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IMF Working Paper Summaries (WP/95/1 - WP/95/61)
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Summary of WP/95/6: “Environmental Protectionism, North-South Trade, and the Uruguay Round”

Author(s):
International Monetary Fund
Published Date:
August 1995
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The paper seeks to provide an overview of the present state of debate on trade, environment, and the GATT for developing countries. The threat of green protectionism can arise from the use of environmental product regulations for protectionist purposes, from extraterritorial use of trade measures to influence environmental behavior in other countries, and from the use of trade measures to enforce compliance with international environmental agreements. At present, the protectionist threat seems exaggerated as available information suggests that the use of green trade barriers is still small compared with traditional trade barriers against developing country exports.

To prevent the threat from becoming a reality, the paper contends that developing countries have an interest in seeing that some GATT rules are reviewed, while others are maintained. First, in some areas, existing GATT rules may be too flexible and may not cover all potential environment-related product measures. Further discussion is likely to take place on how to shield eco-labeling from protectionist abuse; how to deal with measures that resemble product standards but have no impact on consumption externalities in the importing country such as recycling content requirements; and how border adjustment of taxes may undermine the environmental objectives of the measures. Second, extraterritoriality is unlikely to be accepted in the trade rules in the context of environmental goals, and existing GATT rules protect developing countries against it. This is not only a North-South issue, but one between large and small countries.

Third, the use of trade measures with international environmental agreements is more controversial and will be a topic for debate in the World Trade Organization (WTO), especially between developing and industrial countries. Here, political consideration is likely to call for some action from the international community. Developing countries should oversee that, if trade measures are used to induce participation in or enforcement of environmental agreements, their use remains limited under clear criteria and a last resort, and that an international environmental agreement has the widest possible participation.

The Uruguay Round will have a number of direct and indirect effects on trade and environment. The Round was important, not only in reducing all protectionist pressures, but also in preserving and reinforcing the multilateral framework to deal with new and old trade issues. In addition, the results of the Round in improving growth, in general, and market access for labor-intensive products, in particular, can be beneficial for improved environmental quality in developing countries. Some rules with links to the environment are modified, and new sectors added to the debate. The paper believes more focus is also needed on the environment’s broader links with trade, sustainable development, and other economic policies.

However, developing countries will need to pay more attention to environmental issues. Much of the increase in green standards is a market phenomenon reflecting the increased environmental awareness of consumers. In many cases producers in developing countries have no choice but to adjust or lose markets.

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