Sustainable Development as a Principle of International Law

Sustainable Development as a Principle of International Law

Legal Aspects of Sustainable Development General Editor

David Freestone

This series will publish work on all aspects of the international legal dimensions of the concept of sustainable development. Its aim is to publish important works of scholarship on a range of relevant issues including conservation of natural resources, climate change, biodiversity loss and the role of international agreements, international organizations and state practice.

VOLUME 2

The titles published in this series are listed at the end of this volume.

Sustainable Development as a Principle of International Law Resolving Conflicts between Climate Measures and WTO Law

By

Christina Voigt

LEIDEN • BOSTON 2009

This book is printed on acid-free paper. Library of Congress Cataloging-in-Publication Data Voigt, Christina. Sustainable development as a principle of international law : resolving conflicts between climate measures and WTO law / Christina Voigt. p. cm. — (Legal aspects of sustainable development ; 2) Includes bibliographical references and index. ISBN 978-90-04-16697-4 (hardback : alk. paper) 1. Sustainable development—Law and legislation. 2. Emissions trading—Law and legislation. 3. Environmental law, International. I. Title. K3585.V63 2008 344.04’6—dc22 2008045763

ISSN 1875-0923 ISBN 978 90 04 16697 4 Copyright 2009 by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Hotei Publishing, IDC Publishers, Martinus Nijhoff Publishers and VSP. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. printed in the netherlands

To my little son Victor Leander.

Table of Contents Series Editor’s Preface Acknowledgements List of Abbreviations and Acronyms General Introduction Sustainable Development, International Trade and Climate Change Why Sustainable Development? The Ultimate Challenge

xv xvii xix 1 1 3 6

Part I Sustainable Development in International Law Introduction

9

Chapter 1 Origins and Development of the Concept of Sustainable Development in International Law 1.1 A Concept with Ancient Roots? 1.2 Sustainable Development’s Rise in the International Order 1.3 International Treaty Law 1.4 Regional and National Laws 1.5 The New Millennium 1.6 Recent Legal and Political Developments 1.7 In Sum

11 11 13 19 21 24 28 31

Chapter 2 Integration as a Central Aspect of Sustainable Development 2.1 Introduction 2.2 Integration within the Limits of Ecological Thresholds 2.3 Climate Stability: An Ecological Threshold 2.4 Scientific Uncertainty 2.5 Environmentalism and Sustainable Development 2.6 Integration and Transgenerational Justice 2.7 In Sum

35 35 38 42 47 48 50 54

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Chapter 3 The International Climate Regime 3.1 Introduction 3.2 Normative Framework of the Climate Regime 3.2.1 Object and Purpose of the UNFCCC 3.2.2 Principles of the UNFCCC and the Kyoto Protocol 3.2.3 Obligations 3.3 The Flexibility Mechanisms of the Climate Regime 3.4 International Emissions Trading 3.4.1 Private Participation 3.4.2 The Global Carbon Market and Linking of Domestic Trading Schemes 3.4.3 Supplementarity to Domestic Action 3.4.4 In Sum 3.5 The Clean Development Mechanism 3.5.1 Additionality 3.5.2 Prospects 3.6 Joint Implementation 3.7 Concluding Remarks

57 57 59 59 61 67 70 74 74 76 79 80 80 83 83 85 86

Chapter 4 Sustainable Development in the Context of International Climate Change Law 4.1 Introduction 4.2 References to Sustainable Development in the UNFCCC 4.3 References to Sustainable Development in the Kyoto Protocol and Subsequent Documents 4.4 Implicit References to Sustainable Development 4.4.1 Intragenerational Equity: Differentiation, Partnerships and Funding 4.4.2 Intergenerational Equity 4.4.3 Economic Flexibility 4.5 Concluding Remarks and Summary

96 104 106 113

Chapter 5 Sustainable Development in WTO Context 5.1 Introduction to WTO Law 5.1.1 Coverage 5.1.2 Rules and Concepts 5.2 Trade and Environment 5.3 WTO Exception Clauses

115 115 116 116 120 122

89 89 92 94 96



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5.4 Sustainable Development and Trade Law 5.5 References to Sustainable Development in WTO Law 5.5.1 WTO Agreement 5.5.2 Institutional Developments 5.5.3 WTO 2001–2006 Doha Development Agenda 5.5.4 WTO Dispute Settlement 5.5.5 Invocation of Sustainable Development in WTO Law: Procedural and Substantive Requirements 5.6 Summary Chapter 6 Sustainable Development as a General Principle of Law 6.1 Introduction 6.2 Limitation of Scope 6.3 General Principles in International Law 6.3.1 An Ambiguous Source of Law 6.3.2 Custom and General Principles 6.3.3 The Function of General Principles and the Objection of Indeterminacy 6.3.4 Provenance of Principles 6.3.5 Common Legal Conscience 6.3.6 In Sum 6.4 Sustainable Development as a General Principle 6.4.1 The Normative Force of Sustainable Development and the Critique of Indeterminacy 6.4.2 Substantial Function: Integration as Process or Result? 6.4.3 International Jurisprudential Practice 6.4.4 In Sum 6.5 Legitimacy of Sustainable Development 6.5.1 Foro Domestico 6.5.2 International Legal Conscience 6.6 The Role of the Judiciary in Promoting Sustainable Development 6.7 Summary and Concluding Remarks

ix

125 127 127 130 134 135 140 143 145 145 147 148 148 149 150 153 157 159 160 162 169 171 177 177 178 183 183 186

Part II Conflicts Between Climate Measures and WTO Law Introduction

189

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Chapter 7 Fragmentation of International Law: the Origin of Normative Conflicts 7.1 Introduction 7.2 Conflict of Norms 7.2.1 Definitions 7.2.2 Permissive Norms in the Climate Regime

195 195 198 198 201

Chapter 8 Climate Measures and WTO Law: General Comments 8.1 Introduction 8.2 Limitation of Scope 8.3 General Compatibility of the Objectives

203 203 204 205

Chapter 9 International Emissions Trading and WTO Rules 9.1 Introduction 9.2 WTO Concerns of Sovereign Exchanges in Emission Units 9.3 WTO Concerns of Private Exchanges in Emission Units 9.3.1 Trading with Emission Units and GATT Rules 9.3.2 Are All Emission Units ‘Like Products’? 9.4 Emissions Trading Affecting Existing Markets 9.4.1 Import and Sale of Energy Products 9.4.2 Electricity as an Energy Product 9.4.3 Energy Imports and National Treatment Rule 9.4.4 Like or Directly Competitive or Substitutable Products 9.4.5 No less-favourable Treatment or Effective Equality of Competitive Conditions 9.4.6 Conclusion 9.5 GATT Exception Clauses 9.5.1 GATT Article XX(g): Relating to the Conservation of Exhaustible Natural Resources 9.5.2 GATT Article XX(b): Necessary to Protect Human, Animal or Plant Life or Health 9.5.3 Chapeau of GATT Article XX 9.6 Conclusion

226 228 231

Chapter 10 The Clean Development Mechanism and WTO Rules 10.1 Introduction 10.2 CDM Activities as Services under GATS

233 233 235

207 207 208 211 212 215 216 216 218 219 219 221 223 223 224



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10.3 Participation in CDM Activities and Discrimination 10.4 GATS Exception Clauses 10.4.1 Policy in Respect of the Measure 10.4.2 Necessity 10.4.3 Chapeau 10.5 National Development Priorities under the CDM 10.6 In Sum

241 247 248 248 252 255 257

Chapter 11 Concluding Remarks on Part II

259

Part III Sustainable Development as a Principle of Integration of Climate and Trade Law Introduction

263

Chapter 12 Is there a Need for the Principle of Sustainable Development in WTO Dispute Settlement? 12.1 Introduction 12.2 Interpretation in International Adjudication 12.3 Interpretation of WTO Norms: Principles and their Limitations 12.3.1 Textual Interpretation 12.3.2 Evolutionary Interpretation 12.3.3 Teleological Interpretation 12.3.4 Interpretation with Reference to Norms outside the Treaty: Art. 31.3(c) VCLT: General Comments 12.3.5 Article 31.3(c) VCLT in WTO Jurisprudence 12.4 Conclusions

280 287 289

Chapter 13 Principles of Conflict Resolution 13.1 Explicit Conflict Clauses 13.2 Implicit Conflict Clauses in the Kyoto Protocol and UNFCCC 13.3 Lex specialis derogat lege generali 13.4 Lex posterior derogat lege priori 13.5 Conclusions

293 293 295 299 301 303

265 265 266 269 270 273 277

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Chapter 14 Applicability of Non-WTO Law in WTO Dispute Settlement 14.1 WTO Dispute Settlement and Public International Law 14.2 Jurisdiction and the Applicable Law in WTO Dispute Settlement 14.3 Sources of non-WTO Law in WTO Dispute Settlement 14.3.1 Customary Law 14.3.2 General Principles of Law 14.4 In Sum

305 305 307 310 311 312 315

Chapter 15 Applicability of the Principle of Sustainable Development in WTO Dispute Settlement 15.1 Applicability as Part of WTO Law 15.2 Applicability as a General Principle of Law 15.3. Mandatory or Permissive Application? 15.4 Dispute Settlement Authority and ‘Judicial Activism’ 15.5 In Sum

317 317 318 319 321 322

Chapter 16 Application of the Principle of Sustainable Development: Practical Consequences 16.1 The Aim of Creating Coherence 16.2 Nature of a Legal Test for Sustainable Development 16.3 Possible Elements of a Legal Test for Sustainable Development 16.3.1 Identification of Affected Interests 16.3.2 Primary Sustainability: Type and Strength of Interests Protected by the Measure 16.3.3 Secondary Sustainability: Assessment of the (Broader) Sustainability of the Measure 16.3.4 Proportionality of Means and Ends 16.3.5 Procedurals 16.3.6 Legal Effect Chapter 17 ‘Case’ Studies: CDM and Emissions Trading 17.1 Clean Development Mechanism 17.1.1 Identification of Affected Interests 17.1.2 Strength of the Protected Interest 17.1.3 Contribution to Sustainable Development in a Broader Context 17.1.4 Proportionality

325 325 327 330 330 331 332 335 337 339 341 341 341 342 343 352



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17.1.5 Procedural Requirements 17.1.6 In Sum 17.2 Emissions Trading 17.2.1 Identification of Affected Interests 17.2.2 Strength of the Protected Interest 17.2.3 Sustainable Development in a Broader Context 17.2.4 In Sum 17.3 Summary Chapter 18 Final Conclusions 18.1 Sustainable Development in Climate Change and International Trade Law 18.2 Sustainable Development as a Legal Principle of Integration 18.3 Areas of Conflict between Climate Measures and WTO Law 18.4 Application of the Principle of Sustainable Development in the Context of Climate and Trade Law Conflicts Table of Cases Bibliography Index

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355 357 357 359 359 360 370 371 373 373 374 375 377 381 389 423

Series Editor’s Preface I am pleased to welcome this important work as the second volume in the new Martinus Nijhoff monograph series on Legal Aspects of Sustainable Development published under my general editorship. The aim of this series will be to publish works at the cutting edge of legal scholarship that address both the practical and the theoretical aspects of this important concept. Christina Voigt’s work meets all these criteria, both as a work of scholarship and as a thesis with important practical implications. Her study looks closely at the evolution and basic tenets of the concept of sustainable development, arguing that it has the potential capacity to bind together or integrate the diversity and the plurality of interests within the international community. It can thus, she argues, act as a powerful force for integration between potentially conflicting legal regimes. The regimes she has examined to test this hypotheses are those of the UN Framework Convention on Climate Change and its Kyoto Protocol (particularly the Clean Development Mechanism and emissions trading provisions) and the World Trade Organization. The practical importance of this venture should be obvious. The 2007 Fourth Assessment Report of the Intergovernmental Panel on Climate Change makes it clear that climate change processes have already begun, that major mitigation efforts will be necessary to avert dangerous climate change and that to avoid the worst effects further emission reductions of greenhouse gases of 25-40% by 2020 will be essential. In developing a post-Kyoto regime to meet rigorous targets such as these the international community seems likely to continue to look to “cap and trade” systems at national, regional and international levels. It is likely to be only a matter of time before these come into conflict with the WTO regime. At this point she argues the principle of sustainable development provides a force for integration; it can provide a legal basis for the argument that the community interest in a stable global climate prevails over the economic and welfare interest protected by the international trade regime. However this can only happen if the climate mitigation measures themselves pass the “sustainable development” litmus test. At a time when many international scholars are bemoaning the fragmentation of the international legal architecture, Dr Voigt’s study provides us with a refreshing perspective of the positive role that the principle of sustainable development might play in integrating different regimes. This is an important and timely work and I am pleased to commend it to a wide audience. David Freestone Washington DC

Acknowledgements This book is a shortened and updated version of my doctoral thesis, which was submitted to the University of Oslo, School of Law, in September 2006 and defended for the degree doctor juris in April 2007. Writing this book has been a long journey and a far one. Most of all, it brought me in contact with many different people, who all in their special ways contributed to the fruition of this project. They include (in alphabetical order): Ivar Alvik, Klaus Bosselmann, Andrew Brennan, Jonas Ebbesson, Marius Emberland, Jonas Enge, Christoffer Eriksen, Ole Kristian Fauchald, Caroline Foster, Donald Goldberg, Gustav Haver, Ellen Hey, Ulf Linderfalk, Daniel B. Magraw, Michael Mehling, Benedikte Moltumyr Høgberg, Nicolai Nyland, Richard Ottinger, Kenneth A. Palmer, Catherine Redgwell, Nicolas Robinson, Nicolas de Sadeleer, Inger-Johanne Sand, Chris Saunders, Torunn Salomonsen, Francesco Sindico, Beate Sjåfjell, Prue Taylor, Geir Ulfstein, Jake Werksman, Nikolai K. Winge, and Glenn Wiser. I sincerely thank each and every one of them. A very special thanks goes to my supervisor Professor Hans Christian Bugge who through the years saw this project progressing and finally being finished. I am most grateful for his constant support, encouragement, and his constructive critique without which the shape of things would have been quite different. I also thank my colleagues at the Research Group for Natural Resources Law and the Institute for Public and International Law (University of Oslo), the Norwegian Research Council, the Nordic Environmental Law Network, the New Zealand Center for Environmental Law (University of Auckland, New Zealand), and the Center for International Environmental Law (Washington, D.C.) for generously supporting my research. Finally, this project would have been impossible without the support of my parents, Dieter and Maria Voigt, and my partner Gaute. He was the rock in these years of turbulence. I thank him for his seemingly endless patience and optimism. March 2008

List of Abbreviations and Acronyms AA Assigned Amounts AAU Assigned Amount Units ACIA Arctic Climate Impact Assessment

ASIL Procs. American Society of International Law Proceedings AGP WTO Agreement on Government Procurement AJIL American Journal of International Law AB Appellate Body AVR Archiv des Völkerrechts Ariz. J. Int‘l & Arizona Journal of International and Comparative Law Comp. L. AYbIEL Australian Yearbook of International Law B.C. Envt’l. Aff. Boston College Environmental Affairs Law Review L.R BIT Bilateral Investment Treaty Buff. Envtl. L.J Buffalo Environmental Law Journal BYbIL British Yearbook of International Law CC Compliance Committee CCAP Center for Clean Air Policy CCS Carbon Capture and Storage CDM Clean Development Mechanism CER Certified Emission Reductions Colo. J. Int’l Colorado Journal of International Environmental Law Envtl. L. & and Policy Policy Colum. J. Columbia Journal of Transnational Law Transnat’l L. COP Conference of the Parties (to the UNFCCC)

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CPM COP/MOP joint meeting CPR Commitment Period Reserve CTD Committee on Trade and Development CTE Committee on Trade and Environment DDA Doha Development Agenda Denv. J. Int’l L. Denver Journal of International Law & Policy & Pol’y DNA Designated National Authority DOE Designated Operational Entity DSB Dispute Settlement Body DSU Dispute Settlement Understanding Duke Envtl. L. & Duke Environmental Law and Policy Forum Pol’y F EB Executive Board EJIL European Journal of International Law ELR The Environmental Law Reporter ENB Earth Negotiations Bulletin ERT Expert Review Teams ERU Emission Reduction Unit (JI) ET Emissions Trading ETS Emissions Trading Scheme EU ETS EU Emissions Trading Scheme FAO Food and Agricultural Organisation of the United Nations FES Friedrich-Ebert-Stiftung FIELD Foundation for International Law and Development GATS WTO Agreement on Trade in Services GATT WTO Agreement on Tariffs and Trade



List of Abbreviations and Acronyms

xxi

GDP Gross Domestic Product Georgt. Int’l Georgetown International Environmental Law Review Environm. L. Rev GHG Greenhouse Gases GNP Gross National Product GPIL General Principles of International Law GPL General Principles of Law GWP Global Warming Potential GYIL German Yearbook of International Law Harv. Envtl. L. Harvard Environmental Law Review Rev ICJ International Court of Justice ICLQ International & Comparative Law Quarterly IET International Emissions Trading IISD International Institute for Sustainable Development ILA International Law Association ILC International Law Commission ILM International Legal Materials Ind. J. Global Indiana Journal of Global Legal Studies Legal Stud Int’l Law The International Lawyer Int’l. J International Journal IPCC Intergovernmental Panel on Climate Change IUCN International Union for Conservation of Nature and Natural Resources J. Energy Nat. Journal of Energy and Natural Resources Law Resources L JD Joint Declaration

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Sustainable Development as a Principle of International Law

