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Environment, Trade, and Investment
Environment, trade, and investment are fundamentally linked. The environment provides many basic inputs of economic activity – forests, fisheries, metals, minerals – as well as the energy used to process those materials. Trade and investment, in turn, are affected by environmental concerns, as producers and investors must comply with environmental regulations and markets must address the consumer demand for greener goods.
On this page:
- The Legal Structure for Trade, Investment and the Environment
- Free Trade Agreements and the Environment
- Free Trade Agreements and the United States
Aside from these physical and economic connections, there are legal institutions governing trade, investment and the environment. Institutions such as the World Trade Organization, and regional and bilateral trade agreements encompass trade and investment rules. Multilateral environmental agreements, regional agreements, and national and sub-national regulations encompass environmental law.
The legal structure for world-wide trade today dates back more than 50 years to redevelopment efforts after World War II, beginning with the General Agreement on Tariffs and Trade (GATT). The United States is a member of the WTO, which incorporated and extended the GATT in 1995 and sets trade rules for goods for over 130 participating countries. Similarly, the WTO sets rules for trade in services, including environmental services, with the General Agreement on Trade in Services, or GATS.
The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably. Two noteworthy health and environment provisions in the WTO are found in the GATT’s Preamble and in the General Exceptions Article, Article XX. The WTO Preamble affirms the guiding principle of sustainable development:
“[R]elations in the field of trade and economic endeavour should be conducted with a view to raising standards of living...seeking both to protect and preserve the environment and to enhance the means for doing so...”
Two provisions in the GATT Article XX on General Exceptions apply to health and environment, enforcement, and conservation measures. They allow, under certain conditions, some actions that would otherwise be prohibited under WTO obligations:
“Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures...(b) necessary to protect human, animal or plant life or health...(d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement,... (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption...”
These exceptions mean that if a health, environmental, enforcement, or conservation measure were found to violate the trade rules, a panel is allowed to make an exception to the application of those rules if the measure meets the tests outlined above in Article XX. The WTO also provides a forum for settling trade disputes, and for countries to agree to liberalize trade.
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Countries enter into Free Trade Agreements (FTAs) whether or not they are WTO members. These agreements with one other country (bilateral), or with several other countries (multilateral), contain obligations governing tariffs and non-tariff barriers to trade. In cases where both countries are WTO members, they often undertake obligations that go beyond those undertaken in the WTO. These bilateral and multilateral agreements are reviewed for consistency with WTO rules by the WTO Committee on Regional Trade Agreements.
Agreements are also reviewed by the WTO Committee on Regional Trade Agreements. The purpose of the CTE is to bring environmental and sustainable development issues into the mainstream of the WTO’s work, and part of its mandate is to identify the relationship between trade measures and environmental measures in order to promote sustainable development.
At the 4th WTO Ministerial Conference in Doha, Qatar in 2001, the role of the CTE was strengthened, as member countries succeeded in securing a package of environmental elements that demonstrates the WTO’s commitment to sustainable development and to simultaneously advancing trade, environment, and development interests.
The Doha mandates will allow U.S. negotiators to pursue an affirmative agenda focusing on reducing/eliminating various environmentally harmful subsidies, improving market access for environmental goods and services, encouraging capacity building for developing members, and promoting environmental reviews of trade agreements. In addition, the CTE will enhance cooperation between the Secretariats of the WTO and Multilateral Environmental Agreements, and further explore the relationship between the agreements.
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As participation in the WTO was just beginning, the United States became a party to the North American Free Trade Agreement (NAFTA), a multilateral preferential trading and investment arrangement with Canada and Mexico, in 1994. The NAFTA package includes the North American Agreement on Environmental Cooperation (NAAEC) side agreement. In 2001, the U.S. government charted further progress in incorporating environmental concerns into U.S. trade policy. The U.S.-Jordan Free Trade Agreement is the first free trade accord to include enforceable environmental obligations in the body of the agreement. The WTO, the NAFTA, and other FTAs also include dispute settlement provisions that permit member governments to challenge measures by members that they believe violate trade rules.
In addition to being party to the WTO, NAFTA, and the U.S.-Jordan FTA, the United States also entered into free trade agreements with several other countries all of which have enforceable obligations. The United States is also a party to over 30 Bilateral Investment Treaties (BITs) that govern the treatment of foreign investors and their investments in the United States, as well as the treatment of U.S. investments and investors in other countries. The Office of the U.S. Trade Representative (USTR) leads the U.S. interagency team in the WTO and other trade and investment agreement discussions and negotiations.
Explore resources related to Free Trade Agreements and the United States:
- North American Free Trade Agreement (NAFTA)
- North American Agreement on Environmental Cooperation (NAAEC) Exit
- U.S.-Jordan Free Trade Agreement
- Bilateral Investment Treaties (BITs)
As global commerce expands and national economies become more interdependent, international trade institutions and activities continue to evolve. In a path parallel to the trade developments, over 200 Multilateral Environmental Agreements (MEAs) have been concluded globally, some of which are global treaties to which any country may become a party. The United States is a party to a number of these agreements, such as the Convention on International Trade in Endangered Species (CITES).
These MEAs, along with numerous bilateral agreements and national and local environmental regulations, form a structure for environmental management that responds to an extraordinary array of interests and issues. As both positive and negative environmental effects can result from increased trade liberalization, environmental agreements and national environmental regulations are especially important to ensure that international trade and investment rules support high levels of environmental protection.
Environmental agreements and effective national environmental policies help to decrease the possibility that economic integration could lead countries to relax their health, safety and environmental standards in order to attract international investment or gain a competitive advantage in the market place.
Environmental agreements also help address the concern that increased global trade and investment could lead to patterns of unsustainable economic growth and development if not accompanied by appropriate environmental policies. These environmental agreements are designed to help slow or reverse environmental degradation and are in various states of negotiation and implementation.
The following links provide additional information on the connection between the environment and trade and investment, as well as access to other sites with an environment and trade focus:
- Office of the U.S. Trade Representative: Environment and Natural Resources
- A Handbook about Trade and the Environment (PDF)(96 pp, 397 K, About PDF): This United Nations Environment Programme publication is a good introduction to the topic of environment and trade.Exit
- A Special Study on Trade and the Environment (PDF)(109 pp, 1.3 M, About PDF) – a WTO publication that addresses three questions: Is economic integration through trade and investment a threat to the environment? Does trade undermine the regulatory efforts of governments to control pollution and resource degradation? Will economic growth driven by trade help us to move towards sustainable use of the world’s environmental resources? Exit
- Glossary of Intellectual Property Terms - a useful list of trade terms compiled by the United States Department of State.
- 2000 North American Symposium on Understanding the Linkages between Trade and Environment Exit
For additional information on EPA's International Trade efforts, contact:
U.S. Environmental Protection Agency
Office of International and Tribal Affairs (2670R)
1200 Pennsylvania Ave., NW
Washington, DC 20460