limit their tariff rates on designated items to negotiated levels and are prohibited from imposing import surcharges. For the environmentalist, the article contains an important exception allowing charges on imports if they are equivalent to domestic taxes imposed on either the "like" domestic products or materials used in the manufacture of the imported product. This exception has been interpreted to allow countries to impose taxes on imports containing substances that are subject to domestic taxes on environmental grounds, so long as the amount of the tax is based on the quantity of that substance contained in the import.¹⁶

Charges equal to the cost of services rendered are also permissible, provided they are not for general fiscal purposes and do not represent indirect protection.¹⁷ This right specifically covers fees and requirements related to quarantine, sanitation, and fumigation.¹⁸ It is unclear whether fees and requirements for other, nonspecified purposes are permissible. Because adequate environmental protection may entail a variety of import and export fees and requirements, it should be clarified that the GATT list is illustrative only.

Article X basically requires the publication of all laws and regulations related to imports or exports, including those affecting their "sale, distribution, insurance, inspection, processing or use." Expanding these "transparency" requirements to include environmental regulations and the scientific information that led to the regulation would serve both environmentalists and liberal traders. The more information countries have about each others' environmental concerns and regulations, the more likely they are to adopt similar positions, thereby reducing the potential for conflict.¹⁹

[21 ELR 10601]

Article XI generally prohibits import and export quotas. The article specially exempts export prohibitions designed to relieve critical shortages of foodstuffs and other products essential to the exporting country.²⁰ Import restrictions on agricultural or fisheries products necessary to the enforcement of domestic programs to restrict the domestic production of either the "like" product or a product that uses the imported product are also exempt.

Article XI severely limits some common tools of environmental protection. The short list of exemptions should be expanded to include, inter alia, import bans on environmentally harmful products and those resulting from polluting processing or production methods,²¹ import bans to enforce international agreements,²² and export restrictions of hazardous substances.²³ The right to impose import bans to enforce international agreements might also be achieved by inclusion of a provision in an amended GATT or in a new code on environmental measures that in cases of conflict, international environmental agreements prevail over GATT trade agreements. There is considerable support for such a provision among trade specialists.

Article XVIII allows developing countries to grant tariff protection and other assistance to promote the establishment of industries, provided those actions are consistent with "policies of economic development designed to raise the general standard of living of their people." This article could prove very useful for environmentalists if "policies of economic development designed to raise the general standard of living" is interpreted to include policies designed to ensure environmental protection and to exclude development policies harmful to the environment. This would permit developing nations to adopt otherwise outlawed programs to assist industries in becoming environmentally friendly. It would also forbid environmentally harmful industrial development.

Article XIX, the "escape clause," allows countries to limit imports if "as a result of unforeseen developments and obligations incurred … under this [GATT] agreement any product is being imported into its territory in such increased quantities and under such conditions as to cause or threaten material injury to domestic producers of like or directly competitive products."²⁴ This article offers another potentially useful tool for limiting products that pollute or result from polluting processes. First, "unforeseen developments" must be interpreted to include changes in the exporting country's method of production to one less environmentally sound, or in scientific developments indicating that either the foreign production process or the product is unsafe.²⁵ In addition, "under such conditions as to cause or threaten serious injury to domestic producers of the like or directly competitive product" should be understood to include not only situations in which the competitive position of a domestic industry is adversely affected, but also instances when the environment is adversely affected. Because such an interpretation of the concept of "injury" in GATT is novel, language should be added specifically sanctioning import relief in cases of "environmental injury," rather than seeking to include environmental injury under the terms "injury to domestic producers."

Article VI and an interpretive code²⁶ deal with "dumping" (i.e., selling in another country at less than the price in the exporting country). GATT allows countries to impose offsetting duties on dumped imports if those imports also cause or threaten "material injury" to a domestic industry. Determining whether dumping has occurred and the amount of the offsetting duty is extremely complex. One major difficulty is determining which prices to compare. The rules and various interpretive statements recognize that flexibility is needed to allow price adjustments before determining if the product is dumped.²⁷