JI Joint Implementation JPOI Johannesburg Plan of Implementation KP Kyoto Protocol Law&Pol’y Int’l Law & Policy in International Business Bus. LDC Least Developed Countries LULUCF Land Use, Land Use Change and Forestry MA Marrakesh Accords Max Planck Max Planck Yearbook on United Nations Law UNYB MEA Multilateral Environmental Agreement MOP Meeting of the Parties (to the Kyoto Protocol) MtCO2eqv Million tonnes CO2 equivalent NAP National Allocation Plan NJIL Nordic Journal of International Law N.Y.U. J. Int’l L. New York University Journal of International Law and Politics ODA Official Development Assistance OECD Organization of Economic Cooperation and Development OPEC Organization of Petroleum Exporting Countries Pace Envtl. L. Pace Environmental Law Review Rev PAM Policies and Measures PDD Project Design Document PPM Production and Processing Methods QUELROs Quantified Emission Limitation and Reduction Obligations



List of Abbreviations and Acronyms

xxiii

RECIEL Review of European Community & International Environmental Law RMU Removal Units SCM WTO Agreement on Subsidies and Countervailing Measures S. Cal. L. Rev Southern California Law Review SIA Sustainable Impact Assessment TBT WTO Agreement on Technical Barriers to Trade TRIMS WTO Agreement on Trade-Related Investment Measures U. Ill. L. University of Illinois Law Review UNCED United Nations Conference on Environment and Development UNFCCC United Nations Framework Convention on Climate Change U. PA. J. Int’l University of Pennsylvania Journal of International Econ. L Economic Law Va. J. Int’l L. Virginia Journal of International Law VCLT Vienna Convention on the Law of Treaties Wm. & Mary William and Mary Environmental Law and Policy Envtl. L. & Pol’y Review Rev. WMO World Meteorological Organization WCED World Commission on Environment and Development WSSD World Summit on Sustainable Development WTO World Trade Organization Yale L.J Yale Law Journal Yale J.Int’l L Yale Journal of International Law Yale J. on Reg. Yale Journal on Regulation YbIEL Yearbook of International Environmental Law

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Sustainable Development as a Principle of International Law

ZaöRV Zeitschrift für ausländisches öffentliches Recht und Völkerrecht ZRP Zeitschrift für Rechtspolitik ZöR Zeitschrift für öffentliches Recht ZUR Zeitschrift für Umweltrecht

‘By producing greenhouse gases and other pollutants, these fuels affect the sustainability of life itself. Our reliance on them puts the very future of humanity at risk.’ 1

General Introduction

Sustainable Development, International Trade and Climate Change The purpose of this book is to provide the theoretical framework for and analyse the doctrinal foundation of sustainable development as a principle of integration in international law. The book attempts to apply the principle to the practical scenario of normative conflicts between climate mitigation measures and norms of the multilateral trade regime under the WTO with the aim of ‘testing’ the theory by investigating into its capacity to solve such conflicts. The analysis consists of three parts. Part I examines the content and legal status of sustainable development as a principle of integration. Part II assesses the potential for conflicts between climate measures and the law of the WTO. Part III focuses on the legal principle of sustainable development as a judicial reasoning tool applicable to and effective in the resolution of normative conflicts. The relationship between climate measures and trade law is chosen for two particular reasons. First, the multilateral efforts to combat climate change provide an extraordinary opportunity to examine the trade-environment conflict, its causes, consequences and modalities for solution and reconciliation. By permitting the use of innovative market-based instruments to offset economic impacts, the climate change regime, consisting of the 1992 United Nations Framework Convention on Climate Change2 and its 1997 Protocol (Kyoto Protocol),3 draws attention to the use of economic measures in environmental 3 1 2

Former UN Secretary-General Kofi Annan, UN Press Release, 10.07.2006. 31 ILM 849 (entered into force March 21, 1994) (hereinafter UNFCCC). Kyoto Protocol to the United Nations Framework Convention on Climate Change, U.N. Doc. FCC/CP/1997/L.7/Add.1 (entered into force 16 February 2005) (hereinafter Kyoto

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Sustainable Development as a Principle of International Law

protection and their relation to trade agreements. Complex questions arise with respect to WTO consistency and the conditions under which the design of climate measures can be adjusted to accommodate a loss of international competitiveness of affected industries. At the same time, the important question of how to react to a trade-restrictive measure designed under an international environmental treaty is prompted at the WTO dispute settlement system, where such dispute is likely to end up. These are not only questions of relationship between WTO and environmental or other international rules and vice versa. At their core, they address the structure of international law as a legal system. Is there such a system, and if so is it merely arbitrary or does it mechanically follow technical rules? Or it is even a purposive system? ‘International law’, it has been claimed, ‘is not rules. It is a normative system.’4 The primary role of modern international law is to secure values for the common good. But is there such a thing as international law pursuing a collective goal of the international community and by doing so addresses the interplay of different norms, even unifies different areas of law, including WTO law? This book argues that sustainable development is this goal and that international law is aligning to it. Second, both international climate change law and WTO law respond to collective interest of the world community, and both treat sustainable development as axiomatic. References can be found in the treaty texts of both regimes. The Parties to the UNFCCC, for example, have a right to, and should, promote sustainable development.5 At the same time, the Parties to the WTO recognize that their trade relations should be conducted so as to allow for the optimal use of the world’s resources in accordance with the objective of sustainable development.6 Sustainable development has explicitly been invoked by the Appellate Body in the settlement of trade disputes. Recently, the SecretaryGeneral of the WTO, Pascal Lamy, succinctly stated: ‘[w]e must remember that sustainable development is itself the end-goal of this institution [the WTO]. It is enshrined in page 1, paragraph 1, of the Agreement that establishes the WTO.’7 These references are giving rise to the question whether different contexts lead to parallel definitions of sustainable development that increase rather

4

7 5 6

Protocol). R. Higgins, Problems and Process: International Law and How We Use It (Oxford: Clarendon Press, 1994, reprinted in 2003) 1. Art. 3.4 UNFCCC. Marrakesh Agreement Establishing the World Trade Organization, Preamble. Trade can be a Friend, not a Foe, of Conservation, Speech at WTO Symposium on Trade and Sustainable Development within the Framework of Paragraph 51 of the Doha Ministerial Declaration, Geneva, 10 October 2005.



General Introduction

3

than reduce its often-noted vagueness. The challenge, therefore, is to clarify whether there is a common understanding of sustainable development across regime-borders. Such clarification has important implications. While both regimes address specific issues, regulatory overlaps exist which can amount to normative conflicts. At the international level, however, no clear rules exist as to how resolve such conflicts. Traditional approaches have been constrained to treaty interpretation and conflict resolution principles which are largely insufficient to provide adequate solutions in the event of a normative conflict of this kind. Being characterized by the general equality of legal sources, international law, it is claimed, does not provide for any rule of priority. This book attempts to fill this gap by providing a conceptual framework within which the interplay of norms can be examined. This framework rests on the assumption that these conflicts are most adequately addressed in a principled way. The book argues that sustainable development has a concrete core and as a principle of integration provides an effective legal tool – a tool which international law readily encompasses. In order to highlight the capacity of the principle in resolving normative conflicts, the thesis uses the specific interplay between WTO rules and climate measures. It is hoped, however, that this framework will also be useful to the resolution of normative conflicts not involving climate or WTO norms. Why Sustainable Development? If all the challenges of modern society, which are separately addressed by various regimes, are to be met, some kind of overarching objective needs to be in place that sketches out a global and long-term picture of our world and helps to coordinate the fragmented attempts. This book puts forward the argument that the unifying factor is encompassed in the notion of sustainability: a durable and equitable condition of humanity within the ultimate limits set by the functioning of essential natural systems that sustain life on Earth: the biosphere – whole and home of human life – and its protective shield, the atmosphere. As an ideal, sustainability has gained a status comparable to that of democracy, freedom and justice: it is universally desired, differently understood, complex in scope, extremely difficult to establish and impossible to do away with.8 No State would any longer claim not to be pro sustainability. But how

8

W.M. Lafferty, ‘From Environmental Protection to Sustainable Development: the Challenge of Decoupling through Sectoral Integration’ in W.M. Lafferty (ed.) Governance for

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to get there? There is no master plan for sustainability. In fact, humanity might forever strive for it. Like a state of justice, a state of sustainability may never be fully achieved, but this is by no means a reason for not trying. While sustainability remains an ideal, sustainable development has been accepted by the international community as a guiding concept: ‘the golden rule of our civilisation in the 21st century’.9 In this sense, sustainable development has been described as the means to the end of sustainability or ‘the ‘journey toward the elusive goal of sustainability’.10 As an idea – an abstract creation of the human mind – sustainable development is based upon the shared values, morals and ethics of an increasingly interconnected and interdependent world.11 The strength of sustainable development rests in the ‘inescapable logical necessity’12 to seek reconciliation and integration between the many institutionally disconnected but intrinsically interlinked parts of global human society.13 Outside the framework of sustainable development, the objectives of environmental protection, economic development and social justice often pull in different directions. Yet, traditional attempts to deal separately with all of these priorities run counter to the fundamentally interconnected nature of the global society. Therefore, sustainable development, which addresses the need to balance and coordinate widely divergent collective interests, while protect-



9

10





11

12



13



Sustainable Development: the Challenge of Adopting Form to Function (Cheltenham: Edward Elgar, 2004) 192. M. Decleris, The Law of Sustainable Development: General Principles: Report Produced for the European Commission (Luxembourg: Office for Official Publications of the European Communities, 2000) 48. New Zealand Parliamentary Commissioner for the Environment, Creating our Future: Sustainable Development for New Zealand (Wellington: Office of the Parliamentary Commissioner for the Environment, 2002) 29. M.C. Cordonier Segger and C.G. Weeramantry, ‘Introduction to Sustainable Justice: Implementing International Sustainable Development Law’ in M.C. Cordonier Segger and C.G. Weeramantry (eds.) Sustainable Justice. Reconciling Economic, Social and Environmental Law (Leiden: Martinus Nijhoff Publishers, 2005) 1. Case concerning the Gabčikovo-Nagymaros Project (Hungary v. Slovakia) ICJ Reports 1996, 7, Separate Opinion of Vice-President Weeramantry, 4. According to Huber ‘das Verdienst des nachhaltigen Entwicklung … liegt darin, diese Elemente zu einem Muster zusammengefügt zu haben, das für einen internationalen Mainstream konstitutiv werden konnte und das damit im Rio-Prozeß einen neuen erdpolitischen Diskussions- und Handlungskontext mit mehr Teilnehmern aus mehr gesellschaftlichen Bereichen und mit frischer politischer Schubkraft hervorgebracht hat.’ J. Huber, Nachhaltige Entwicklung. Strategien für eine ökologische und soziale Erdpolitik (Berlin: Verlag Edition Sigma, 1995) 14.



General Introduction

5

ing the regenerative capacity of the biosphere, has been accepted as ‘the way forward for a healthy planet’.14 It may well be the only way forward. Finding the right balance of environmental, social and economic conditions to foster sustainable development, however, is no easy task. The devil is in the detail of defining which aspects of the current social, developmental, environmental and economic regimes are appropriate for promoting sustainable development and which need modification and adjustment. Discussions around the concept’s precise content remain contentious. But it is impossible to ignore the fact that ultimate limits to human conduct are set by securing the functioning ecological basis on which all life and all human activity depend. In establishing the core of sustainable development, ecological thresholds cannot be ignored without rendering the result unsustainable. They provide the nucleus around which clearer meaning and content of sustainable development evolves. That said, a wide gap still remains between theoretical explications of sustainable development and the actual ‘state of the world’. Irrational exploitation of the natural resource base, excessive releases of greenhouse gases and ever-increasing pressure on the environment and its ecological functions by expanding and globalizing societies and economies, have led and continue to lead to a state of development that can hardly be described as sustainable.15 Accordingly, former UN Secretary-General Kofi Annan warned: ‘[u]nsustainable practices are woven deeply into the fabric of modern life … [t]he model of development we are accustomed to has been fruitful for a few, but flawed for the many. A path to prosperity that ravages the environment and leaves a majority of humankind behind in squalor will soon prove to be a dead-end road for everyone.’16 The concept of sustainable development demands an active transition on all levels of modern life. It requires innovative and integrated solutions that are based on the ultimate thresholds of the environment to provide essential natural functions.

14



15



16

World Commission on Environment and Development (WCED) Our Common Future (Oxford: Oxford University Press, 1987), Principle 7. Worldwatch Institute, Vital Signs 2006–2007 (Washington D.C.: Norton, 2006). See also: UNEP, Third Global Environmental Outlook: Past, Present and Future Perspectives (GEO-3) London, 2002. According to GEO-3 is ‘one of the three pillars of sustainable development – the environment – seriously listing because of the distortions placed on it by the actions of human population that now numbers more than 6,000 million. The importance of the environment is often underplayed even though its value to human survival and development is incalculable. The collapse of the environmental pillar is a serious possibility if action – from local to global – is not taken as a matter of urgency’. UN Press Release SG/SM/8358, AFR/468, ENV/DEV/693, 03 September 2002, World Summit on Sustainable Development in Johannesburg, South Africa.

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Sustainable Development as a Principle of International Law

The Ultimate Challenge There is an ultimate test to the international community to find cooperative and collaborative solutions: the task to protect the fragile conditions of the atmosphere. In this test, the interdependence of all actors of the international community has risen to a complexity, scale and significance that are unprecedented. It has become clear that climate change cannot be categorized simply as an environmental problem. The climate change regime has a contextual breadth and magnitude that goes far beyond environmental law. It is a challenge that covers a multitude of aspects, both environmental, developmental and social. At its core lie complex and fundamental questions of humanity. The causes and consequences of anthropogenically intensified climate change touch the very core of both humanity’s interaction with nature, as well as humanity’s relationship with itself.17 ‘In order to address problems of climate change modern economies need to reduce their dependence on hydrocarbons and should undertake a special effort to devise climate-friendly development strategies.’ With these words the High-level Panel on Threats, Challenges and Change informed former UN Secretary General, Kofi Annan, about the way forward for the world community on the critical issue of climate change.18 Despite the clarity and simplicity of this mandate, the development of an international legal response to tackle climate change is a difficult task. Yet, it is a study par excellence of the attempt of the international community to understand and implement sustainable development.

17



18



See D. French, International Law and Policy of Sustainable Development (Manchester: Manchester University Press, 2005) 74. UN Doc. A/59/565, 2 December 2004, 30.

Part I Sustainable Development in International Law

Introduction

This part sets out from the hypothesis that the protection of the fragile equilibrium between the atmosphere, the waters, the soils, the ecosystems and the needs of humans to live in a peaceful, just and secure world, today and in the future, is channeled into law by the principle of sustainable development. As an integrative principle it aims at unifying the separate efforts to further diverse objectives of present communities to one universal, ultimate goal: the durable and equitable satisfaction of human needs and aspirations – whatever they might be – within the ultimate and absolute limits set by essential ecological systems that support life on Earth. In order to support this claim, we shall undertake three tasks: First, we shall investigate the evolution and content of sustainable development as a concept guiding State action (chapters 1 and 2). In the second step, the assessment of the concept’s reflection in the international climate change regime and the regime governing multilateral trade (WTO) will help to develop a more concrete understanding of sustainable development in these particular contexts (chapters 3, 4 and 5). Third, the legal nature of sustainable development, in particular the question whether it could be classified as a general principle of law, will be assessed (chapter 6).1



1

From a terminological perspective, references to the ‘concept’ of sustainable development relate to its socio-political and/or ethical content, while the word ‘principle’ in relation to sustainable development will be used when assessing the legal status and content of sustainable development.

Chapter 1

Origins and Development of the Concept of Sustainable Development in International Law The evolution of the concept of sustainable development has been elaborated at great length elsewhere.1 It is therefore not the aim of this treatise to provide a full assessment of the concept’s historic roots. An overview of its history, however, will assist the understanding of the concept. 1.1 A Concept with Ancient Roots? The origin of the concept of sustainable development cannot be exactly dated. It has been argued that the concept can be traced back to ancient times across diverse civilizations.2 As Judge Weeramantry noted,



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For a historic overview see M.C. Cordonier Segger and A. Khalfan, Sustainable Development Law: Principles, Practices and Prospects (Oxford: Oxford University Press, 2004) 15–78; U. Beyerlin, ‘The Concept of Sustainable Development’ in R. Wolfrum (ed.) Enforcing Environmental Standards: Economic Mechanisms as viable Means? (Berlin: Springer, 1996) 96–101; Y. Matsui, ‘The Road to Sustainable Development: Evolution of the Concept of Sustainable Development in the UN’ in K. Ginther, E. Denters and P.J.I.M. de Waart (eds.) Sustainable Development and Good Governance (Dordrecht: M. Nijhoff, 1995) 69; G. Handl, ‘Sustainable Development: General Rules versus Specific Obligations’ in W. Lang (ed.) Sustainable Development and International Law (London: Graham & Trotman, 1995) 35; P. Malanczuk, ‘Sustainable Development: Some Critical Thoughts in the Light of the Rio Conference’ in Ginther, Denters and de Waart (eds.) 1995, 23; P. Sands, ‘International Law in the Field of Sustainable Development’ (1994) 65:5 BYbIL 303–381. See Case Concerning the Gabčikovo-Nagymaros Project, ICJ Reports 7 (Separate Opinion of Vice-President Judge Weeramantry), where the concept is linked to ancient irrigation practises in Sri-Lanka, Sub-Saharan cultures, and practices in China and South America and Europe. Judge Weeramantry contends that the concept of sustainable development is ‘one of the most ancient ideas in the human heritage. Fortified by the rich insights that

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Sustainable Development as a Principle of International Law

[t]he concept of reconciling the needs of development with the protection of the environment is … not new. Millennia ago these concerns were noted and their twin demands well reconciled in a manner so meaningful as to carry a message to our age.3

For early societies, stability, rather than expansion, was a fundamental prerequisite for survival. As soon as expansionist intentions surfaced within a society, the equilibrium between conserving environmental goods and utilizing them for various needs was threatened. During the last two millennia population increase, expansion of populated territories, industrialization, globalization, and the introduction of religious and philosophical concepts that promote the unlimited utilization of nature for human’s satisfaction and liberalization paved a developmental path that does not recognize ecological constraints. As we shall see in the course of this study, such a path cannot be considered sustainable. Still, while the idea of reconciling the needs of development with the protection of the environment is not new, the concept of sustainable development in its current understanding certainly is. Looking back to ancient civilisation might reveal isolated examples of how societies with transparent structures defined themselves within their natural environment. The transferable value, however, is rather limited. Historical examples and even more modern cases4 need to be seen in the context of their place in human history and evolution. The complexity and global scope of current modern civilizations are hardly comparable to the structure of ancient ones. By referring to the governance of early societies, we risk answers that are too simple and potentially misleading for dealing with the complexity of problems humans have been creating since the dawn of the Industrial Revolution. The massive, systematic and multilayered interference with the finely tuned balance of ecological systems cannot be dealt with by reference to, for example, ancient irrigation systems. Rather than attempting to draw parallels, which might not exist, it is better to acknowledge the qualitative difference between the concept in its current understanding and its various historic predecessors.5 In particular,



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can be gained from millennia of human experience, it has an important part to play in the services of international law.’ (ibid., 12). Ibid., 6. One of the earliest examples can be found in the German forest management in the 18th century, proposed by Hanss Carl von Carlowitz in his work ‘Sylvicultura Oeconomica oder hauswirthliche Nachricht und Naturgemäße Anweisung zur wilden Baumzucht’, Leipzig, 1713. Some would even hold that sustainable development is a postmodern concept which has no historic roots whatsoever. See B. Stark, ‘Sustainable Development and Postmodern International Law: Greener Globalization?’ (2002) 27:137 Wm. & Mary Envtl. L. & Pol’y Rev., 137–192.



