Back to Session 8: Trade and the Environment

IMF, GATT; WTO

IMF: International Monetary Fund:

"The IMF was created to promote internatioal monetary cooperation; to facilitate the expansion and balanced growth of internatioal trade; to promote exchange stability; to assist in the establishment of a multilateral system of payments; to make its general resources temporarily available to its members experiencing balance of payments difficulties under adequate safeguards; and to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members."

"The International Monetary Fund (IMF or Fund) and the International Bank for Reconstruction and Development (IBRD or World Bank) were both established at the United Nations Monetary and Financial Conference, held at Bretton Woods, New Hampshire, on July 1-22, 1944. The two were created to oversee stability in international monetary affairs and to facilitate the expansion of world trade. Membership in the World Bank requires membership in the IMF, and they are both specialized agencies of the United Nations. The World Bank was given domain over long-term financing for nations in need, while the IMF's mission was to monitor exchange rates, provide short-term financing for balance of payments adjustments, provide a forum for discussion about international monetary concerns, and give technical assistance to member countries. These functions are still generally true of both organizations, although the policies determining how they are carried out have been modified and amplified over time.

The Fund's legal authority is based on an international treaty called the Articles of Agreement (Articles or the Agreement) which came into force in December 1945. The first Article in the Agreement outlines the purposes of the Fund and, although the Articles have been amended three times in the course of the last 47 years prior to 1998, the first Article has never been altered.

The IMF started financial operations on March 1, 1947. Drawings on Fund reserves were made by 11 countries between 1947 and 1948, although there were no drawings in 1950 and very few in the following years. During this time the Fund worked on its drawings policies. One outcome was the stand-by arrangements, established in 1952, modified in 1956, and reviewed periodically since then. Stand-by arrangements provide a procedure for drawing on Fund resources with conditions based on a structural adjustment program for the borrower country. Stand-by arrangements became the model for other lending procedures designed by the Fund to meet the needs of its members.

By the mid-1970s, the Fund found itself becoming more of a lending institution than originally envisioned. The Fund's ability to meet the needs of its members was tested when the Organization of the Petroleum Exporting Countries (OPEC) quadrupled the price of crude oil in 1973-1974. Prices were increased again in 1979 and in 1980. This altered the international flow of funds as the OPEC countries' monetary reserves accumulated rapidly. At the same time, the industrial countries experienced strong inflationary pressures. These pressures were addressed by an increase in interest rates and a reduction of imports. This resulted in balance of payments deficits for many of the developing countries, which were paying more for oil, paying higher interest rates on the loans from the industrial countries, and finding reduced markets for their exports. In response to this situation, the IMF created an Oil Facility in 1974, and enlarged it in 1975, to aid members in balance of payments difficulties. In addition, an Oil Facility Subsidy Account was established for the poorest countries to alleviate the cost of borrowing under the Oil Facility. During the 1970s, although the oil price shocks placed more countries in balance of payments difficulties and forced many of the developing countries to borrow not only against the Fund, but also against private banks which were receiving a surplus of OPEC petrodollars, it was generally perceived at the time that the debt cads would be short-lived. It was not until Mexico threatened to default on its loans in 1982 that the world monetary community realized the extent and depth of the crisis. Throughout the 1980s the Fund played an increasingly larger role, not only as "lender-of-last-resort," but also as mediator with debtor countries in relation to creditor nations and private banks.

In the mid-1980s the Fund's lending operations increased dramatically. Stand-by arrangements are typically for one to three years, but the exigency of the debt crisis caused the Fund to devise programs for adjustment over longer periods. These are known as extended arrangements and, with other medium-term programs, can be arranged through the Structural Adjustment Facility or the Enhanced Structural Adjustment Facility. The terms of a structural adjustment program, or stabilization program, are known as conditionality. Programs include quantified targets or ceilings for bank credit, the budget deficit, foreign borrowing, external arrears, and international reserves. They also include statements of policies that the member intends to follow. Conditionality came under detailed scrutiny during the 1980s as more and more developing countries adopted structural adjustment programs and later were unable to meet the terms of the agreement. The philosophy of the Fund was criticized as being too oriented to the industrial economies and not adapted to developing economies. During the late-1980s several plans were put forth, involving not only the Fund but the creditor nations and commercial banks as well, to reduce the debt and the debt service payments of the debtor nations. In 1989 the Fund developed new debt reduction guidelines, providing Fund support for commercial bank debt and debt service-reduction operations by member countries. The debt strategy is still being assessed and its success or failure has not been determined."

GATT: General Agreement on Tariffs and Trade

The Origins of GATT

From GATT to ITO

The Origins of GATT:

"The General Agreement on Tariffs and Trade (GATT) was first signed in 1947. The agreement was designed to provide an international forum that encouraged free trade between member states by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes. GATT membership now includes more than 110 countries.

Consideration of GATT's relationship to environmental policy is an emerging concern in trade and environmental policy circles. Until the recently concluded Uruguay Round of GATT negotiations, the word environment did not appear in the GATT text. Several provisions and sections of GATT may be relevant to environmental issues, however. The following sections of GATT are often referenced in the examination of trade-environment issues."