Environmentalists should insist that such flexibility include adjustment of the export price to incorporate (1) the value of [21 ELR 10602] the environmental resources used in the production, (2) the cost of the damage caused to the environment by production of the product, and (3) in cases in which the exporter faces less costly environmental requirements, the cost that would have been incurred had the exporter been required to meet environmental requirements prevailing in the importing country. More difficult than reaching agreement that such costs be included will be agreeing on how to determine their amount. There would be broad appeal for such provisions. They are consistent with thegenerally accepted notion that trade laws embody policy judgments and that countermeasures should be aimed at discouraging unacceptable policies and practices. Moreover, it is consistent with the "polluter pays" principle that the price of a good or service should fully reflect all negative environmental externalities.²⁸

GATT²⁹ and the Subsidies Code³⁰ negotiated in the mid-1960s generally prohibit subsidies on the export of industrial products, allow export subsidies of agricultural and other primary products³¹ to the extent they do not cause certain harmful trade effects, and allow domestic subsidies.³² The rules also provide that importing countries may impose countervailing duties against both export and domestic subsidies that cause or threaten "material injury" to an industry in the importing country.

Rules on subsidies offer the most fertile ground for adapting GATT to ensure environmental protection. Many governmental policies that affect the environment could usefully be defined as either implicit or explicit subsidies. To the extent a policy promotes environmental protection, it should be deemed nonactionable — not subject to countervailing duties. Policies that promote activity harmful to the environment should, on the other hand, be deemed actionable (i.e., countervailable).³³

Key among the governmental policies constituting implicit subsidies that should be categorized as countervailable are lax environmental standards³⁴ and provision of resources at less than their full value.³⁵

Explicit subsidies for environmental protection should, in contrast, be categorized as nonactionable or noncountervailable. To qualify, such subsidies would have to be linked directly to the elimination, avoidance, or reduction of the environmental nuisance. This category would include various forms of governmental assistance used as an incentive for polluters to alter their behavior or given to firms to help them comply with imposed standards. Typical forms of such subsidies are grants, soft loans, and tax advantages. It would also include funding of research and development.

The GATT provisions most frequently cited by trade experts as applicable to environmental issues are in Article XX. In recognition of the government's interest in promoting policies other than liberal trade, Article XX provides exceptions to basic GATT disciplines for, inter alia, "measures (b) necessary to protect human, animal or plant life or health; … (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restriction on domestic production or consumption; … (j) to address local or world-wide short supply." All of the exceptions are subject to two requirements designed to guard against abuse for protectionist purposes: the measures must not constitute either a disguised restriction on trade, or arbitrary or unjustifiable discrimination between countries where the same conditions prevail.

Much has been written by trade bureaucrats in the last year promoting Article XX as sufficient to permit nations to pursue their environmental goals.³⁶ Environmentalists should be skeptical. Article XX has been more criticized than used because of its nebulous language and the resulting confusion over what governmental actions it sanctions.³⁷

Whether the language covers environmental measures is, at best, unclear. Certainly Article XX does not cover the full range of policies aimed at environmental protection. Because the original drafters in 1947 did not intend the article to cover environmental protection, which was not then an issue, strained arguments are made to include particular environmental policy measures under the exceptions.³⁸

Rather than tinkering with clarifications and minor amendments, environmentalists should seek to include a provision in Article XX specifically allowing a country to impose measures "relating to"³⁹ protection of the environment, [21 ELR 10603] both its own and that of the world. The requirement that a measure "relates to" protection of the environment should be met if the measure is consistent with, and a part of, the framework of environmental policies of the nation imposing the measure. Such a "standard of proof" is sufficient to guard against the imposition of protectionist measures under the guise of environmental protection and it preserves each country's right to decide its own environmental policies. Environmentalists' concerns that GATT-imposed qualifications on the imposition of environmental measures would violate a country's sovereign right to determine its own environmental policies are overstated. Neither the current GATT rules nor proposed changes currently under negotiation in the Uruguay Round would ultimately result in a country being forced to change its policy. At most, international bodies of experts might rule that a particular policy was not GATT-consistent and recommend it be changed. If a country chose not to comply with this recommendation, its trading partners might be authorized to retaliate with trade restrictions of their own. In fact, retaliation is rarely authorized.

Although likely to be quite controversial, it would be useful to add language specifying that in the case of environmental measures, the obligation not to arbitrarily or unjustifiably discriminate between countries where the same conditions prevail does not prohibit differential treatment of countries based on their environmental policies. Such language would permit trade restrictions to be used to enforce international environmental agreements and to impose leverage on other nations to change their environmental policies. There is, however, strong opposition in the trade community to the use of trade sanctions for environmental purposes.