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in international relations and international law the concept of sustainable development is a recent development. 1.2 Sustainable Development’s Rise in the International Order In the early 1970s several factors, such as awareness of expanding environmental degradation, depletion of natural resources, poverty and social disruption, led States to realize the detrimental impact of human activity on the environment.6 At about the same time the concept of sustainable development surfaced in the international community and international law. It became apparent that the concept of development needed ‘re-formulation’. Insofar as the word ‘sustainable’ qualifies the way development should proceed, elaborating the concept of sustainable development put the notion of development itself in question. The 1972 Stockholm Declaration marked the beginning of a new conception of development; not in an environmental context, but with regard to its socio-political implications.7 The necessity of development was expressed in Article 8 of the Stockholm Declaration as follows: [e]conomic and social development is essential for ensuring a favourable living and working environment for man and for creating conditions on earth that is necessary for the improvement of the quality of life.

Development was no longer regarded in terms of gross national product but as a policy aimed at ‘better living conditions for all’. However, the ideal of unlimited development remained, with Article 11 of the Declaration calling on States not to take any steps to promote environmental protection without duly taking into account the effects on development policy. This shift initiated by the Stockholm Declaration was followed by developing a stronger focus on development paths in developing countries. The notion of ‘basic needs’ appeared alongside development aid and resourcing developing States. However, in the wake of ‘redefining’ development cooperation,8 links between development and basic environmental protection were starting to become internationally recognized.



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See Beyerlin, 1996, 97. Declaration of the United Nations Conference on the Human Environment (Stockholm) 16 June 1972, A/CONF.151/26 (Vol. I). See International Development Strategy for the Third Nations Development Decade, UNGA Res. 35/56, adopted 5 Dec. 1980.

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Sustainable Development as a Principle of International Law

One of the key documents dealing for the first time explicitly with development and its environmental limits was the 1980 World Conservation Strategy that aimed at achieving three main objectives:

(a) to maintain essential ecological processes and life-support systems (such as soil regeneration and protection, the recycling of nutrients, and the cleaning of waters) and which human survival and development depend; (b) to preserve genetic diversity …; (c) to ensure the sustainable utilization of species and ecosystems (notably fish and other wildlife, forests and grazing lands), which support millions of rural communities as well as major industries.9



Thus, by the time sustainable development was compellingly defined as “development that meets the needs of the present without compromising future generations to meet their own needs” in the report of the World Commission on Environment and Development (WCED), ‘Our Common Future’ in 1987,10 it had already gained currency in international efforts to deal with environmental challenges.11 Some of the earlier approaches to sustainable development aimed at establishing norms for environmental protection and conservation that were ecology-oriented rather than utilization-oriented. They also expressed an understanding of the relevance of environmental protection for social-economic interests and needs of developing countries.12 However, the idea of sustainable development as expressed by the WCED had the most far-reaching implications for international law. In the report, sustainable development was explained as a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development and institutional change are all in harmony and enhance both current and future potential to meet human needs and aspirations.13



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World Conservation Strategy, prepared by the IUCN, Gland Switzerland, 1980. The succeeding document, The World Charter for Nature, 1983, took this notion further in its Principle 4: ‘[e]cosystems and organisms, as well as the land, marine, atmospheric resources that are utilized by man, shall be managed to achieve and maintain optimum sustainable productivity, but not in such a way as to endanger the integrity of those other ecosystems or species with which they coexist.’ ILM 22 (1983), 457. World Commission on Environment and Development, 1987. See UNGA Resolution 7, UN GAOR 36th Sess., Suppl. No. 51, UN Doc. A/51 (1982). See Beyerlin, 1996, 97. WCED, 1987, 46.



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The World Commission called for overall transformation of policy and law based on the concept of sustainable development. The concept was seen as addressing the parallel challenges of environmental degradation and social and economic development by recognizing that economic and environmental goals are inextricably linked. The concept of ‘needs’ was considered a central component in the definition of sustainable development and any attempt at understanding sustainable development requires recognition of the needs, not just of the present generation, but also of posterity. The Commission pointed in particular to the fact that the essential needs of a vast number of peoples in the world’s less and least developed States are not being adequately met. Addressing the North-South gap, the report stated A world in which poverty and inequity are endemic will always be prone to ecological and other crises. Sustainable development requires meeting the basic needs of all and extending to all the opportunity to satisfy their aspirations for a better life.14

Nevertheless, ‘equitable opportunities for all’, including generations to come, has ever since proved a controversial and contentious issue in international relations.15 With the introduction of the concept of sustainable development, economic development, the environment, and human rights were supposed to be treated in an integrated manner. The WCSD formally recognized the interrelationships between these different areas of human activity in particular with regard to their detrimental impacts. Referring to environmental, developmental and energy crises citizens were facing throughout the world, the Commission stated [t]hey all are one. Ecology and economy are becoming ever more interwoven – locally, regionally, nationally and globally – into a seamless net of causes and effects.16

The report is widely viewed as the moment at which sustainable development became a broad policy objective17 or at least an aspirational goal.18 The inter

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WCED, 1987, 43–44. See the works by E. Brown-Weiss, ‘Our Rights and Obligations to Future Generations for the Environment’ (1990) 84:1 AJIL 190 and In Fairness to Future Generations: International Law, Common Patrimony and Intergenerational Equity (New York: Transnational Publishers, 1989). WCSD, 1987, 4. See Cordonier Segger and Khalfan, 2004, 19 with further references. See J. Verschuuren, Principles of Environmental Law: The Ideal of Sustainable Development and the Role of Principles in International, European and National Law (BadenBaden: Nomos, 2003) 21.

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national reaction to the report was, however, divided. Some argued that the WCED had not gone far enough and diluted the focus on environmental protection when simultaneously taking other interests into account.19 These scholars saw environmental destruction as the root cause of social and economic injustice. Environmental health and protection were seen as a prerequisite for just social and economic structures.20 To others the report was ‘neo-liberal’ in the sense that growth, progress and material wealth were seen as the dominant aspirations of human society for the meeting of which economic growth was a prerequisite.21 One of the most controversial issues related to the development path for developing countries. While developing countries want to remain free to choose their own development strategy and direction, sustainable development would imply certain limitations. As developing countries pointed out meeting essential needs depends on achieving full growth potential in places where such needs are not being met. Sustainable development was thus primarily perceived as imposing limitations on developed countries only while not interfering with the choice of developing countries on which development path to follow. It was seen as hypocritical of developed countries to insist on sustainable production and consumption patterns in developing countries as long as many of the former fail to rein in their own unsustainable practices. Despite the critique of the WCED report, its impetus toward the development of the concept of sustainable development on a global scale cannot be underestimated. Importantly, the WCED helped to shape a new perception of the earth and the crisis which it faces. The UN General Assembly, in its Resolution GA Res. 42/187 of 11. Dec. 1987, endorsed the findings of the report and concurred with the Commission that the critical objectives for environment and development must include preserving peace, reviving growth and changing its quality, remedying the problems of poverty and the satisfaction of human needs, addressing the problem of population growth and conserving and enhancing the resource base, reorienting technology and managing risk, and merging environment and economic decision-making.22

By 1992 and the United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro, the concept of sustainable development had 19 20 21 22



See Cordonier Segger and Khalfan, 2004, 19. See P.E. Taylor, An Ecological Approach to International Law: Responding to Challenges of Climate Change (London: Routledge, 1998) 212 et seq. See Cordonier-Segger and Khalfan, 2004, 19. UN Doc. A/C.2/42/L.81.



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already become an important global policy that could no longer be ignored. It had been included in a number of non-binding documents prior 1992, for example the 1989 Declaration of the G7 Paris Summit,23 the 1989 Hague Declaration on the Environment,24 the 1990 Bergen Declaration of the UN Economic Commission for Europe,25 and the 1990 Agreement establishing the European Bank for Reconstruction and Development (EBRD).26 Consequently, references to ‘sustainable development’ became incorporated into all UNCED documents.27 The Rio Declaration, a document setting out 27 principles, while reaffirming the 1972 Stockholm Declaration, introduced a ‘new approach and philosophy’ to international relations.28 The central focus of the document was on sustainable development as defined by the WCED Report. Principle 4 is important in this regard, it affirms that in order to achieve sustainable development, environmental protection must constitute an integral part of the development progress. This has to be read in the context of Principle 1, which states that Human beings are at the centre of concerns for sustainable development. They are entitled to a healthy and productive life in harmony with nature.



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28 ILM (1989) 1292, para. 37: ‘In order to achieve sustainable development, we shall ensure the compatibility of economic growth and development with the protection of the environment.’ 28 ILM (1989)1308: ‘Financial institutions and development agencies, by they international or domestic, must co-ordinate their activities in order to promote sustainable development.’ UN Doc. A/CONF.151/PC/10, 6 August 1990, para. 6: ‘The challenge of sustainable development of humanity depends on providing sustainability of the biosphere and its ecosystems.’ 29 ILM (1990) 1077, Article 2.1(vii):’ [promoting] in the full range of its activities environmentally sound and sustainable development’. These are: the Rio Declaration on Environment and Development, Agenda 21, The UN Framework Convention on Climate Change, the Convention on Biological Diversity and the Statement of Principles to Guide the Management, Conservation and Sustainable Development of all Types of Forests (‘Forest Principles’). For an overview over the outcome of the UNCED with regard to the development of the concept of sustainable development see: A. Kiss and D. Shelton, International Environmental Law, 3rd ed. (Ardsley, New York: Transnational Publishers, 2004); P. Sands, Principles of International Environmental Law, 2nd ed. (Cambridge: Cambridge University Press, 2003), P. Birnie and A. Boyle, International Law and the Environment, 2nd ed (Oxford: Oxford University Press, 2002); D. Hunter, J. Salzman and D. Zaelke, International Environmental Law and Policy, 2nd ed. (New York: Foundation Press, 2002) 178–204. UN Doc. A/CONF.151/26 (Vol.1), Rio Declaration on Environment and Development 1992. See also Cordonier Segger and Khalfan, 2004, 20.

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Sustainable Development as a Principle of International Law

The Preamble to the Agenda 21 gives another example of the centrality of the concept in the ‘Rio-documents’: Humanity stands at a defining moment in history. We are confronted with a perpetuation of disparities between and within nations, a worsening of poverty, hunger, ill health and illiteracy, and the continuing deterioration of the ecosystems on which we depend for our well-being. However, integration of environment and development concerns and greater attention to them will lead to the fulfilment of basic needs, improving living standards for all, better protected and managed eco-systems and a safer, more prosperous future. No nation can achieve this on its own; but we together can – in a global partnership – for sustainable development.

These two very general and legally non-binding documents emanate an aura of ideological aspirations. In this context, criticism of the concept’s indeterminacy and ambiguity is comprehensible.29 When a concept is meant to cover everything, it is likely to say nothing. Thus, decision-makers ever since have applied a wide margin of discretion in their appreciation of how to structure and use arguments based on sustainable development, leading to diverse, sometimes irreconcilable and contradictory decisions. In the decade between 1992 UNCED and the 2002 World Summit on Sustainable Development (WSSD) in Johannesburg, the global community began to embrace sustainable development. States gradually started to implement Agenda 21 principles into national policies and laws.30 Furthermore, international organisations, such as the United Nations with the establishment of the Commission on Sustainable Development (CSD) and the United Nations Environmental Program (UNEP),31 the World Bank,32 the

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See M. McCloskey, ‘The Emperor has no Clothes: The Conundrum of Sustainable Development’ (1998–1999) 9 Duke Environmental Law and Policy Forum, referring to the concept as a ‘fine phrase without meaning’, 157. See United Nations Commission on Sustainable Development, National Information Report of the Secretary-General (New York, UN CSD, 1999). See also FAO, Law and Sustainable Development Since Rio: Legal Trends in Agriculture and Natural Resource Management, (Rome: United Nations Publications, 2002). See for example the 1996 Final Report of the Expert Group Workshop on International Environmental Law aiming at Sustainable Development, UNEP/IEL/WS/3/2, 4 October 1996. See World Bank Sustainable Development Reference Guide, 2005. Also the creation of a new Sustainable Development Unit, merging the Banks departments that deal with infrastructure and environmental projects, indicates a commitment to sustainable development. See Reuter’s Press Release, Wolfowitz creates new sustainable development unit, 27 June 2006.



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World Trade Organization,33 the Global Environmental Facility (GEF),34 the Organization of Economic Co-operation and Development (OECD),35 the Arctic Council,36 the World Water Forum,37 and the African Union38 – just to mention a few – have adopted the concept of sustainable development and have been working actively to identify specific ‘indicators’ for measuring progress toward sustainable development.39 1.3 International Treaty Law International treaty law and non-binding documents are increasingly incorporating references to sustainable development in specific contexts. An important number of multilateral agreements have embodied the concept and thus shed light on its definition from the perspective of their respective objectives and purposes.40 As will be assessed in more detail in chapter

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The preamble to the 1994 Marrakech Agreement Establishing the World Trading Organization (33 ILM, 1994, 15, Preamble: ‘allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development’. 1994 Instrument Establishing Global Environmental Facility, 33 ILM (1994) 1273, Article 1.4: ‘The GEF shall ensure the cost-effectiveness of its activities in addressing the targeted global environmental issues, shall fund programs and projects which are country driven and based on national priorities designed to support sustainable development’. See DAC Guidelines: Strategies for Sustainable Development, OECD, 2001. The OECD notes on its website: ‘OECD Ministers recognise that sustainable development is an overarching goal for their governments and the OECD. OECD countries bear a special responsibility in achieving sustainable development worldwide. OECD activities are overseen by the Annual Meeting of Sustainable Development Experts (AMSDE), who review special projects as well as progress in mainstreaming sustainable development concepts into the overall work of the OECD’ (). 1996 Declaration on the Establishment of the Arctic Council, 35 ILM 1996, 1382, preamble: Affirming our commitment to sustainable development in the Arctic region’. Ministerial Declaration of the Third World Water Forum in 2003, Paragraph 1: ‘Water is a driving force for sustainable development’. 2000 Constitutive Act of the African Union, Article 3 (j): ‘promote sustainable development at the economic, social and cultural levels as well as the integration of African economies’ (). See T.C. Tryzna (ed.) A Sustainable World: Defining and Measuring Sustainable Development (Sacramento, California: International Center for the Environment and Public Policy, 1995) 23. Examples include the Convention on Biological Diversity, Article 2 and Article 8; Preamble to the Cartagena Protocol on Biosafety to the Convention on Biological Diversity, 39 ILM (2000), 1027, adopted January 29, 2000, in force since September 1, 2003: ‘Recognizing that trade and environment Agreements should be mutually supportive with a view to achieve sustainable development.’; Preamble to the International Tropical Timber Agreement, January 26, 1994, 33 ILM 1994, 1014; Convention on Persistent Organic

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Sustainable Development as a Principle of International Law

2, the international climate regime makes particular reference to sustainable development. Both the UN Framework Convention on Climate Change and its Kyoto Protocol embrace it.41 In fact, the adoption of the Climate Convention and the Kyoto Protocol could be seen as a universal commitment to sustainable development.42 Moreover, the 1994 Energy Charter Treaty,43 the North American Free Trade Agreement (NAFTA),44 the 1994 Marrakesh Agreement Establishing the WTO,45 the 1994 Declaration of Barbados and the Programme of Ac-

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Pollutants (POPs), 40 ILM 532, Stockholm May 22, 2001, Article 7.3: ‘The parties shall endeavour to utilize and, where necessary, establish the means to integrate national implementation plans for persistent organic pollutants in their sustainable development strategies where appropriate.’ and Annex F (c) which contains ‘ movement towards sustainable development’ as a relevant socio-economic factor in evaluating possible control measures for chemicals under consideration for inclusion in the Convention; Preamble to the Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade, 38 ILM 1, September 10, 1998, 1994 Desertification Convention (Convention to Combat Desertification in those Countries Experiencing Serious Drought and/or Desertification, particularly in Africa, 33 ILM (1994) Article 9.1: The preparation of national action programmes shall be closely interlinked with other efforts to formulate national policies for sustainable development’; 1998 Aarhus Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters, 39 ILM (1999) 517, preamble: ‘Affirming the need to protect, preserve and improve the state of the environment and to ensure sustainable and environmentally sound development’; 2003 WHO Framework Convention on Tobacco Control, 42 ILM (2003) 518, Article 26: ‘economically viable alternatives to tobacco production, including crop diversification should be addressed and supported in the context of nationally developed strategies of sustainable development.’ Article 3(4) UNFCCC: ‘The Parties have a right to, and should promote, sustainable development.’ P. Sands, ‘International Law in the Field of Sustainable Development’ (1994) BYBIL, 304; D. French, ‘Climate Change Law: Narrowing the Focus, Broadening the Debate’ in Cordonier-Segger and Weeramantry, 2005, 274. 34 ILM (1995) 360, Article 19.1: ‘In pursuit of sustainable development and taking into account its obligation under those international agreements concerning the environment to which it is a party, each Contracting Party shall strive to minimize in an economically efficient manner harmful environmental impacts’. 32 ILM (1993) 289 and 605; preamble: ‘Promote sustainable development’. See also the supplementary 1993 North American Agreement on Environmental Cooperation (32 ILM 1993, 1480, Article. 1: ‘promote sustainable development based on co-operation and mutually supportive environmental and economic policies’. See Preamble: ‘with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels



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tion of the Global Conference on Sustainable Development of Small Island Developing States,46 and the 2000 Cotonou Agreement between the EU and the African, Caribbean and Pacific Group of States47 give further evidence of the topically and geographically wide-spread acceptance and incorporation of sustainable development. 1.4 Regional and National Laws Parallel to embracing sustainable development in an increasing number of international legal documents, also national and regional laws and conventions recognise the concept. Both developments signal a gradually growing commitment by the international community to sustainable development. Examples of the recognition of the concept of sustainable development include the changes made by the 1997 Treaty of Amsterdam to both the EC Treaty and the 1992 Maastricht Treaty on the European Union. Article 2 of the Treaty Establishing the European Union mentions the achievement of sustainable development as a fundamental objective of the European Union: The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing common policies or activities referred to in Articles 3 and 4, to promote throughout the Community a harmonious, balanced and sustainable development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable and non-inflationary growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.