The forces which were to later result in of GATT began in 1934 when the United States signed the Reciprocal Trade Agreements Act (RTAA). The treaty was signed ratified by the Congress in the interest of facilitating the negotiation of bilateral trade agreements. In the years immediately following the US decision to sign on to the RTAA, the volume of bilateral trade under the act was somewhat limited.  However, the volume of trade negotiations increased in the 1940's with the outbreak of World War II as the US partnered with Great Britain to expand international trade. The innovations to the RTAA developed by the US and the British government during this period were called  the General Agreement on Tariffs and Trade (GATT), Built upon the foundation of the RTAA, GATT served as a "temporary" agreement upon which a framework of trade rules and regulations could be formed.

From GATT to ITO

According to historical records, "after World War II, the United Kingdom and the United States submitted proposals to the Economic and Social Council (ECOSOC) of the United Nations regarding the establishment of an international trade body that was to be named the International Trade Organization (ITO). That is, perhaps, why the GATT is often referred to as a UN related body and its documents are sometimes mistakenly referred to as UN documents.

ECOSOC convened a conference, the United Nations Conference on Trade and Employment in 1946 to consider the UK and U.S. proposals. A Preparatory Committee drafted the ITO Charter and it was approved in 1948 at the conference in Havana, Cuba. The Charter is often referred to as the Havana Charter or the ITO Charter.

The first round of trade negotiations took place while the Preparatory Committee was still working on drafting the Charter because the participants were anxious to begin the process of trade liberalization as soon as possible. Their results were incorporated into the General Agreement, which was signed in 1947.

Since the original signatory nations expected the Agreement to become part of the more permanent ITO Charter, the text of the GATT contains very little "institutional" structure. This lack of detail within the agreement has created increasing difficulties as the GATT membership and roles governing trade between so many of the world's nations have grown. The GATT has functioned as an international organization for many years even though it has never been formalized as such.

ECOSOC established an Interim Commission for the ITO that is referred to as ICITO. Unfortunately, when it came time for the members to ratify the ITO Charter, the Congress of the United States refused and the ITO never became a reality. The GATT survived, but remained intact only due to the Protocol of Provisional Application of the General Agreement on Tariffs and Trade which was concluded in 1947 and which entered into force in 1948.

According to Susan Aaronson of the National Policy Association, the significance of the ITO (as compared to GATT) involved the enactment of " a code of world trade principles and a formal international institution. The ITO's architects were greatly influenced by John Maynard Keynes, the British economist. The ITO represented an internationalization of the view that governments could play a positive role in encouraging international economic growth. It was incredibly comprehensive: including chapters on commercial policy, investment, employment and even business practices (what we call antitrust or competition policies today). The ITO also included a secretariat with the power to arbitrate trade disputes. But the ITO was not popular. It also took a long time to negotiate. Its final charter was signed by 54 nations at the UN Conference on Trade and Employment in Havana in March 1948, but this was too late. The ITO missed the flurry of support for internationalism that accompanied the end of WWII and which led to the establishment of agencies such as the UN, the IMF and the World Bank. The US Congress never brought membership in the ITO to a vote, and when the president announced that he would not seek ratification of the Havana Charter, the ITO effectively died. Consequently the provisional GATT (which was not a formal international organization) governed world trade until 1994."

"The GATT completed 8 rounds of multilateral trade negotiations (MTNs). The Uruguay Round (the 8^th round) concluded with the signing of the Final Act on April 15, 1994, in Marrakesh, and produced the World Trade Organization (WTO) and its annexes."

The table below provides a timeline of the implementation of GATT:

The World Trade Organization (WTO)

Overview

Susan Aaronson of the National Policy Association also provides a brief explanation of how the World Trade Organization came into being:

"The Establishment of the WTO

By the late 1980s, a growing number of nations decided that GATT could better serve global trade expansion if it became a formal international organization. In 1988, the US Congress, in the Omnibus Trade and Competitiveness Act, explicitly called for more effective dispute settlement mechanisms. They pressed for negotiations to formalize GATT and to make it a more powerful and comprehensive organization. The result was the World Trade Organization, (WTO), which was established during the Uruguay Round (1986-1993) of GATT negotiations and which subsumed GATT. The WTO provides a permanent arena for member governments to address international trade issues and it oversees the implementation of the trade agreements negotiated in the Uruguay Round of trade talks

The WTO's Powers

The WTO is not simply GATT transformed into a formal international organization. It covers a much broader purview, including subsidies, intellectual property, food safety and other policies that were once solely the subject of national governments. The WTO also has strong dispute settlement mechanisms. As under GATT, panels weigh trade disputes, but these panels have to adhere to a strict time schedule. Moreover, in contrast with GATT procedure, no country can veto or delay panel decisions. If US laws protecting the environment (such as laws requiring gas mileage standards) were found to be de facto trade impediments, the US must take action. It can either change its law, do nothing and face retaliation, or compensate the other party for lost trade if it keeps such a law (Jackson, 1994).