In part due to the well-recognized deficiencies of Article XX, a code on standards⁴⁰ was negotiated during the Tokyo Round of multilateral negotiations. The code creates an international discipline designed to minimize the trade-distorting effects of divergent national regulations, standards, and testing and certification systems. Unlike Article XX, the code specifically covers environmental protection and recognizes the legitimacy of governmental policies aimed at environmental protection.⁴¹ The code provides that in addition to the two conditions imposed by Article XX — "measures must not constitute arbitrary or unjustifiable discrimination between countries where the same conditions prevail," nor be a "disguised restriction on international trade"⁴² — environmental regulations must be "necessary" to environmental protection. The requirement of "necessity," designed to prevent "abuse" of the covered standards for protectionist purposes, imposes significant limitations on the ability of nations to impose environmental standards, and should be amended to a broader term, such as "related to," or clarified to allow a wider range of measures than those that can be shown to be absolutely essential.⁴³

As measures to protect the environment proliferate, there will be an increasing number of disputes over their trade effects. It is therefore critical that there be an effective dispute settlement mechanism that fosters consultations and conciliation in the GATT tradition. Any dispute settlement mechanism applicable to environmental measures, be it in the GATT articles or in a code, should provide the country defending its environmental measures ample opportunity to explain its policies and actions, offering data, evidence, and experts. Similarly, those challenging the regulation should have an opportunity to present evidence that the policies are flawed or can be accomplished with less adverse trade effect. Either party should have the right to request the use of independent experts to help mediate the dispute. Ultimately, however, if no agreement can be reached, the "defendant" must be allowed to maintain its measures and policies.

A majority of disputes would likely be settled through the exchange of information. The sharing of data and explanations will also serve to promote environmental protection.

Conclusion

The framework of international trade rules embodied in GATT has major significance for environmental protection. Some of the articles offer useful tools for achieving environmental protection; however, they are far from adequate to ensure that protection is maximized. To do so will require numerous clarifications and amendments. Amending GATT is a difficult process requiring agreement of the over 100 members. An alternative approach would be to negotiate a new code or agreement. This has the advantage of binding only those that choose to sign, thereby diminishing resistance by the opponents that choose not to sign. It also makes it possible for non-GATT signatories to join. A code has the further advantage of being a flexible vehicle that could contain both new rules and interpret GATT articles and codes to apply to environmental measures and policies. It also lends itself to the creation of a special dispute resolution mechanism, perhaps the single most important area of the trade rules for ensuring that environmental protection thrives.

In the next few years the linkages between international trade and the environment will be analyzed and discussed by many international organizations and governments. GATT offers the most fruitful forum for environmentalists concerned with ensuring that international trade advances environmental protection. Their task is not an easy one. Many changes are necessary throughout the GATT articles and codes. The approach most likely to be successful, therefore, is the negotiation of a new code amending some of the current rules and clarifying the interpretation of the others. Fortunately, no more consciousness raising is necessary. GATT has already set in motion various studies and discussions that will form the basis for more formal negotiations.⁴⁴ Because the goal of most of the participants is [21 ELR 10604] to ensure that the adverse effects of environmental protection on trade are minimized, it is critical that environmentalists ensure that positive environmental improvements throughout the new framework are maximized.

1. Kyle McSlarrow's companion Dialogue in this issue of the Environmental Law Reporter establishes the need for an institutional framework for resolving conflicts between trade and the environment.

2. Oct. 30, 1947, 61 Stat. (5), (6), T.I.A.S. No. 1700, 55 U.N.T.S. 194 (entered into force Jan. 1, 1948).

3. While GATT is often said to promote "free" trade, a more accurate term is "liberal" trade because GATT allows for numerous, albeit narrowly defined and tightly regulated, restrictions on the flow of goods.

4. See McSlarrow, supra note 1, at 21 ELR 10589, and accompanying text for a discussion of the trade and environmental perspectives.