46 47

of economic development’ and to ‘to develop an integrated, more viable and durable multilateral trading system’. UN Doc. A/CONF.167/9, October 1994. 2000 OJ L. 317/3; Article 1: ‘The partnership shall be centered on the objective of reducing and eventually eradicating poverty consistent with the objectives of sustainable development and the gradual integration of ACP countries into the world economy’, Article 9: ‘Respect for all human rights and fundamental freedoms, including respect for fundamental social rights, democracy based on the rule of law and transparent and accountable governance are an integral part of sustainable development’, Article 10: ‘The Parties consider the following elements as contributing to the maintenance and consolidation of a stable and democratic political environment: sustainable and equitable development involving, inter alia, access to productive resources, essential services and justice’ and art 32.1: ‘Co-operation on environmental protection and sustainable utilization and management of natural resources shall aim at: (a) mainstreaming environmental sustainability into all aspects of development co-operation and support programmes and projects implemented by the various actors.’

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The EU Treaty also embraces the concept in Article 6: ‘Environmental protection requirements must be integrated into the definition and implementation of the Community policies and activities referred to in Article 3, in particular with a view to promoting sustainable development.’ This reference also informs Article 2 of the EC Treaty thereby acting as a ‘bridge’ between the EC as an economic community and as an environmental one.48 The Preamble of the 2001 Nice Charta of Rights refers to ‘balanced and sustainable development’49 and the 2003 Draft Constitution of the EU to the concept of sustainable development. Article 3(3) proclaims sustainable development a goal of the Union: The Union shall work for the sustainable development of Europe based on balanced economic growth, a social market economy, highly competitive and aiming at full employment and social progress, and with a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.50

According to Article 3(5) of the Lisbon Treaty, the EU is committed to promoting sustainable development. In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to peace, security, the sustainable development of the earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and protection of human rights and in particular the rights of the child, as well as to strict observance and development of international law, including respect for the principles of the United Nations Charter.51

Numerous references in national laws could be added which evidence the growing acceptance of the concept by States. Many national constitutions 48



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W. Frenz and H. Unnerstall, Nachhaltige Entwicklung im Europarecht (Baden-Baden: Nomos, 1999) 195. See also Article 37: Environmental protection. A high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development. Charter of Fundamental Rights of the European Union (2000/C 364/01) 18.12.2000. Draft Treaty Establishing a Constitution for Europe, CONV 850/03, 18 July 2003. Article 3.5 (emphasis added) of the consolidated versions of the Treaty on the European Union and the Treaty on the Functioning of the European Union as they will result from the amendments introduced by the Treaty of Lisboa, signed on 13 December 2007 in Lisboa. See also H. Veinla, ‘Sustainable Development as the Fundamental Principle of Europe’s Environmental Ius Commune’ (2005) X Juridica International, arguing that ‘the environmental europa ius commune is framed by the sustainable development principle’(115).



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include such references. States worldwide are establishing political and legal systems that incorporate sustainable development as a top priority. The general commitment to sustainable development at the national level bears fruit in attempts undertaken to put in place governance structures that enable the implementation of the concept in a wide scope of institutions. Since this present thesis is not aimed at providing empirical evidence of State practice, a few examples must suffice to indicate the commitment to sustainable development.52 German Basic Law, for example, ‘mindful also of its responsibility toward future generations’ proclaims in Article 20 (a) the state’s responsibility to ‘protect the natural bases of life by legislation and, in accordance with law and justice, by executive and judicial action, all within the framework of the constitutional order’ as a key objective of the German State, in particular the legislature (Staatsziel). It has been argued that this is an implicit reference to the constitutionalization of sustainable development in German law.53 Other, non-exhaustive, examples of States explicitly incorporating sustainable development into national laws and institutions include Norway,54



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See for a more encompassing survey: R. Bartholomäi, Sustainable Development und Völkerrecht. Nachhaltige Entwicklung und intergenerative Gerechtigkeit in der Staatenpraxis (Baden-Baden: Nomos, 1997). See K.-P. Sommermann, Kommentierung zu Article 20 a GG, in I. von Münch and Philip Kunig (eds.) Grundgesetz Kommentar, 3 Bde., Bd. 2: Articles 20 bis 69, 5.ed. (München: Beck Juristischer Verlag, 2001) Nr. 11. For further discussion of the concept of sustainable development in German laws, jurisprudence and legal literature, see E.M. Frenzel, Nachhaltigkeit als Prinzip der Rechtsentwicklung?: Beitrag zu einer praktischen Gesetzgebunglehre (Baden-Baden: Nomos, 2005) 60–64 and 65–77. See for example, Government of Norway, Nasjonal Strategi for Bærekraftig Utvikling, 14.08.2000; Ministry for the Environment, White Paper (St meld) Nr. 58 (1996–1997) Miljøvernpolitikk for en bærekraftig utvikling. Dugnad for framtida (Environmental Policy for Sustainable Development. Action for the Future); Politisk plattform for en flertallsregjering 2005–2009, Kapittel 1: Regjeringen vil bygge sin miljøpolitikk på prinsippet om bærekraftig utvikling. Also the Norwegian Constitution implicitly embraces the concept in Article 110b: Every person has a right to an environment that is conducive to health and to natural surroundings whose productivity and diversity are preserved. Natural resources should be made use of on the basis of comprehensive long-term considerations whereby this right will be safeguarded for future generations as well. (See for a discussion of the implicit reference: Bugge, 2006a, 64–65, 74–78.) Another example is provided by the Svalbard Act: 5te kapitel, ”Longyearbyen lokalstyre”, § 29 1. ledd: Formålet med dette kapitlet er å legge forholdene til rette for et funksjonsdyktig lokalt folkestyre i Longyearbyen, og for en rasjonell og effektiv forvaltning av fellesinteressene innenfor rammen av norsk svalbardpolitikk, og med sikte på en miljøforsvarlig og bærekraftig utvikling av lokalsamfunnet. (Lov 1925-07-17 nr. 11. Provision added 15 June 2001).

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Australia,55 Argentina,56 and New Zealand.57 These references serve to demonstrate the commitment to the concept on different international and regional levels and in different contexts. 1.5 The New Millennium The United Nations Adoption of the 2000 Millennium Development Goals, which include a clear commitment to environmental sustainability, indicates another important step toward global acceptance of the concept of sustainable development.58 Furthermore, in 2001 at the World Trade Organisation meeting in Doha, Qatar, the trade ministers of the WTO Member States agreed to launch a new round of trade and economic liberalization, called the ‘Doha Development Agenda (DDA)’. The results of this ministerial meeting included the Ministerial

55



56



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58



Australian legislation refers explicitly to ‘ecologically sustainable development’. For example, Article 1 (b) of the Environment Protection and Biodiversity Conservation Act 1999, states as one of the objects of the Act ‘to promote ecologically sustainable development through the conservation and ecologically sustainable use of natural resources’. Similarly, the Environment Protection Act 1979 (Act No. 8056/1970) of Victoria embraces the ‘Principle of integration of economic, social and environmental considerations. Article 1B reads: ‘(1) Sound environmental practices and procedures should be adopted as a basis of ecologically sustainable development for the benefit of all human beings and the environment. (2) This requires the effective integration of economic, social and environmental considerations in decision making processes with the need to improve community well-being and the benefit of future generations’. Argentina’s Ministry for the Environment, for example provides for a Sustainable Development and Environment Secretariat (Secretaría de Ambiente y Desarrollo Sustentable). See the New Zealand Government publication Sustainable Development Programme of Action, January 2003 (); see also the Ministry for Environment webpage where it is stated that ‘The New Zealand Government has agreed that sustainable development principles should underpin its economic, social and environmental policies at home, and abroad. ‘Sustainable development” integrates concern for social, economic and environmental issues, and involves thinking broadly about objectives, considering long-term as well as short-term effects, assessing indirect as well as direct effects, and taking extra care when changes brought about by development might be irreversible.” At: . See also the Report of the Parliamentary Commissioner for the Environment ‘Creating our Future: Sustainable Development for New Zealand’, August 2002, . 7th goal in UNGA Res. 53/239 (5. Sept. 2000), see also .



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25

Declaration, which reaffirmed the commitment of the organization to the concept of sustainable development.59 The 2002 World Summit for Sustainable Development (WSSD) aimed to address social, environmental and economic problems in an integrated way.60 Its outcome is contained in two main documents, the Johannesburg Declaration (JD)61 and the Johannesburg Plan of Implementation (JPOI).62 The JD reviews the course taken from UNCED to the WSSD and reinvigorates a global commitment to sustainable development. The Plan of Implementation is more progressive for that matter as it is designed as a framework for action to implement the commitments originally agreed at UNCED.63 The JPOI promotes sustainable development as an integrated concept that takes a wider array of social and developmental needs into account. In particular, the priority areas that were identified by the UN Secretary-General were given specific attention. These areas include water and sanitation, energy, health, agriculture and biodiversity (‘WEHAB’). The JPOI reflects a renewed emphasis given to the need for greater coherence and integration among ‘the three pillars of sustainable development, which consist of economic, environmental and social parameters.64 Already the WCED almost twenty years ago had pointed to the inequalities between the North and the South that, again, were strongly criticised in Johannesburg. The relationship between poverty and environmental degradation was as prominent an international issue then as it is today. The adoption of the Millennium Development Goals (MDGs) by the United Nations General Assembly in 2000, the agreement on the Johannesburg Declaration and the Plan of Implementation show how much of the WCED report remains valid

59



60 61



62



63



64

See Doha Ministerial Declaration WT/MIN (01)/DEC/1 (20 Nov. 2001) or: . See also M. Gehring and M.C. Cordonier-Segger (eds.) Sustainable Development in World Trade Law (The Hague: Kluwer Law International, 2005). See for further details in Cordonier Segger and Khalfan, 2004, 25–43. See Johannesburg Declaration on Sustainable Development, in Report of the World Summit on Sustainable Development, Johannesburg, South Africa, 26 Aug.–4 Sept. 2002, A/ CONF.199/20, New York, UN, 2002. See Johannesburg Plan of Implementation, Report of the World Summit on Sustainable Development, A/CONF.199/20 or: . For an overview over the eleven chapters of the POI see Table 2.1: Structure of the Johannesburg Plan of Implementation in Cordonier Segger and Khalfan, 2004, 27–28. See generally K. Gray, ‘World Summit on Sustainable Development: Accomplishments and New Directions?’ (2003) 52:1 International and Comparative Law Quarterly 256–268; Earth Negotiations Bulletin, Summary of the World Summit on Sustainable Development, 22:51 ENB (2002).

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Sustainable Development as a Principle of International Law

today. Moreover, these new efforts are a reminder that many problems outlined by the World Commission not only remain still unresolved but continue to aggravate.65 The WSSD has been widely criticised for failing to make significant progress. Apart from reiterations of its commitment to sustainable development,66 no contribution of any substance to define sustainable development has been made. Rather, it has been critically observed that the concept was inflated by the addition of a number of new issues. Concerns of good governance67 and human rights protection, mostly related to poverty eradication and health issues, are claimed to have been added to the concept of sustainable development.68 Still, the Plan of Implementation presents a conceptualization of sustainable development that follows much the same lines as already identified by the WCED. The JPOI stated efforts will also promote the integration of the three components of sustainable development – economic development, social development and environmental protection – as interdependent and mutually reinforcing pillars. Poverty eradication, changing 65



66



67



68



D. French, International Law and Policy of Sustainable Development (Manchester: Manchester University Press, 2005) 15. The Johannesburg Declaration notes: ‘Thirty years ago, in Stockholm, we agreed on the urgent need to respond to the problem of environmental deterioration. Ten years ago, at the United Nations Conference on Environment and Development, held in Rio de Janeiro, we agreed that the protection of environmental and social and economic development is fundamental to sustainable development, based on the Rio Principles. To achieve such development, we adopted the global programme entitled Agenda 21 and the Rio Declaration on Environment and Development, to which we reaffirm our commitment. The Rio Conference was a significant milestone that set a new agenda for sustainable development. At the Johannesburg Summit, we have achieved much in bringing together a rich tapestry of peoples and views in a constructive search for a common path towards a world that respects and implements the vision of sustainable development. The Johannesburg Summit has also confirmed that significant progress has been made towards achieving a global consensus and partnership among all the people of our planet.’ Paragraphs 8, 10, footnotes removed. 2002 Plan of Implementation, para. 4: ‘Good Governance within each country and at the international level is essential for sustainable development’ 2002 Plan of Implementation, para. 46: ‘The goals of sustainable development can only be achieved in the absence of a high prevalence of debilitating diseases. There is urgent need to address the causes of ill health, including environmental causes.’ See also S. Giorgetta, ‘The Right to a Healthy Environment, Human Rights and Sustainable Development’ (2002) 2:2 International Environmental Agreements: Politics, Law and Economics, 171–192. See also: United Nations Development Programme (UNDP), Integrating Human Rights with Sustainable Human Development (New York: United Nations, 1998); and S. Jodoin, The Principle of Integration and Interrelationship in Relation to Human Rights and Social, Economic and Environmental Objectives, CISDL Working Paper, March 2005.



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27

unsustainable patterns of production and consumption, and protecting and managing the natural resource base of economic and social development are overarching objectives of, and essential requirements for, sustainable development.69

The scope of sustainable development remains controversial and has brought about numerous conceptual and practical difficulties. The fear, however, expressed by some that the WSSD broadened the scope of sustainable development to such an extent it has lost its initial focus, turning it into an ‘umbrella for a host of disparate issues’, a ‘catch-all phrase’70 is exaggerated. Though there is a danger of a diluting effect of such wide rhetoric, the WSSD highlighted correctly the broad scope of sustainable development.71 The rhetoric is only indicative of the complexity of the concept and the many relations it aims to address.72 Moreover, the WSSD has pointed to the pressing urgency of promoting sustainable development within the international community and, concurrently, the continued difficulties that exist as regards meaningful implementation.73 As increasingly apparent, the concept of sustainable development has been accepted and endorsed by the world community despite the absence of an absolute and precise definition. The difficulties faced during the WSSD highlighted to some extent the continuing tensions and insecurities in the search of the international community for a common understanding of sustainable development. However, absolute precision as to the meaning and scope may not be achievable. It might not even be desirable. As Simma notes, perhaps it is inevitable that content and contours of an integrative concept such as that of sustainable development which was endorsed by the world community as a whole, lacks the kind of clarity of articulation of concepts one might be accustomed to in a more limited, homogenous group of States. However, that needs not necessarily be considered a disadvantage. Indeed, it may well have been the very lack of conceptual rigor which permitted the entire world community to embrace it.74



69 70



71 72



73 74

2002 Plan of Implementation, para. 2. See ILA, Berlin Conference 2004, 8. Also: M. Pallemaerts, ‘Is Multilateralism the Future? Sustainable Development or Globalization as “A Comprehensive Vision of the Future of Humanity”’ (2003) 5:1–2 Environment, Development and Sustainability, 275–295. ILA, Berlin Conference, 2004, 8. Gray notes that the list of issues might be much longer: ‘[n]o longer a defined environmental issue, the concept of sustainable development was enlarged to include broader concerns … However, these linkages are still far from complete’, Gray, 2003, 267. See ILA, Berlin Conference, 2004, 12. B. Simma, ‘Foreword’ in N. Schrijver and F. Weiss (eds.) International Law and Sustainable Development: Principles and Practice (Leiden: Martinus Nijhoff, 2004) vi.