The WTO's Mixed Record

Despite its broader scope and powers, the WTO has had a mixed record. Nations have clamored to join this new organization and receive the benefits of expanded trade and formalized multinational rules. Today the WTO has grown 142 members. Nations such as China, Russia, Saudi Arabia and Ukraine hope to join the WTO soon. But since the WTO was created, its members have not been able to agree on the scope of a new round of trade talks. Many developing countries believe that their industrialized trading partners have not fully granted them the benefits promised under the Uruguay Round of GATT. Some countries regret including intellectual property protections under the aegis of the WTO.

Protests

A wide range of citizens has become concerned about the effect of trade rules upon the achievement of other important policy goals. In India, Latin America, Europe, Canada and the United States, alarmed citizens have taken to the streets to protest globalization and in particular what they perceive as the undemocratic nature of the WTO. During the fiftieth anniversary of GATT in Geneva in 1998, some 30,000 people rioted. During the Seattle Ministerial Meetings in November/December 1999, again about 30,000 people protested, some violently. "

GATT and the Environment:

As the text observes, the word "environment" appears nowhere in the language of GATT. However, this is not the major source of concern for those concerned over the fate of the environment. For many environmentalists, the premise of GATT - "free trade" - is what is most troublesome, for they consider the term to be completely antithetical to environmental preservation and protection. There is also concern that the the Uruguay Round of GATT will undercut the autonomy of the U.S. to enforce its national environmental laws - subjecting these laws to the higher authority of the WTO. The Uruguay Round of GATT was dedicated to the principle of "non-discrimination" in trade practices across national boundaries.  Articles I and III of GATT requires Contracting Parties (Signatory nations) "to treat imports no less favorably than other imports and no less favorably than similar domestic goods after border duties."  The Uruguay Round also mandated that "contracting parties" adopt policies and practices "necessary to protect human, animal or plant life or health" that "relate to the conservation of exhaustible natural resource." Likewise, in the spirit of  Article XX of GATT, nations must furthermore "arbitrary or unjustifiable discrimination between countries" and national trade policies must not be a "disguised restriction on international trade."

The "root of the trade-environment" conflict within GATT revolves around three environmental "categories" that affect trade:

(1) measures aimed at reducing the comparative  advantage  gained by lax environmental laws in a foreign nation;

(2) Measures aimed at protecting the domestic environment;  and

(3) Measures aimed at protecting global resources.

Although environmental laws inherently contain a wide range of social and policy choices, few would advocate the use of a supranational body to make these choices. Concerns have been raised that the WTO may be dangerously close to becoming such a body; i.e., because of the intertwining of the environment and trade." This raises the additional concern regarding the extent to which  "trade related decisions ..   directed towards environmental measures are necessarily making national environmental policy choices."

Upon thoroughly review the provisions of GATT, particularly those related to non-discriminatory trade and policy behavior on the part of participating parties, Parks concludes that:

 "The WTO is incapable of making national environmental policy choices. Such choices should be left to national bodies, or in the case of global issues, to the international consensus building process. ... The WTO and the principle of non-discrimination are fully capable of setting the outer-limits of acceptable rules and behavior as countries create their own environmental laws to suit their particular cultural and sociological needs. Furthermore, contrary to the concern raised about the loss of sovereignty and environmental rights in the WTO, the WTO will be able to protect legitimate environmental laws that benefit the environment, while shielding the world trading system from protectionist laws (or portions of those laws) that have little to do with environmental preservation.

However, other policy analysts see other potential environmental issues associated with GATT. For instance, Courtney Harold and C. Ford Runge of the University of Minnesota have identified three issues that are of particular concern:

1. "The potential impacts of trade liberalization on the environment: Increased environmental degradation  may result from an increased volume of trade, increased consumption levels, increased demands on natural resources, and increased levels of waste production and pollution. There is also concern that international differences in environmental standards will result in "havens" for pollution for industries seeking to avoid strict environmental regulations. Comparatively, there is concern that international bodies like WTO may ultimately promulgate environmental protection standards that are less comprehensive than those embraced by many nations, resulting in the dilution of international environmental regulations to the "lowest common denominator."

2. The possible use of environmental measures as non-tariff barriers to trade: The major concern in this regard is nations or trading blocs will use the excuse of environmental health and safety to stymie free trade. The fundamental problem in this regard is to discriminate between legitimate environmental health and safety concerns from those that serve to block trade while masquerading as "environmental" issues.

3. The relationship between trade agreements under NAFTA (the North American Free Trade Agreement) and GATT and the variety of international agreements affecting the environment, such as the Montreal Protocol. The variety of modern trade agreements all contain unique features relative to trade and the environment. At issue is "how" to rationalize these disparate requirements and "who" or "which body" will oversee and negotiate these differences.

The concerns raised by Harold and Runge are contextualize against two "axes" (1) between the U.S. and the other major world economies in Europe and Asia and the Pacific and (2) between the so-called "North" and "South."

In fact, there have been a number of environmental disputes over GATT (and later under the auspices of WTO) to include:

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