5. See infra note 26 and accompanying text.

6. See McSlarrow, supra note 1, at 21 ELR 10589, for a discussion of general international trade principles.

7. GATT INFORMATION AND MEDIA RELATIONS DIVISION, GATT SECRETARIAT, THE GATT, WHAT IT IS, WHAT IT DOES (1990).

8. GATT art. XIX.

9. Arts. XVIII, XII and XIV, Part IV, and the "Enabling Clause." Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries; Decision of Nov. 28, 1979, GATT 26 BISD 203-05 (1980).

10. GATT art. XX.

11. GATT arts. XXII, XXIII.

12. GATT, 26 BISD 8 GATT 26 BISD 8 (1980).

13. As part of the ongoing Uruguay Round negotiations, GATT member countries are negotiating new rules aimed at reducing the adverse trade effects of sanitary and phytosanitary regulations. Because these rules are being negotiated, they are not discussed in this Dialogue.

14. In the mid-1950s, the United States complained about a French internal tax that applied only to automobiles of large horsepower, which turned out to be almost exclusively U.S.-made. No useful precedent was created because the issue was resolved through negotiations. GATT Docs. L/520; SR. 11/16, at 163 (1956).

15. To justify such measures under Article XX, the discrimination must be "necessary" for the protection of the environment. See infra notes 39 and 43 and accompanying text. In the case of polluting processes, Article XX(b) applies to measures designed to protect health and safety in the country of importation, not to protect the global environment or conditions in the country of export.

16. A GATT case challenging the imposition by the United States of a tax on imports of a group of chemical derivatives taxed in the United States to provide revenues for the Superfund cleanup was held to be GATT-legal under this exception. GATT rejected the European Community's claim that the tax was unjustified because the pollution created in the production of the imported chemical derivatives did not occur in the United States. GATT Doc. L/6175, June 5, 1987.

17. GATT art. VIII, 1(a).

18. GATT art. VIII, 4(h) provides: "The provisions of this Article shall extend to fees, charges, formalities and requirements imposed by governmental authorities in connection with importation and exportation, including those relating to: … (h) quarantine, sanitation and fumigation."

19. Support for such a sharing of information led to the establishment of the International Register of Potentially Toxic Chemicals (IRPTC) in Geneva, a central information clearinghouse on hazardous substances. Countries agreed to notify the IRPTC of their domestic regulatory actions, the reasons for the actions, and the likelihood that exports of the hazardous substances will occur.

20. See McSlarrow, supra note 1, at 21 ELR 10589, for discussion of export restrictions.

21. Import bans on environmentally harmful products could possibly be justified under Article XX(b), particularly if the article is amended as suggested in this Dialogue.

22. Such an extension would be necessary to cover measures taken under the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer (Arts. 4:1, 4:2, as reprinted in INT'L ENV'T REP., Reference File, 21:3155 (BNA)) and the 1989 Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal (Art. 4:5, as reprinted in INT'L ENV'T REP., Reference File, 21:3703 (BNA)), which contain provisions mandating bans on trade in covered items with nonparties. Bans on products subject to international conventions aimed at conservation may be justifiable under Article XX(g), but only if an equivalent ban applies to domestic production. A GATT panel interpreted the Article XX(g) exception narrowly in a ruling against the U.S. ban on tuna and tuna products from Canada. The panel held that although tuna was an exhaustible natural resource and there was an international convention, the import ban covered more species than did the domestic restrictions and there was no evidence that the ban was "imposed in connection with" restrictions on domestic consumption or that it was "primarily aimed" at conservation. GATT, 29 BISD 91 (1983).

23. Article XX(b), as more fully discussed in infra notes 36-39 and accompanying text, might be invoked as justification for export controls on hazardous products where it can be shown that it is reimported — the circle of poison problem. It is not clear, however, that the provision would cover bans on products that have no further contact with the exporting country. In 1989, GATT created the Working Group on the Export of Domestically Prohibited Goods and Other Hazardous Substances. There are indications that an agreement may be reached providing that hazardous products banned from domestic sale may be banned for export.

24. See J. JACKSON, WORLD TRADE AND THE LAW OF GATT 559 (1969).

25. A useful precedent is the Hatters' Fur case involving increased imports of ladies' hats resulting from style changes in which it was held that "unforeseen developments" included major changes in fashion affecting the competitive situation. The report by the dispute settlement panel was adopted by the GATT Council as document GATT/CP/106/P12.