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Sustainable Development as a Principle of International Law

One indication of the general acceptance of the concept of sustainable development is its reflection within the legal sphere. Work on the assessment of the legal implications of sustainable development, the development of legal tools, institutional arrangements, international standards, procedures, financial mechanisms and compliance and enforcement techniques in various international institutions and commissions give clear signs of consolidation and implementation of the concept. In fact, one obvious outcome of the WSSD is the call for a strong ‘legal backup’ of the concept. Though the discussions at the WSSD on international law pertaining to sustainable development failed, the legal development is not stagnant.75 Quite the opposite in fact, the renewed commitment to sustainable development coupled with a broadened scope demands stronger inquiries into the legal substance of the concept, in particular the aspect of integration. Since integration is pivotal to sustainable development,76 more work needs to be done to legally elucidate and implement this component. 1.6 Recent Legal and Political Developments The concept continues to evolve and will do so even more when the international community starts facing the fundamental challenges identified by the UN Secretary-General’s High-level Panel on Threats, Challenges and Change.77 Among these threats, a changing climatic system has been identified as one of the most fundamental tests to the functioning of the international community. Given the dire implications of the manifold challenges climate change poses not only to the cooperation between States but also to the co-existence of the various members of the international community, the centrality of sustainable development becomes apparent. To further enhance the process of development and implementation of sustainable development in international law, the International Law Association 75



76



77

See Cordonier Segger and Khalfan, 2004, 103–109; M. Pallemaerts, ‘International Law and Sustainable Development: Any Progress in Johannesburg?’ (2003) 12:1 RECIEL 7. See also L. Rajamani, ‘From Stockholm to Johannesburg: The Anatomy of Dissonance in the International Environmental Dialogue’ (2003) 12:1 RECIEL, 23–32. ILA, Berlin Conference, 2004, 13. Former United Nations Secretary-General Kofi Annan established the High-Level Panel on Threats, Challenges and Change in an address to the General Assembly on 23 September 2003. The Panel came up with 101 recommendations: ‘Executive Summary, Our Shared Responsibility’, Report of the Secretary-General’s High-level Panel on Threats, Challenges and Change, 2004. On April 17, 2007, the UN Security Council held the first-ever debate on the impact of climate change on peace and security.



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29

(ILA) established the Committee on Legal Aspects of Sustainable Development, which completed its work in 2002.78 The final result of this committee’s work is the ILA New Delhi Declaration of Principles of International Law Relating to Sustainable Development.79 In this Declaration, the ILA noted how sustainable development is now widely accepted as a global objective and that the concept has been aptly recognized in various international and national legal instruments. The Association expressed the view that the objective of sustainable development involves a comprehensive and integrated approach to economic, social and political processes, which aims at the sustainable use of natural resources of the Earth and the protection of the environment on which nature and human life as well as social and economic development depend and which seeks to realize the right of all human beings to an adequate living standard on the basis of their active, free and meaningful participation in development and in the fair distribution of benefits resulting there from, with due regard to the needs and interests of future generations.80

ILA then created an International Committee on International Law on Sustainable Development, chaired by Professor Schrijver, which published its first report at the Berlin Conference in 2004 and the second one at the Toronto Conference in 2006.81 Both reports identify as a key feature of the committee’s work the principle of integration, both in substantive and in procedural terms.82 In its New Delhi Declaration, the ILA recognized that The principle of integration reflects the interdependence of social, economic, financial, environmental and human rights aspects of principles and rules of international law relating to sustainable development, as well as of the needs of current and future generations.83

78



79



80 81



82



83

Five reports were adopted between 1994 and 2002. For the most recent see: Report of the Seventieth Conference, New Delhi (2002). ILA Resolution 3/2002, annex as published as UN Doc. A/57/329, New Delhi Declaration of Principles of International Law Relating to Sustainable Development, International Environmental Agreements: Politics, Law and Economics 2: 211–216, 2002. Ibid., 212. ILA, Berlin Conference (2004), International Law on Sustainable Development, First Report. ILA, Toronto Conference (2006), Report of the Committee International Law on Sustainable Development. The report notes that ‘[i]n particular, in ensuring that the principle of integration is implemented as fully as possible, the committee is likely to wish to pay specific consideration to the development and/or refinement of the techniques within international law (including judicial techniques) to resolving conflicts within the context of sustainable development. Such conflicts are potentially both of substantive and jurisdictional nature.’, ibid., 13, fn. 67. New Delhi Declaration, Principle 7.

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Sustainable Development as a Principle of International Law

The study of the current status in international law and the further implementation of the principle of integration will continue to constitute the principal area of the committee’s work. Other recent examples of continued efforts to fine-tune the understanding of sustainable development are the ongoing work on the Draft International Covenant on Environment and Development prepared by IUCN and the International Council on Environmental Law,84 the 2002 International Jurists’ Mandate for the Implementation of International Sustainable Development Law,85 the 2002 Johannesburg Principles on the Role of Law and Sustainable Development,86 the Earth Charter Initiative,87 and the 2005–14 UN Decade of Education for Sustainable Development.88 They are further indications of a global commitment to sustainable development. Within the European Union, much work has been carried out to prepare a renewed sustainable development strategy. Member States were consulted and their reports included into the strategy which was adopted in June 2006.89 In June 2005, the Council approved the ‘Declaration on the Guiding Principles for Sustainable Development’ and concluded that sustainable development is a key principle governing all the Union’s policies and activities. In this context, it is worth noting the final definition in the 2006 Renewed EU Sustainable Development Strategy adopted by the European Council in 2007: Sustainable development means that the needs of the present generation should be met without compromising the ability of future generations to meet their own needs. It is an overarching objective of the European Union set out in the Treaty, governing all the

84



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86 87



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The objective of the Draft Covenant is to ‘achieve environmental conservation as an indispensable component of sustainable development though establishing integrated rights and obligations’ (Part I, Article 1). In the Preamble the Parties express their belief that ‘humanity stands at a decisive point in history, which calls for a global partnership to achieve sustainable development. (). Adopted at the International Conference ‘Sustainable Justice’ 2002 in Montreal, Canada. Adopted at the Global Judges Symposium held in Johannesburg, South Africa, 18–20. August 2002. See Preamble: ‘We must join together to bring forth a sustainable global society founded on respect or nature, universal human rights, economic justice, and a culture of peace.’ (). UN Resolution on the United Nations Decade of Education for Sustainable Development (2005–2014), 57/254, December 2002. The overall goal of the DESD is ‘to integrate the values inherent in sustainable development into all aspects of learning, to encourage changes in behaviour that allow for a more sustainable and just society for all’. (http:// portal.unesco.org/education). For the entire process see .



Chapter 1 – Origins and Development of Sustainable Development

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Union’s policies and activities. It is about safeguarding the earth’s capacity to support life in all its diversity and is based on the principles of democracy, gender equality, solidarity, the rule of law and respect for fundamental rights, including freedom and equal opportunities for all. It aims at the continuous improvement of the quality of life and well-being on Earth for present and future generations. To that end it promotes a dynamic economy with full employment and a high level of education, health protection, social and territorial cohesion and environmental protection in a peaceful and secure world, respecting cultural diversity.90

To achieve the aim of sustainable development the Council adopted a number of objectives and principles, the first of the key objectives being environmental protection. It states: Safeguard the earth’s capacity to support life in all its diversity, respect the limits of the planet’s natural resources and ensure a high level of protection and improvement of the quality of the environment. Prevent and reduce environmental pollution and promote sustainable consumption and production to break the link between economic growth and environmental degradation.

Moreover, the Strategy sets overall objectives and concrete actions for seven key priority challenges for the coming period until 2010, many of which are predominantly environmental, the first one being: climate change and clean energy.91 Seen together, the listed efforts give evidence of a firm and wide-spread commitment to sustainable development. 1.7 In Sum When looking at the evolution of the concept of sustainable development it becomes apparent that the diversity and plurality of interests within the international community have shaped and expanded the scope of objectives and priorities that are bound together by the concept of sustainable development.

90



91

The Council of the European Union, Brussels, 9 June 2006 (adopted 15.-16. June 2006) 10117/06, Annex: Renewed EU Sustainable Development Strategy, 2. The strategy is based on the Communication from the Commission to the Council and the European Parliament, Draft Declaration on Guiding Principles for Sustainable Development, COM(2005) 218 final, 25.5.2005 and Council of the European Union, Presidency Conclusions, 10255/05 CONCL 2, 18. 06. 2005. For a thorough discussion of the impact of the strategy on EU policy making see: M. Pallemearts and A. Azmanova, The EU and Sustainable Development: Internal and External Dimensions (Brussels: VUBPress, 2006). European Council conclusions 14 December 2007 (§ 56).

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Sustainable Development as a Principle of International Law

There is (almost) no issue of international concern that has not or cannot be linked to sustainable development. Sustainable development thus provides the ‘lens’ through which the plurality of issues and interests can meaningfully be discussed. Finding a balance between the various elements, however, remains at the heart of the political debate over sustainable development. This balance is the key to establishing meaning and finding successful solutions to current problems of the world community. There is, apparently, urgency to this task, as expressed by the Council of the European Union: Unsustainable trends in relation to climate change and energy use, threats to public health, poverty and social exclusion, demographic pressure and ageing, management of natural resources, biodiversity loss, land use and transport still persist and new challenges are arising. Since these negative trends bring about a sense of urgency, short term action is required, whilst maintaining a longer term perspective. The main challenge is to gradually change our current unsustainable consumption and production patterns and the non integrated approach to policy-making.92

The conceptualization of sustainable development in the 2002 Plan of Implementation adopted in Johannesburg gives an indication of the conditions the international community has identified for sustainable development. As the Plan noted, Poverty eradication, changing unsustainable patterns of production and consumption, and protection and managing the natural resource base of economic and social development are overarching objectives of, and essential requirements for, sustainable development.93

However, the discussion of diverse interests within the integrative framework of sustainable development also raises fundamental questions about the relationship of these various components to each other. Arguably, the framing of these objectives within the concept of sustainable development will eventually identify indispensable priorities and, thus, establish some sort of hierarchical structures. The simultaneous pursuit of all these objectives and aspects might be too demanding and challenging a task to lead to any measurable success. As McGoldrick stated, ‘[t]he critical importance of sustainable development is that it is an integrationist principle … The relative weighting of economic,

92



93



The Council of the European Union, Brussels, 9 June 2006 (adopted 15–16 June 2006) 10117/06, Annex: Renewed EU Sustainable Development Strategy, 2. 2002 PoI, para. 2.



Chapter 1 – Origins and Development of Sustainable Development

33

environmental and human rights norms has become increasingly complex.’94 Thus, the critical aspect of sustainable development is the integration of these components and objectives within the scope of the concept.



94

D. McGoldrick, ‘Sustainable Development and Human Rights: An Integrated Approach’ (1996) 45:4, International and Comparative Law Quarterly, 818.

Chapter 2

Integration as a Central Aspect of Sustainable Development

2.1 Introduction The concept of sustainable development consists of various components. Deriving from the complexity of the concept, these components have been defined and categorized in different ways. Depending on the field of science undertaking to define these components, also the methodological approaches differ significantly.1 In the legal realm, in particular in public international law, a range of diverse components has been identified. Sands, for example, distinguishes four main elements;2 the International Law Association defines seven core principles;3 and a report published by the European Commission points to

1



2



3

See for an overview of quantitative versus qualitative approaches in economics and social sciences to sustainable development: J. Korhonen, ‘On the Paradox of Corporate Social Responsibility: How can we use Social Science and Natural Science for a New Vision?’ (2006) 15:2 Business Ethics: A European Review, 200–214. Sands lists the (i) need to preserve natural resources for the benefit of future generations (principle of intergenerational equity); (ii) the aim of exploiting natural resources in a manner which is sustainable, or prudent, or rational, or wise or appropriate (principle of sustainable use), (iii) the equitable use of natural resources, which implies that use by one state must take account of the needs of other states (principle of equitable use or intragenerational equity) and (iv) the need to ensure that environmental considerations are integrated into economic and other development plans, programmes, and projects, and that development needs are taken into account in applying environmental objectives (principle of integration). Sands, 2003, 253. The ILA New Delhi Declaration is based on those core principles: (i) the duty of states to ensure sustainable use of natural resources, (ii) the principle of equity and the eradication of poverty,(iii) the principle of common but differentiated responsibilities, (iv) the principle of the precautionary approach to human health, natural resources and ecosystem, (v) the principle of participation and access to information and justice, (vi) the principle of good governance; and (vii) the principle of integration and interrelationship, in particular

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Sustainable Development as a Principle of International Law

twelve principles.4 Despite the variability of approaches to categorizing elements of sustainable development, the principle of integration remains the most fundamental and operationally significant. Article 4 of the 1992 Rio Declaration noted that ‘[i]n order to achieve sustainable development, environmental protection shall constitute an integral part of the development process and cannot be considered in isolation from it.’ While this early focus on integration only illuminated one side of the equation – the integration of environmental protection into development – present understanding sees all three main components – the social, economic, and environmental – as integral aspects of a triangular relationship.5 The various categorization attempts take the importance of integration for granted, thereby underwriting its central position in the concept of sustainable development. Sands states that ‘[i]n many ways, it [the element of integration] is the most important’.6 Similarly, paragraph 7.1. of the New Delhi Declaration accepts the somewhat quintangular structure of ‘[t]he principle of integration reflect[ing] the interdependence of social, economic, financial, environmental and human rights aspects of principles and rules of international law relating to sustainable development as well as of the needs of current and future generations.’ Consequently, the ILA Committee on International Law on Sustainable Development defined the reliance on the principle of integration as the key feature of its work. It explains this focus by defining the principle of integration not only a ‘substantive principle of international law’ but also a ‘practical tool by which issues relevant to sustainable development can be synthesised.’7 The Committee notes that ‘[i]ntegration is thus pivotal to the promotion of sustainable development. It is the principle of integration that both brings together the many challenges confronting the international community and,



4



5



6 7

in relation to human rights and social, economic and environmental objectives. See ILA New Delhi Declaration, ILA Resolution 3/2002, annexed to UN Doc. A/57/329. See the study of Michael Decleris who lists 12 principles, including the principle of (i) Public Environmental Order; (ii) Sustainability; (iii) Carrying Capacity; (iv) Obligatory Restoration of Disturbed Ecosystems; (v) Biodiversity; (vi) Common Natural Heritage; (vii) Restrained Development of Fragile Ecosystems; (viii) Spatial Planning; (ix) Cultural Heritage; (x) Sustainable Urban Environment; (xi) Aesthetic Value of Nature, and (xii) Environmental Awareness. Decleris, 2000. Verschuuren, 2003, 21 and P. Sands, ‘International Law in the Field of Sustainable Development: Emerging Legal Principles’ in W. Lang (ed.) 1995, 53. See Sands, 2003, 263. See ILA Committee on International Law on Sustainable Development, Seventy-First Report, Berlin Conference 2004, 13.



Chapter 2 – Integration as a Central Aspect of Sustainable Development

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at the same time, provides the most realistic chance of their solution.’8 In other words, the principle of integration ‘forms the backbone of sustainable development’.9 It is within the context of integration that all other aspects of sustainable development come into play, e.g. the precautionary principle; polluter pays principle; the principle of common but differentiated responsibility. All of these principles have individual meanings and separate functions. In the context of sustainable development, however, they all reinforce the notion that human society, in particular its social and economic development, and environmental protection need to be integral parts in the establishment and governance of a sustainable society. Most, if not all, of these principles try to strike a balance between human activities and their impact on the natural environment, both in a contemporary, inter-contemporary, local, regional and global perspective. As such they deal with the manner of integration, be it as a matter of scientific uncertainty, an approach to risk assessment, or by allocation of costs and responsibilities. At the legislative, administrative and judicial level, the integration of sustainable development’s multitude of elements refers to the need to take all aspects into account, i.e. States must ensure that economic and social interests, where they are represented, do not disregard environmental considerations. Similarly, when measures are undertaken for purposes of environmental protection, their economic or social implications need to be taken into account. Clearly, in international law-making there is a trend toward integration in the sense that treaties deal increasingly with intersecting and cross-cutting issues. For example, financing and investment procedures and economic mechanisms are included in multilateral environmental treaties in order to provide for market forces and the necessary capital for pursuing the environmental objective.10 Moreover, market mechanisms have been introduced into environmental agreements in order to address and reduce adverse economic implications by



8



9



10

See ILA Committee on International Law on Sustainable Development Seventy-First Report, Berlin Conference 2004, 13. 1995 Report of the CSD Expert Group on Identification of Principles of International Law for Sustainable Development, Paper No 3, para. 15. For an overview over financing mechanisms for global environmental protection see K. Miles, ‘Innovative Financing: Filling in the Gaps on the Road to Sustainable Environmental Funding’ (2005) 14:3 RECIEL, 202–211; see also P.A.U. Ali and K. Yano, EcoFinance: The Legal Design and Regulation of Market-Based Environmental Instruments (The Hague: Kluwer Law International, 2004).

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Sustainable Development as a Principle of International Law

providing cost-effective and flexible means of implementation.11 At the same time, economically and developmentally motivated agreements increasingly take account of certain environmental objectives.12 Thus, fields of international law once thought to be isolated and concerned only with their own domain are becoming interlinked. Such interlinking of environmental, economic and social concerns is brought to the surface not only in the negotiation process, but in the substantial provisions of the final agreement and the decisions of dispute settlement bodies. This ‘conceptual continuum’13 is particularly interesting as it traces the integrational character of a treaty throughout its different stages of implementation and gives an indication of the extent to which integration not only is envisaged, but carried out. The potential consequences of this continuum, particularly in international trade law, will be elaborated further in Part III. While an integrational aspect is emerging in international law, how to undertake development in a way that is sustainable, that is, taking account of and reconciling social, economic and environmental components, still remains a challenge to international and national law and decision making. 2.2 Integration within the Limits of Ecological Thresholds Integration is the central aspect of sustainable development. It is defined as the process of ‘mak[ing] whole or becoming complete; bring[ing] (parts) together into a whole … remov[ing] barriers imposing segregation’.14 It can be seen as a conceptual shift above existing normative barriers which separate international economic, environmental, and social law.15 The desired outcome

11

12



15 13 14

Examples include the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer, 16 September 1987, 26 ILM 154, as amended by the London Amendments to the Montreal Protocol on Substances that Deplete the Ozone Layer, 29 June 1990, UNEP/ OZ.L.Pro.2.3 (Annex II) and the flexible mechanisms included in the Kyoto Protocol. Other examples of integrated development and environment treaties include the 1994 United Nations Convention to Combat Desertification in Countries Experiencing Serious Drought and/or Desertification, particularly in Africa, 17 June 1994, 33 ILM 822, the 2000 Cartagena Protocol on Biosafety to the 1992 Convention on Biological Diversity and the 2001 International Treaty on Plant Genetic Resources for Food and Agriculture, 3 November 2001. See, for example, North Atlantic Free Trade Agreement (NAFTA), chapter 21, Art. 2101 I (incorporation of GATT Art. XX(b) and (g), and the 1994 Agreement establishing the WTO, Preamble, GATT Art. XX. This term is coined by Cordonier Segger and Khalfan, 2004, 106. Webster’s New Dictionary and Thesaurus, 2004, 354. Jodoin, 2005.



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of this process is integrity – generally defined as completeness, wholeness or unimpaired condition. While integrity arguably is a somewhat illusory goal, integration is more substantiated. But what does it entail? Should it broadly ‘be defined as a concept which attempts to integrate environmental considerations into economic and other development and which takes into account other than environmental needs while formulating the principles of environmental protection’?16 The question is whether sustainable development could be defined in more specific terms? Although this definition has some appeal, it still is extremely vague and somewhat circular. In order to avoid tautological ‘l’art pour l’art’ definitions, it is therefore important to not forget the ultimate goal of sustainable development. Integration does not happen in a vacuum but needs to be assessed in the context of sustainable development. It is a tool for bringing together the several priorities of the modern world in order to promote the ultimate aim of sustaining human society. This is the essence to the search for a balance between the parts. Such balance is only possible to the extent that ultimate limits are observed. This was something the World Commission called for and it is essential still. ‘At a minimum’ the Commission stated, ‘sustainable development must not endanger the natural systems that support life on Earth’ adding that there were objective limits to what nature could bear.17 These systems are generated by a complex interplay of biological, geological, and chemical cycles driven by solar energy and operation across a wide range of spatial and temporal scales. Natural ecosystems provide the critical basis for all human societies. Societies derive a wide array of important life-support and economic benefits from the ecosystems in which they exits.18 Scientist use the term ‘ecological’ or ‘ecosystem’ services when referring to the conditions and processes through which natural ecosystem sustain and fulfil human life.19 The framework within which sustainable development and the integration of all aspects of society need to be viewed derives ultimately from fundamen 18 16 17



19

M. Fitzmaurice, 293 Recueil des Cours, 2001, 47. WCED, 1987, 44–45. An ecosystem is a dynamic complex of plant, animal, and microorganism communities and the non-living environment interacting as a functional unit. Ecosystem services are thus the functions carried out by ecosystems, including the benefits people obtain. The 2005 Millennium Ecosystem Assessment systemizes them into provisioning services such as food, water, timber and fibre; regulating services that affect climate, floods, disease, wastes, and water quality, cultural services that provide recreational, aesthetic, and spiritual benefits, and supporting services such as soil formation, photosynthesis and nutrient cycling. Millennium Ecosystem Assessment: Living Beyond Our Means, 2005, 3. See also G.D. Daily, Nature’s Services: Societal Dependence on Natural Ecosystems (Washington: Island Press, 1997).

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tal, universal, and indispensable ecological functions on which they depend. To respect these functions is an absolute priority. They are irreplaceable on a global and temporal scale: neither knowledge, technology nor economic wealth could provide any substitute.20 Thus, integration in the context of sustainable development demands that ultimate ecological thresholds are respected. Once this is clear, it should also be clear that integration as a principle of sustainable development does not necessarily and under all circumstances mean giving equal weight to all concerns. Limits have to be defined and thresholds set. Only then may we attempt of balancing those aspects that remain within its definitional purview. In other words, the integration of various components needs to happen within this frame. In fact, without a frame, integration in its etymological meaning would make no sense. In my view, stronger emphasis should be placed on the hierarchy of priorities integration is likely to eventually bring about. Indeed, that is precisely what is taking form within the international climate regime, i.e. the Climate Convention and the Kyoto Protocol, where the protection of a safe global climate system is the overarching priority. This priority sets limits on human conduct. However, within these limits, measures to mitigate climate change need to integrate social, environmental and economic aspects. Here, defining the integrational aspect of sustainable development is a crucial issue. Arguably, only those response measures that are based on sustainable development will provide serious, long-term solutions to climate change. In other words, what is sought is an integration of various aspects within the framework set out by the ultimate objective of the Climate Convention. The challenge is therefore to delimit the frame for the ‘balancing process’. Integration raises the fundamental question of whether society, the economy, human rights, good governance and environment are of equal importance or whether their obvious connectedness needs to be brought into some sort of systematic relationship in order to give the concept meaning. The standard view is to accord the divergent priorities equal importance. As a result, sustainable development is perceived as a balancing act with supposedly unavoidable trade-offs. In fact, trade-offs are the very essence of ‘balancing’. Some trade-offs, however, cannot be made without rendering the outcome unsustainable. 20



See Daily, ibid. A preliminary estimation of the economic value of the services provided to humans by ecological systems and the global natural capital stock which produces them ranges them at a price-level of US$54 trillion annually, compared to a gross global product of US$18 trillion p.a. See R. Constanza et al., ‘The Value of the World’s Ecosystem Services and Natural Capital’ (1997) 387 Nature 253–260.



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While there is no doubt that balancing environmental, economic and social factors is pivotal for sustainable development, it does not necessarily mean treating all three (or more) in the same manner. Equal treatment can be no more than an illusory goal in the absence of conceptual clarity. On the contrary, insisting on the equal importance of all aspects and interests could prove to be the major obstacle to defining sustainable development. Lafferty noted that not only the ‘insistence on all or nothing usually ends up with later’ but also that the ‘purist insistence on trying to achieve the idealized goal [of treating all three aspects equally] can prove an enemy of progressive knowledge and change.’21 A similar critique can be found in Ekardt, who promotes a multidimensional conception of sustainable development. He states that [n]ach einer im wissenschaftlichen und noch mehr im populären Schrifttum verbreiteten Ansicht meint nachhaltige ‘Entwicklung’ (…) schlicht eine ausgewogene Verfolgung (a) ökologischer, (b) ökonomischer und (c) sozialer Belange (=drei Säulen). Doch wer dies denkt, unterschiebt der grundstürzend neuen Idee Intentionen aus dem altliberalen Wertehaushalt (…) und versucht die neue Idee in einem geschickten Schachzug schon im Ansatz zu neutralisieren. Mit dem Reden von den verkörpert Nachhaltigkeit plötzlich nur noch die recht unspektakuläre Botschaft, dass politische Entscheidungen heutige verschiedene Belange möglichst in Einklang bringen sollten (…). Und dies ist ganz sicher nicht die neue große Vision, die wir brauchen. Das Thema der Nachhaltigkeit ist eine dauerhaft und global lebenswerte Welt.22

The conditions of life make it imperative to ensure the stability of irreplaceable natural functions. Without this, development cannot be sustainable. Sustainable development demands more than the abstract juggling of ecological, economic and social goals. It implies that ecological functions exist that are indispensable for a durable and globally equitable human society. It requires nations to set out and implement concrete goals that submit all other activities under the protection of those essential natural conditions on which human societies depend.23



21 22



23

Lafferty, 2004, 192. F. Ekardt, Das Prinzip Nachhaltigkeit: Generationengerechtigkeit und globale Gerechtigkeit (München: Beck 2005) 27. Unnerstall notes accordingly: ‘Der Vorrang des Umweltschutzes ergibt sich nicht per se aus dem Integrationsansatz …, sondern aus dem Ziel ‘nachhaltiger Entwicklung’, auf das er gerichtet ist.’, H. Unnerstall ‘Nachhaltige Entwicklung und intergenerationelle Gerechtigkeit im Europarecht’ in M. Bobbert, M. Düwell, K. Jax (eds.) Umwelt, Ethik, Recht (Tübingen: Francke Verlag, 2003) 146.

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2.3 Climate Stability: An Ecological Threshold No measure, whether legal or political, economic or social, that oversteps the fundamental ecological thresholds can under any circumstances be judged sustainable. Without delving into the vast realms of natural sciences, it is suggested here that most of the problems affecting ecological systems and functions are well understood by scientists.24 One example of such ecological threshold is given by the limits set to prevent dangerous climate change. In its Fourth Assessment Report the IPCC mapped out the likely effects of a changing climate on almost every facet of society. The potential effects are broad and far reaching. The IPCC projects that the average surface temperature could increase by between 1.4 and 6.4 °C by the year 2100 compared to 1990 temperatures.25 In Europe temperatures are expected to rise between 2.0 and 6.3 °C by 2100 if nothing is done to significantly reduce emissions.26 The impacts of such an increase are far reaching. According to the scenarios provided by the IPCC,27 they include more frequent and destructive extreme weather events such as droughts, floods, hurricanes, directly threatening the personal safety and security of humans. Rising sea levels up to 59 cm may damage and even inundate communities, cities, or entire island nations, directly linking climate change effects to issue of state sovereignty and survival and to global security issues, such as climate refugees, immigration movements and possible conflicts, etc.28 Rising sea levels, violent weather and higher temperatures also put severe stress on ecological systems, including forests, wetlands, alpine regions. 24



25



26



27



28



A vast examination has been carried out by the Millennium Ecosystem Assessment, resulting in one of the key findings that ‘Over the past 50 years, humans have changed ecosystems more rapidly and extensively than in any comparable period of time in human history, largely to meet rapidly growing demands for food, fresh water, timber, fiber, and fuel. This has resulted in a substantial and largely irreversible loss in the diversity of life on Earth.’ (Available at: .) IPCC, Climate Change 2007, Fourth Assessment Report, Synthesis Report, Summary for Policymakers, 6. Commission of the European Union, COM(2005) 35 final, 9.2. 2005, Winning the Battle Against Climate Change, 3. IPCC, Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. For a worst case scenario, see: Peter Schwartz and Doug Randall, An Abrupt Climate Change Scenario and Its Implications for United States National Security, October 2003, Public Report, prepared by Global Business Network (GBN) for the US Department of Defense.



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Ecological productivity and biodiversity will be altered with an increased risk of extinction of some vulnerable species. The outlined impacts pose an unprecedented challenge to the resilience of natural processes and a threat to the functioning of a large variety of ecosystems for at least two main reasons. First, the speed and scope of change are making it far more difficult – in some cases impossible – for species to move to more suitable areas or adapt to the new conditions by evolution. Second, the ability of plants and animals to adjust to changing climatic conditions has been significantly constrained by the massive changes humans have made to the landscape and the health of ecosystem by pollution and development.29 Climate change is also projected to exacerbate threats to human health, particularly in lower income populations. Prevalence of water- or insect-borne diseases is likely to rise, there might be frequent disruption of agriculture in some parts due to prolonged periods of droughts, water shortages and sealevel rise. An increase in extreme weather events, i.e., rare or unusual weather for a particular place or region, is predicted, which inevitably will lead to economic losses and increased vulnerability. Beside these obvious and direct challenges, there are a number of far more complex and ecologically interlinked changes whose effect on human wellbeing could be drastic, in particular with regard to food security. Some models predict substantial change in the carbon cycle and biogeochemistry of the oceans. One component of the complex climate system is CO2 up-take by oceans. CO2 diffuses from the atmosphere into surface waters of the oceans, where it dissolves and undergoes a number of chemical reactions. This process is dependent on differences in CO2 concentration levels. As the atmospheric concentration of CO2 rises, the oceans need to step up the absorption process. While the oceans are supposed to be able to absorb most of the carbon that is being transferred to the atmosphere by fossil fuel burning and land clearing, it takes longer to adjust than the speed at which atmospheric greenhouse gas concentrations are rising. Oceans do not act as a single homogeneous sponge, absorbing CO2 equally across the entire expanse of water. The crucial factor is the transfer of CO2 absorbed at the surface into the waters below. This process again depends on the ocean conveyor system where surface waters sink as they move to the poles; a complete cycle lasts hundreds of years.30 Atmospheric CO2 concentrations, however, are increas

29



30

Many species are effectively locked into ‘enclaves of nature’ surrounded by urban or intensively farmed regions, shutting off ‘escape routes’ and making them highly vulnerable to climate change. Millennium Ecosystem Assessment, Living Beyond our Means, 2005, 15. See Smith and Smith, 2003, 603.

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ing ever more rapidly, thus outpacing the absorptive functions of the oceans. In addition, the effects of a warmer climate could directly interfere with the conveyor system and thereby distort the fundamental functions of the oceans as CO2 sinks.31 Moreover, the change in temperature and composition of the ocean waters could also lead to the massive and rapid releases of methane stored in the sea bed.32 Similarly massive releases of methane are predicted as a result of melting arctic permafrost soils. Other impacts include biochemical changes. Nutrients released from the overturning of marine sediments are likely to decline, limiting primary productivity in the surface waters. One consequence could thus be dramatic changes to fish populations in the upper waters of the oceans.33 Changes in entire ecosystem structures are likely to occur. While growing seasons might extend in some northern regions, in warmer and more arid areas, e.g. the Mediterranean biome, large parts of central Africa that already suffer from severe droughts, significantly longer, drier and hotter periods are likely, leading to increased erosion, loss of species, decline or cessation of agricultural productivity, desertification, water shortages. While each of these impacts is severe, it is, however, their accumulation, that causes incalculable costs, including human and social, environmental and economic costs. These costs are of incomparable magnitude, encompassing not only loss of life and dislocation of populations, but also geopolitical instability and a pronounced decrease in the quality of life caused by the disruptive effect of climate change to the functioning of ecosystems.34 These challenges will not be equally distributed across human populations and State borders, but are most likely to affect those States and their people that not only have contributed least to the causes of anthropogenic climate change, but also have the least human and financial capacities and technologies to deal with the dramatic detrimental effects. Some of the countries that are expected to suffer from devastating changes already struggle from limited resources, famine, disease and political instability.

31



32



33



34

On the complex interplay of oceans and climate change see: WBGU Special Report, The Future Oceans – Warming up, Rising High, Turning Sour, August 2006 (). I. Leifer, et al., ‘Natural Marine Seepage Blowout: Contribution to Atmospheric Methane’, 20:3 Global Biogeochem. Cycles, 20 July 2006. A. Beeby, and A.-M. Brennan, First Ecology (London: Chapman and Hall, 1997) 225. The International Climate Taskforce, Meeting the Climate Challenge – Recommendations of the International Climate Change Taskforce (London, Washington, D.C., Canberra: International Climate Taskforce, 2005) 1.



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Scientific uncertainty remains regarding the scale, timing and location of the abovementioned effects. Because climate change could set in motion large-scale, high-impact, non-linear and potentially abrupt changes in physical and biological systems over the coming decades, highly accurate predictions remain scientifically largely impossible. Despite these uncertainties, recent research also indicates that the threshold for dangerous interference with the climate system can be set around 2°C temperature increase compared to preindustrial global mean temperatures.35 This target can be translated in an atmospheric concentration target of about 450 ppm (parts per million) CO2 equivalents. Such concentration levels will require urgent and drastic reductions in greenhouse gases.36 If such goal is accepted then the absolute limit of what is tolerable in the atmosphere acts as the baseline for discussions on what greenhouse gas reductions are required to protect the ecology and support sustainable development. There also is increasing scientific evidence that the benefits of limiting the global average temperature increase to 2°C outweigh the costs of abatement policies.37 In other words, looking at the risks, the costs of inaction will be disproportionately higher than the cost of action.38 If temperatures continue to rise beyond the 2°C threshold, a more rapid and unexpected reaction by the climate system becomes likely and irreversible, catastrophic events may

35



36



37



38

See the scenarios outlined by the IPCC in the 2007 Synthesis Report, Summary for Policymakers, 9. (available at: ). Also B. Metz et al., ‘Towards an Equitable Global Climate Change Regime: Compatibility with Article 2 of the Climate Change Convention and the Link with Sustainable Development’ (2002) 2:2–3 Climate Policy, 211–230. This target has generally been accepted by the EU. EU Council Conclusion of December 20, 2004 “REAFFIRMS that, with a view to meeting the ultimate objective of the Convention to prevent dangerous anthropogenic interference with the climate system, overall global mean surface temperature increase should not exceed 2°C above pre-industrial levels’, para. 2. This was also confirmed by the Commission of the European Communities, Brussels, 10.1.2007, COM(2007)2 final, Communication from the Commissions to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Limiting Global Climate Change to 2 degrees Celsius. The way ahead for 2020 and beyond. The IPCC suggests that a 50 to 85 per cent reduction of global emissions of CO2 from what was being emitted in 2000 is required to meet this stabilization goal. IPCC, 2007 Synthesis Report, Summary for Policymakers, 21. The Stern Review: The Economics of Climate Change (2006) suggests that ‘the costs of stabilising the climate are significant but manageable; delay would be dangerous and much more costly.’ It estimates the annual costs of achieving stabilisation between 500 and 550ppm CO2e at around 1% of global GDP, summary of conclusions, 4. See J. Cameron, ‘Climate Change in Business’ in D. Freestone and C. Streck (eds.) Legal Aspects of Implementing the Kyoto Protocol Mechanisms: Making Kyoto Work (Oxford: Oxford University Press, 2005) 29.