26. Agreement on Implementation of Article VI of GATT, popularly known as the "Antidumping Code." The code, negotiated in 1967, sets forth certain definitions of terms used in Article VI and establishes standards for the procedures used to impose duties.

27. If the exported product is not sold in the home market, the rules call for constructing a price based on "production costs" plus additions for selling costs and profit, with due allowance made for differences in conditions and terms of sale, taxation, and other differences affecting price comparability. GATT art. VI, 1(b)(ii). While this provision applies only to situations in which there are no home market sales, it shows flexibility in determining the price of the export. This flexibility is supported by provisions of the Antidumping Code that "[d]ue allowance shall be made in each case … for differences affecting price comparability." GATT 26 BISD 173.

28. In a GATT case challenging the U.S. Superfund tax, a GATT panel dismissed an argument by the European Community that GATT required nations to follow the polluter-pays principle. That the European Community felt it useful to make the argument at all is a sign that inclusion of rules following that principle will be welcomed, and perhaps that inclusion of the principle will find backers.

29. GATT arts. VI, XVI.

30. Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade, GATT 26 BISD 56 (1980).

31. "Primary product" is "any product of farm, forest or fishery, or any mineral in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade." GATT, Ad. art. XVI, § B:2.

32. The code specifically recognizes the right of signatories to achieve certain social and economic policy objectives through the use of domestic subsidies, provided they seek to avoid harm to other signatories. Code art. 11:1-2.

33. A thorough study of agricultural and industrial policies is needed to identify those that constitute subsidies, implicit as well as explicit, and to evaluate their environmental impact.

34. Defining what is the proper environmental standard and what constitutes "lax" will be a difficult international negotiation. One possibility would be to allow each importing nation to use its own environmental standards as the guidepost, imposing duties on products benefiting from foreign standards that it regards as less protective of the environment. If the exporting nation disagreed with the judgment that its regulations are less protective of the environment, it would be free to bring a complaint before GATT. In such a case, the burden should be on the exporting country to show, through objective scientific evidence, that its standards achieved an equivalent level of environmental protection.

35. Valuing such implicit subsidies is clearly difficult, particularly in the international context where countries differ significantly in the value they assign to the environment.

36. See, e.g., Trade and the Environment, Issues Arising With Respect to the International Trading System, OECD Doc. TD/TC(90)14, 3 July 1990; Joint Report on Trade and Environment, OECD Doc. COM/ENV/EC/TD(91)14/REV2, Apr. 29, 1991; Statements to GATT Council May 29, 1991 on Trade and the Environment, by the United States, Australia, and New Zealand. (These statements do not yet have official designations. They are available from the GATT Secretariat.)

37. See McSlarrow, supra note 1, at 21 ELR 10589.

38. Id.

39. The term "necessary" as used in connection with measures to protect health and safety should be avoided as too restrictive. "Relating to" has been interpreted by a GATT panel as implying a wider range of measures than only those that could be characterized as necessary or essential. Canada-Measures Affecting Exports of Unprocessed Herring and Salmon, Report of the Panel adopted on Mar. 22, 1988 (L/6268), GATT 35 BISD 98 (1989); see McSlarrow, supra note 1, at 21 ELR 10589.

40. See supra note 12 and accompanying text.

41. The code does not cover standards drafted in terms of processing and production methods (PPM), a common occurrence for environmental standards. It does provide, however, that a dispute settlement case may be brought on the grounds that a standard is drafted in terms of PPMs rather than in terms of characteristics of a product in order to circumvent the code's obligations. Code art. 14.25.

42. Standards Code, Preamble.

43. See supra note 39; see also McSlarrow, supra note 1, at 21 ELR 10589.

44. In July 1989, the GATT Council created the Working Group on the Export of Domestically Prohibited Goods and Other Hazardous Substances, GATT 36 BISD 402, 403 (1990). In early 1991, the European Free Trade Association requested the reactivation of the GATT Working Group on Environmental Measures and International Trade (GATT Doc. L/3622/REV1, C/M/74), which was established in 1971 but never met. Since that time the GATT Council has met several times on the request and countries have developed lists of issues to be discussed. However, while there is a general acceptance that GATT will discuss trade and the environment in some forum, there is as yet no definitive approval for reconvening the working group.