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occur.39 At the same time it has been shown that the costs of adaptation to the effects of climate change can be reduced by phasing in stringent mitigation measures which cover all greenhouse gases, all major emitting sectors and States. As Cameron observed, ‘[a]daptation costs are inevitable but adaptation without strenuous efforts at mitigation is reckless’.40 Therefore, measures that seek to reduce the emission of greenhouse gases at sources have to be given the highest priority when defining sustainable development strategies. This does not mean that sustainable development is about protecting a stable climate system only. Yet, while there are other components as well, nothing suggests that they can be taken care of in the framework of sustainable development as long as the climate challenge is not solved.41 With regard to climate change, the above-mentioned controversies in the WCED report are set aside. In fact, the World Commission saw climate stability as the only environmental limit we had already passed, and thus the greatest (not only, but also) environmental challenge for the planet. The Commission noted: ‘The ultimate limits to global development are perhaps determined by the availability of energy resources and by the biosphere’s capacity to absorb the by-products of energy use.’42 It explicitly identified the ‘greenhouse effect’ as a ‘threat to life-support systems’ thus defining a ‘threshold that cannot be crossed without endangering the basic integrity of the system’.43 In this context, the limits pointed out by the WCED report and clearly defined by the 450 ppm target need to be understood as defining the ecological threshold for sustainable development.

39



40



41

42 43



Commission of the European Union, COM(2005) 35 final, 9.2. 2005, Winning the Battle Against Climate Change, 4. Cameron, 2005, 29. For a discussion of the relationship between climate change and sustainable development see also: C. Voigt, ’Climate Change and the Mandate of Sustainable Development’, in: Hans Christian Bugge and Christina Voigt (eds.) Sustainable Development in National and International Law – What did the Brundtland Report do to Legal Thinking and Development, Europa Law Publishing (2008) and C. Voigt, ‘Sustainable Development in Practice: The Flexibility Mechanisms of the Kyoto Protocol’, in: M. Emberland and C. Eriksson (eds.) New Developments in Public International Law, Oxford University Press (forthcoming in 2009). WCED, 1987, 58. WCED, 1987, 32–33.



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2.4 Scientific Uncertainty However, ecological systems and their interdependencies are complex, and there is a lack of coherent, multidisciplinary scientific knowledge. Moreover, the many-faceted ways in which ecological systems bear on economic and social systems are largely unknown.44 Therefore, only when the science is sufficient can ecological limits and thresholds of sustainability be defined objectively and quantitatively. An approach to such a definition is the Millennium Ecosystem Assessment where a number of key ecological services that are indispensable for human life are singled out.45 But where there is scientific uncertainty, quantitative approaches cannot help define sustainable development, in which case we must apply a normative principle which takes account of the risk of harm. Arguably the most prominent principle to address decision-making in the absence of complete scientific information concerning the environmental consequences of a particular activity is the principle of precaution.46 Basically, this principle means that where there is risk of serious or irreversible environmental harm, anticipatory measures have to be taken to prevent this harm as a response to scientific uncertainty. In terms of integration, the application of the precautionary principle means that even where scientific certainty about the interference of social and economic systems with ecological functions is wanting, the thresholds of ecological resilience need to be anticipated. The

44



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46

See M.H. Huesemann, ‘Can Pollution Problems be effectively solved by Environmental Science and Technology? An Analysis of Critical Limitations’ (2001) 37:2 Ecological Economics, 271–287. See also K.-H. Robèrt et al., ‘Strategic Sustainable Development – Selection, Design and Synergies of Applied Tools’ (2002) 10:3 Journal of Cleaner Production, 197–214 and K.-H. Robèrt et al., Strategic Leadership Towards Sustainable Development (Karlskrone: Blekinge Institute of Technology, 2004). Of the 24 ecosystem services examined in the Assessment, the scientists found that 15 (62.5 percent), including regulation of air quality, climate, water, erosion, fresh water and water purification, waste treatment, pests, genetic resources, pollination and natural hazards, are being degraded or used unsustainably, a trend that ‘could grow significantly worse during the first half of this century.’ UN Millennium Ecosystem Assessment, 2005. See for a similar conclusion: WorldWatch Institute, Vital Signs 2006–2007, July 2006. In this report it was noted ‘The decline of ecosystems is undermining the vital services they provide, including the provision of fresh water and food and the regulation of climate and air quality. Ecosystem decline is also increasing the risk of disruptive and potentially irreversible changes such as regional climate shifts, the emergence of new diseases, and the formation of low-oxygen “dead zones” in coastal waters’. WWI Press Release, 12. July 2006. See N. De Sadeleer, Environmental Principles. From Political Slogans to Legal Rules, (Oxford: OUP, 2002), 94 et seq.; and A. Trouwborst, Evolution and Status of the Precautionary Principle in International Law (The Hague: Kluwer, 2002).

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value of precaution lies primarily in the assumption that ecological systems are vulnerable, as opposed to resilient.47 As Cordonier Segger and Khalfan note, ‘[a]lthough it is generally agreed that the environment can tolerate some abuse, there is a tendency to believe and act as if the environment can tolerate a particular human activity or set of activities unless scientific information demonstrates otherwise.’48 The precautionary principle works as a remedy to this tendency. Even if scientific uncertainty exists as to the clear identification of such ecological functions in each specific situation, precaution implies the minimization of risks to these functions.49 Precaution is, thus, especially important for sustainable development because the capacity of ecological systems as well as the global environment to resist external stresses is mostly unknown or uncertain. As such, the precautionary principle is intrinsically linked with sustainable development by providing a necessary tool to avoid that economic and social developments have detrimental effects on ecological functions on which human life ultimately depends – even if the effects or the risks thereof are unknown. 2.5 Environmentalism and Sustainable Development Despite the necessity to protect certain fundamental ecological functions, it would be a grave mistake to view the concept of sustainable development as being about ‘environmental issues’ only.50 While the principle of sustainable development encompasses an environmental aspect, it is not about ‘environmentalism’. Environmentalism can be defined as activism to protect nature from ravages of human activities, including economical ones. Sustainable development in contrast is a much more complex and fundamentally different concept. It is about redesigning human activity, including the economy, itself 47



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See A.M.H. Clayton and N.J. Radcliffe, Sustainability: A Systems Approach (London: Earthscan Publications, 1996) 213. Cordonier Segger and Khalfan, 2004, 152. Ehrenfeld interprets this tendency of ‘sit and wait’ in a more ironic way by suggesting that it might be due to ‘a form of insanity as defined by some as continuing to act in the same manner but expecting the outcome to be different’, J.R. Ehrenfeld, ‘Industrial Ecology: Paradigm Shift of Normal Science?’ (2000) 44:2 American Behavioral Scientist, 229–244. On the extent of risk and definition of thresholds, see: E. Rehbinder, ‘Precaution and Sustainability: Two Sides of the Same Coin?’ in A. Kiss and F. Burhenne-Guilmin, A Law for the Environment: Essays in the Honour of Wolfgang E. Burhenne (Gland: IUCN, 1994) 93. WCSD, Foreword, xi.



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and defining it within the ultimate limits set by fundamental ecological processes. This is a unique challenge. Environmentalism can be considered a movement against pollution, environmental degradation and serious loss of nature. It is ‘a managerial approach to the environment within the context of present political and economic practices’.51 Sustainable development, on the other hand, is a move toward new action and behaviour. Not isolated environmental protection issues per se, but the integrated protection of life supporting systems within the wider framework of social and economic development and the transformation of society toward a sustainable state lie at the heart of the concept.52 Recognising the vast, qualitative difference entailed in the change from ‘old environmental law’ to the ‘new law of sustainable development’ Decleris notes how [t]he old law was inspired by the then reductionist reasoning that it could and should stick to its defensive role, in other words just prevent extremes of ruthless development, without in other respects intervening in economic policy. But in many ways reductionist thinking let to ‘paper law’ and became the alibi for continuing ruthless development … The new law is not defensive or deterrent … In contrast, the new law must guide the behaviour of the administration, organisation and individuals toward (…) interventions which, having incorporated the fundamental criterion of sustainable development, provide a sustainable result in all areas of human activity.53

Thus, the complexity of its objective makes it obvious that there is a fundamental qualitative difference between environmentalism and sustainable development. Basically, the development from environmental protection to sustainable development is a change from analytical to systemic thought. It has been pointed out that sustainable development and environmental protection can be incompatible.54 While conflicts should be expected due to the fragmented nature of environmental law, it is my conviction that environ

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53 54

A. Dobson, Green Political Thought, 3rd ed. (London: Routledge, 2000) 34. This finds an echo in Gro Harlem Brundtland’s statement: ‘When the terms of reference of our Commission were originally being discussed in 1982, there were those who wanted its considerations to be limited to ‘environmental issues’ only. This would have been a grave mistake. The environment does not exist as a sphere separate from human actions, ambitions, and needs, and attempts to defend it in isolation from human concerns have given the word’ environment’ a connotation of naivety in some political circles … But the ‘environment’ is where we all live; and ‘development’ is what we all do in attempting to improve our lot within that abode. The two are inseparable.’ WCSD, 1987, Chairman’s Foreword, xi. Decleris, 2000, 7 and 14. T. Hurka, ‘Sustainable Development: What do we owe Future Generations?’ in Environmental Ethics: Sustainability, Competition and Forestry, University of British Columbia, available at: .

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mental protection is really possible only if environmental concerns via the concept and respective legal theory of sustainable development are systematically integrated into all other areas of law. Another point of criticism relates to the human-centred focus of sustainable development. There is common ground on the meaning of the principle of sustainable development as a vision of society embracing quality of life, opportunity, and freedom of humans. As such, it is a primarily anthropocentric concept, as opposed to ecocentric. Despite the criticism levelled at it in this respect, sustainable development is uniformly understood as a quest to improve the quality of human lives and surroundings without destroying resources and life-supporting systems on which present and future generations depend. Thus, it is a concept that seeks to achieve a balance between economic, social and environmental goals of human society that provides the foundation for the above-mentioned vision.55 However, while sustainable development is a fundamentally anthropocentric concept, it does not preclude ecocentric aspects and implications.56 2.6 Integration and Transgenerational Justice One way of legitimising this understanding of sustainable development is by investigating the relationship of sustainable development to justice. In other words, does the socio-political concept of sustainable development that aims at attaining a more equitable standard of living within the carrying capacity of ecosystems presuppose an equivalent moral duty to maintain intact ecological functions in order to do justice to both present and future generations (transgenerational justice)? Why, for what ethical reasons, should we worry about transgressing ecological limits leading to climate change, rising sea levels, and ecosystem degradation? Sustainable development as a normative concept has a value-based substance. In fact, it has been claimed that ‘[t]he language of sustainable development is the language of the morality of aspirations’.57 The WCED called it a ‘new global ethics’. This corresponds to the ILA’s requirement of a renewed 55



56



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J.C. Dernbach, ‘Sustainable Development: Now More Than Ever’ (2002) 32:1 ELR 10004. See also International Institute for Environment and Development (IIED) 2001, The Future is Now, Vol. 1 (London: IIED, 2001). Verschuuren, 2003, 46–50. See Adams, 2003, 82. Similar, Verschuuren, 2003, 49, distinguishing with reference to Leon Fuller (The Morality of Law, New Haven 1974) between the morality of duty and the morality of aspiration. Sustainable development, in his view, adheres to the latter.



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interest in the ethical dimensions of sustainable development. The 2004 report states that [i]n fact, this appeal to ethics is not as impractical as many might think. In cases of conflict and tension between the various values that sustainable development has traditionally encompassed, a greater appreciation of the ethical perspective will hopefully provide a much clearer perspective as to how the integration process should operate and, more specifically, how potentially contrasting and competing values should be considered.58

Sustainable development is understood as the development of the global human society toward a state of balance, i.e. sustainability, between human needs and the protection of stable, functioning life-sustaining ecological systems (so-called ecological integrity). Thus, it is based on the supreme principle (or ultimate norm) which can be expressed as the duty to establish and keep this balance between human needs and ecological integrity. Such balance or sustainability is presumed to be in the common interest of all members of society for reasons of fundamental importance to the aspirations of humankind. This duty therefore is founded on the moral obligation to sustain and increase welfare of the global human society. Ultimately, however, is it based on the urge for survival of modern human societies. It follows that the concept of sustainable development serves the interests of justice.59 It is in its essence about transgenerational justice, i.e. caring for humans living today and those living tomorrow, while preserving the integrity of the planetary ecosystem. In other words, it is not enough to focus on developmental issues today without protecting the natural processes that sustain life if they are at risk. Transgenerational justice requires the preservation of freedom of choices for generations to come.60 These choices include the needs of future generations, their aspirations and development paths. For principled reasons the

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ILA, Berlin Conference, 2004, 6. See also H.C. Bugge, ‘The Ethics of Sustainable Development – a Challenge to the Legal System’ in E.M. Basse (ed.), 1995. See also H.C. Bugge, ‘Legal Issues in Land Use and Nature Protection – an Introduction’ in H.T. Anker and E.M. Basse (eds.) (Copenhagen, 2000) 27; and H.C. Bugge, University of Oslo, 29 May 2001; H.C. Bugge & L.Watters, (2003)15 Geo. Int’l Envtl. L. Rev., 359. According to Brown-Weiss, freedom of choice is based on the conservation of at least three conditions: (1) the conservation of options, which requires conservation of the diversity of the planetary resources so as not to restrict unduly the options available to future generations, (2) the conservation of quality which requires that the planet is passed on in no worse condition than received, and (3) the conservation of access, which has both an intergenerational and an intragenerational dimension. See for an overview Redgwell, 1991, 46.

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present generation is unable to determine the own needs of future generations. It is therefore considered proper to ensure the basis for making choices, i.e. to ensure conditions are in place, that permit choice of various options. This freedom is ultimately conditioned on the functioning of essential natural processes that sustain life. The reasonable conclusion, therefore, is the moral duty to pass on the integrity of the planetary ecosystem, including the stability and safety of the climatic system. In order to encompass the concept of sustainability, the notion of justice needs to include global intragenerational and long-term intergenerational relationships among people based on their fundamental dependence upon the natural and inanimate world.61 Such a notion of justice then recognizes as a precondition to any human aspiration, now and in future and to human survival as such the integrity of the biosphere. It takes ecological limits on the freedom of human action in relationship to nature into account. The environmental dimension of justice then becomes not only a mere issue of fair distribution and allocation of rights and duties but the integrity of the environment itself is regarded as an integral part of the concept of justice. Although human aspirations and choices might differ and change over time and are not determinable from our present perspective, there are some basic assumptions that can be made from our time horizon. Brown-Weiss recognizes the right of future generations to be assured that ‘we will not pollute ground water, load lake bottoms with toxic wastes, extinguish habitats and species or change the world’s climate dramatically – all long-term effects that are difficult or impossible to reverse – unless there are extremely compelling reasons for doing so, reasons that go beyond mere profitability.’62 Similarly, as Barry points out, though ‘we don’t know what the precise tastes or our remote descendants will be … they are unlikely to include a desire for skin cancer,

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See B. Almond, ‘Rights and Justice in the Environmental Debate’ in D.E Cooper and J.A. Palmer (eds.) Just Environments: Intergenerational, International and Interspecies Issues (London: Routledge, 1995) 18. There are several theories about how such an inclusion could come about. One of them is the concept of ecological justice that seeks to extend the justitia communis to the biosphere per se. This view is based upon the recognition of a moral duty towards and moral standing of the natural environment. This approach opens for the integration of a wider spectrum of interests and could be better equipped to deal with the many interlinked challenges of our complex world. See K. Bosselmann, ‘The Concept of Sustainable Development‘ in K. Bosselmann and D. Grinlinton (eds.) Environmental Law for a Sustainable Society (Auckland: New Zealand Center for Environmental Law, 2002) 81–96; and Bosselmann, 1999, 30–57. Brown-Weiss, 1998, 198 and 206.



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soil erosion, or the inundation of all low-lying areas as a result of melting ice-caps.’63 In other words, if justice is to be accommodated, ecological and physical conditions on which all life depend become a non-derogable condition. That means that unsustainable social, legal or economic structures, principles and processes and institutions are unjust and demand reform.64 According to Rawls, ‘laws and institutions no matter how efficient and well arranged must be reformed or abolished if they are unjust.’65 The principle of sustainable development, I claim, can therefore be used – like the principle of justice – as a corrective to unsustainable and therefore unjust practices and laws. In sum, the concept of sustainable development can be said to be a principle of justice to the extent that it concerns establishing equitable living conditions in a transgenerational context. These conditions include the satisfaction of human needs of the existing and future world populations. Even when starting with the most basic needs for survival: food and fresh water, it is apparent that equitable living conditions depend on the conservation of the natural resources base and on ecological processes, like filtration and purification. Natural processes provide the very foundation of living conditions. Equity therefore concerns the access to and the responsibility for intact ecological processes. Thus, the care for human societies in the short as well as long-term – in a transgenerational context – presupposes the care for natural processes that sustain life. The concept of sustainable development demands meeting present global needs while not compromising future generations’ ability to meet their own needs. Thereby it expresses an inherent preference for ecological intactness, or integrity. This preference needs to be given due regard in the process of ‘balancing’ and weighing of competing interests. ‘Integration’ in the context

63



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65

Barry, 1977, 274–275. Elsewhere he remarked ‘Perhaps people in the future might learn to find satisfaction in totally artificial landscapes, walking in the astroturf amid plastic trees while electronic birds sing overhead. But we cannot but believe that something horrible would have happened to human beings if they did not miss real grass, trees and birds.’ B. Barry, ‘Sustainability and Intergenerational Justice’ in A. Dobson (ed.) Fairness and Futurity: Essays on Environmental Sustainability and Social Justice (Oxford University Press, Oxford, 1999) 102. Similar Ekardt: ‘Ohne eine neu fundierte Lehre von der gerechten Grundordnung und eine Neuinterpretierung unserer Verfassungen, ohne ein auf beiden Ebenen neuformiertes Freiheitskonzept, vor allem aber ohne Generationsgerechtigkeit und Gerechtigkeit zwischen den Völkern dieser Erde können wir nicht länger sagen, dass unser Zusammenleben gerecht ist. (…) Ganz besonders die Jahrhundertaufgabe Nachhaltigkeit, unter die wir die Generationen- und globale Gerechtigkeit seit kurzem begrifflich fassen, wird ohne ein solches Konzept nicht zu meistern sein. 2005, 9. Rawls, 1999, 3.

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of justice is to be understood as integrating the protection of intactness of the planetary ecosystem into all other law and institutions. 2.7 In Sum Only if the fundamental requirements of sustainable development, that is the protection of essential natural resources and ecological processes that sustain all life and on which nature and human life, not to mention social and economic development depend, are understood as ‘staking the field’ of the balancing process can results be found that solve conflicts between various interests in a sustainable way. Integration of the many ‘priorities’ of sustainable development can only be achieved if the protection of such essential ecological functions is designated status primus inter pares among the multitude of different aspects of the concept. Integration is eventually about making compromises. But these compromises have to be sustainable and – even more crucially – the sum of all compromises has to be sustainable. Because it will be the sum of all measures that gives an indication of their sustainability. By constituting these essential ecological conditions as a de minimis requirement of sustainable development, the concept inhabits a non-derogable core. At this core lie the ‘unchanging and universal laws of nature’ with which human activities need to be brought and kept in harmony.66 This core can be used as a point of departure and a ‘principled priority’ guide on how these widely divergent priorities need to be balanced. From this perspective, it becomes clear that sustainable development is about reconciling development (the meeting of human needs) with the environment by recognizing the limited capacity of the environment to absorb negative impacts observing the carrying capacity of ecosystems67 and by securing the basic functioning of ecosystems. 66



67



This is what the WCED noted already early on: ‘Human laws must be reformulated to keep human activities in harmony with the unchanging and universal laws of nature.’ WCED, 1987, 330. It can be claimed that eventually, the concept is about values. The ILA’s International Committee on International Law on Sustainable Development recognizes that in order to acknowledge the concept’s underlying challenges and tensions it ‘requires a renewed interest in the ethical dimensions of sustainable development’. ILA, Berlin Conference, 2004, 6. The ‘carrying capacity’ of ecosystems can be generally defined as the maximum number of individuals of a species that an ecosystem will sustain. See A. Beeby, Applying Ecology, (London: Chapman and Hall, 1993). Also: W. Rees and M. Wackernagel, ‘Ecological Footprints and Appropriated Carrying Capacity: Measuring the Natural Capital Requirements of the Human Economy’ in A.-M. Jansson et al. (eds.) Investing in Natural



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Such understanding of sustainable development has obvious importance for defining the relationship of climate change measures and trade norms. The global climate system is clearly one of those fundamental natural systems that sustain life on earth and its stability is essential to human welfare. In the next chapter we shall therefore look at the concept of sustainable development in a climate change context. While so far we could only arrive at general conclusions about the ‘principled priorities’ within the integration of the various elements of sustainable development, a close investigation of the relationship of the concept and climate change should facilitate a more refined understanding.

Capital: The Ecological Economics to Sustainability (Washington D.C.: Island Press, 1994) 262–390; and W. Rees, ‘Ecological Footprints and Appropriated Carrying Capacity’ (1992) 4:2 Environment and Urbanization 121–130; G. Hardin, ‘Paramount Positions in Ecological Economics’, in R. Costanza (ed.) Ecological Economics: The Science and Management of Sustainability (New York: Columbia University Press, 1991) 47–57.

Chapter 3

The International Climate Regime

3.1 Introduction Climate change is a defining issue for the twenty-first century. The political concern over the risk of a globally changing climate is the result of the realisation that intensification by human activity of greenhouse gas concentration in the atmosphere is not without consequences. In negotiating and adopting the 1992 United Nations Framework Convention on Climate Change and the 1997 Kyoto Protocol the international community expressed its recognition of the dangerous link between anthropogenic activities and climate change. Because of the far-reaching and dire challenges represented by climate change, the Parties to the Convention acknowledged ‘that the change in the Earth’s climate and its adverse affects are a common concern of humankind’.1 In preambular language they express the concern that human activities have been substantially increasing atmospheric concentration of greenhouse gases, that these increases enhance the natural greenhouse effect, and that this will result on average in an additional warming of the Earth’s surface and atmosphere and may adversely affect natural ecosystems and humankind.

Given the complexities of causes and consequences, responses to climate change are intrinsically linked to issues of global justice. Solving the challenge of climate change requires taking into account historic and current emission trends in developed countries and the still rather low per capita emissions in developing countries. It includes acknowledgement of the vulnerability of developing countries to the effects of climate change and the severe consequences that are predicted in already vulnerable parts of the world. Furthermore, to address climate change means addressing inequalities in levels of development. Addressing climate change demands cooperation of all coun

1

UNFCCC, Preamble (emphasis added).

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tries. At the same time, due regard has to be given to different responsibilities and respective capabilities of countries, their economic and social conditions, and their authority to determine their own social and development policies and access to energy and natural resources. Intragenerational justice is a dominant issue in climate negotiations: measures to reduce greenhouse gas emissions are to be taken by those who contributed most in addition to providing financing means of limiting climate damages, also in developing countries. While developing countries are wary of forestalling their own developmental progress by climate mitigation measures, developed countries are required to take the lead. A still more complex issue is that protection of the climate system is not only for the benefit of present but also of future generations.2 The intergenerational aspect lies in the fact that measures taken to combat climate change are unlikely to be felt by those who implement them. Due to the inertia of climate system past emissions will cause an additional rise in the global average temperature during the 21st century. Similarly, substantial reductions in emissions today will only start having a palpable effect in many decades from now. The challenge of climate change goes to the heart of the structure of modern societies, industries, economies and global relationships. What has become apparent is that climate change is a far more complex issue than any other issue public international law aims to address. Climate change cannot be categorized simply as an environmental problem. Nor is it simply a matter of development or economic growth. The challenge of global climate change exceeds time and space limitations that previously defined singular problems of the world community and their respective legal responses. Unprecedented questions of global equity, such as fairness in cost and responsibility sharing and differences in vulnerability and social aspects, link climate change to a multitude of interlinked problems of late modern society. The breadth and contextual richness of the climate regime go far beyond singular responses and challenge not only the fragmented structure of international law, but the structure of world community in general. The response to climate change is indicative of humankind’s hard struggle toward sustainable development. Finding a solution to climate change is not just a central aspect in achieving sustainable development. It is decisive. As we have seen, the concept of sustainable development is framed to precisely address these issues. This is why it is opportune to investigate the relationship of sustainable development and climate change. My argument is that tackling the challenge of climate change is a defining component of sustainable development and vice versa. In other words, the

2

UNFCCC, Article 3.1 and Preamble.



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problem of climate change engages in a direct and reciprocal manner with sustainable development. Adequate measures to address climate change cannot be designed independently of sustainable development any more than sustainable development can be achieved without solving the problem of climate change. 3.2 Normative Framework of the Climate Regime In this section, we will undertake a closer investigation of the normative assumptions underlying the climate regime, in particular the Kyoto Protocol. 3.2.1 Object and Purpose of the UNFCCC The concerns raised in the scientific community and disseminated throughout the international community led to the adoption of the 1992 United Nations Framework Convention on Climate Change (UNFCCC) and its 1997 Kyoto Protocol, in force since 16 February 2005. The UNFCCC establishes as an ultimate goal for its Parties ‘the stabilization of greenhouse concentration at a level that would prevent dangerous anthropogenic interference with the climate system’ (Article 2). The unspecific time frame hinges on three broad parameters: to allow ecosystems to adapt naturally to climate change; to ensure that food production is not threatened; and to enable economic development to proceed in a sustainable manner.3 The objective sets an environmental threshold (quality standard): pollution of and interference with the climate system are permitted up to this point of ‘dangerous interference’. The stabilization of concentrations to avoid this point being reached provides the common long-term objective of the climate regime.4 Stabilization of greenhouse gas concentrations means, however, a significant reduction of emissions. According to the IPCC, the stabilization of GHG emissions at near-current levels will not lead to stabilization of atmospheric concentrations; the stabilization of GHG concentrations at any level requires the reduction of global GHG emissions to a small fraction of the current emission level.5

3 4



5

Art. 2 UNFCCC. See F. Yamin and J. Depledge, The International Climate Change Regime: A Guide to Rules, Institutions and Procedures (Cambridge: Cambridge University Press, 2004) 61. IPCC, Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (B. Metz et al.,

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The essentially value-laden question of which concentrations constitute ‘dangerous anthropogenic interference with the climate system’ has long been controversially discussed. While certain changes are accepted as unavoidable, ‘dangerous’ changes and their impacts still await assessment from natural, technical and social science perspectives. The IPCC has also stressed that a decision on what constitutes dangerous interference must be determined through socio-political processes, such as the decision-making process of the COP, taking into account considerations such as development, equity and sustainability, as well as uncertainties and risks. The IPCC has so long refused to specify exactly where the concentration limit would be.6 In international research, however, a consensus seems to emerge to set the threshold at a 2°C temperature rise above pre-industrial levels or on a concentration of 450 ppm.7 The commitments of the Parties to the Kyoto Protocol not to exceed their assigned amounts which equal an aggregate emission volume at 5 per cent below their 1990 emission levels (Article 3.1) is clearly not aimed at preventing dangerous climate interference and should not be confused with the ultimate objective of the Convention. The second sentence of Article 2 of the Convention provides additional guidance on the timing of actions to stay within the threshold. Stabilization of GHG concentrations should be achieved within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure food production is not threatened and to allow economic development to proceed in a sustainable manner’. This part of the Convention first and foremost reflects the concept of ‘ecological limits’8 which must be respected and which set a constraint on both the timing and the scale of changes human interference can cause to the climate system.9 Importantly, this also indicates the preventative character of the Convention’s objective.10 It is important because it means that mitigation scenarios that fail to provide for natural adaptation of ecosystems (generally

6



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8 9

10



eds. Cambridge University Press, 2001b) d: Question 5. IPCC, 2001b, d: Question 1. See B. Metz et al., ‘Towards an Equitable Global Climate Change Regime: Compatibility with Article 2 of the Climate Change Convention and the Link with Sustainable Development’ (2002) 2:2–3 Climate Policy 211–230; and B.C. O’Neill and M. Oppenheimer, ‘Dangerous Climate Impacts and the Kyoto Protocol’ (2002) 296:5575 Science 1972. See for a discussion of the long-term scenarios for this threshold: Verheyen, 2005, 57–66. Bodansky, 1993, 500, fn 29. Yamin and Depledge, 2004, 61. P. Sands, ‘The United Nations Framework Convention on Climate Change’ (1992) 1:3 RECIEL 272; and H.E. Ott, Völkerrechtliche Aspekte der Klimarahmenkonvention’ in Brauch (ed.) Klimapolitik: Naturwissenschaftliche Grundlagen, internationale Regime-



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those that defer stringent mitigation into the future on cost-effective grounds) must be evaluated in terms of the ultimate objective of the Convention.11 Together with the other two qualifying components this part of the objective gives already an indication of the delicate balance that needs to be drawn between these parts. It is not difficult to see why the climate system is a test case for the ability of the current international order to meet the challenge of sustainable development. The Earth’s ecological limits, however, are setting the pace and scale of action.12 3.2.2 Principles of the UNFCCC and the Kyoto Protocol The Kyoto Protocol sets a quantitative cap on greenhouse gas emissions (assigned amount units, AAUs) for all countries included in Annex I of the UNFCCC.13 The quantified emission limitations shall be achieved primarily by implementing national policies and measures (Article 2.1). Those measures, however, go to the very heart of industry, energy and transport policies and bear significant economic implications. By quantifying the aggregated GHG emissions of the Annex I countries, the Protocol treats the capacity of the earth’s atmosphere to store greenhouse gases on a balanced level as a scarce natural resource. Article 3 UNFCCC introduces principles to ‘guide’ the Parties in achieving the objective of the Convention and inform Parties in implementing commitments and other actions taken to achieve the objective. These principles are important interpretative tools for the primary provisions contained in both the Convention and the Kyoto Protocol.14 Because of the almost universal membership to the Convention, it has been argued that they could also provide legal reasoning for primary duties to prevent dangerous climate change outside the framework of the climate regime.15 The principles listed in Article 3,



11

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13 14



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bildung und Konflikte, ökonomische Analysen sowie nationale Problemerkennung und Politikumsetzung (Berlin: Springer Verlag, 1996) 62, 64. Yamin and Depledge, 2004, 61. See F.R. Rijsberman and R.J. Swart (eds.) Targets and Indications of Climatic Change (Stockholm: The Stockholm Environmental Institute, 1990). The authors conclude that, to allow ecosystems to adapt naturally, the rate of global warming must not exceed 0.1°C per decade, viii. Art. 3.1 Kyoto Protocol. The Kyoto Protocol provides that its Parties agree to ‘being guided by Article 3 of the Convention’, Preamble, para. 4. See Verheyen, 2005, 67. But see Yamin (ed.) 2005, 67.

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together (‘inter alia’) with those mentioned in the Preamble inform the legal obligations of the Parties. The legal nature of the principles has been subject to debate. The negotiation history gives some evidence of the intention of the Parties to avoid that the principles have the legal effect of giving rise to additional commitments and, hence, to actionable claims justifying recourse to dispute settlement proceedings.16 On the other hand, the text of Article 3 explicitly employs the word “shall”. Therefore, it has convincingly been argued that because of this wording and the placing of Article 3 in the operative part of the Convention, there can be no doubt about the binding legal force of the principles in the context of climate change.17 Of the several principles entailed, only three will be mentioned here, as they are of particular importance in the context of sustainable development. a) Common But Differentiated Responsibilities and Respective Capabilities The ‘common concern’, mentioned above, includes a common responsibility to prevent damage to the climate system. This responsibility is differentiated according to the respective capacities of the Parties. Article 3.1 of the Convention establishes the principle of ‘common but differentiated responsibilities and respective capabilities’, which results in the obligation of developed countries to ‘take the lead in combating climate change and the adverse effects thereof’. Accordingly, the Convention divides Member States into three main categories: Parties included in Annex I to the Convention (all OECD countries and countries with ‘economies in transition’18); Parties included in Annex II (OECD countries only); and ‘all Parties’. The Convention sets out a variety of obligations in Articles 4, 5, 6 and 12, both substantive and procedural, that differentiate between these various categories, creating an asymmetry of obligations. In recognizing the differing economic capabilities of developing and industrialized countries in contributing to the protection of the global climate system, this principle obliges to date only industrialized countries to take specific quantified mitigation action (Article 4.2 Convention and Article 3 Kyoto Protocol with Annex B of the Kyoto Protocol). The principle of common but differentiated responsibilities is a reflection of the notion of equity and justice in international law. Verheyen notes that the 16 17

18



See Yamin and Depledge, 2004, 67; Bodansky, 1993, 501 et seq. See B. Kellersmann, Die gemeinsame, aber differenzierte Verantwortlichkeit von Industriestaaten und Entwicklungsländern für den Schutz der globalen Umwelt (Berlin: Springer, 2000) 145. See also Verheyen, 2005, 69. Former Soviet and Eastern European countries.



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formal equality of States does not always mean that all States have the same duties. In particular if some States have better economic means to effectively protect the global environment.19 It is, thus, a new principle to distribute responsibility according to historical action or inaction, economic ability and the state of development.20 b) Precaution and Cost-Effectiveness The principle of precaution, as a legal principle,21 aims at giving guidance in cases of scientific uncertainty or unknown risks (ignorance). Basically, it means that States shall not advance scientific uncertainty as a reason not to take action to prevent a certain outcome, e.g. environmental damage or an event like climate change. In the context of climate change Article 3.3 of the Convention provides that Parties should take precautionary measures to anticipate, prevent or minimize the causes of climate change and mitigate its adverse effects. Where there are threats of serious or irreversible damage, lack of scientific certainty should not be used as a reason for postponing such measures taking into account that policies and measures should be cost-effective so as to ensure global benefits at the lowest possible cost.

It is safe to state that the principle essentially informs the entire climate regime. It calls upon Parties to the Convention to take measures to protect the global climate and to prevent damages even if there are ‘many uncertainties in predictions of climate change, particularly with regard to the timing, magnitude and regional patterns thereof’.22 It complements moreover Article 2 of the Convention in giving guidance in defining the threshold of ‘dangerous’ interference, mentioned above. It has further been suggested that it demands



19 20



21



22

Verheyen, 2005, 70. See Kellersmann, 2000, 38, 41 et seq.; Bodansky, 1993, 473 et seq. Both authors also point to the fact that the origin of this principle does not lie in the historic responsibility for emissions (polluter pays principle), but was included as a result of the opposition to the inclusion of the polluter pays principle. For an overview of the principle’s history and development, see De Sadeleer, 2002. Its legal status is contentious. While on the level of the European Union it is implemented in various Directives, e.g. Art. 2(11) of Annex IV IPPC Directive as legally binding, its binding force as a legal principle of international law is still debated, though strong arguments have been put forward that recognize it as a binding principle. See the discussion by Sands, 2003, 266–279. Preamble UNFCCC.

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of Parties to take mitigation measures even in the absence of agreed and binding targets, though it does not dictate specific regulatory requirements.23 Importantly, differing from the principle’s formulation in Article 15 of the 1992 Rio Declaration (‘where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation’), Article 3.3 of the Convention does not make cost-effectiveness a selective criterion for the kind of environmental measure to be implemented. It only requires that considerations of cost-effectiveness be taken ‘into account’.24 Article 3.3 does not mandate a cost-benefit approach, nor does it open for a general weighing of mitigation against adaptation. Out of the context of the climate regime, it is evident that Parties are well aware that some damage would occur regardless of mitigation activities. Basically, this means that there can be no question of mitigation or adaptation. It requires both, but with a particular emphasis on mitigation. Scientific models predict today that adaptation costs will rise disproportionately with higher greenhouse gas concentrations in the atmosphere. Verheyen notes that this fact renders a comparison between mitigation and adaptation based on cost-effectiveness extremely difficult and eventually meaningless.25 ‘Adaptation is always the second-best option, because there is never a guarantee that the changes (which could have been prevented by taking early and effective mitigation action) can or will be counterbalanced through adaptation.’26 The phrase in Article 3 that ‘measures to deal with climate change should be cost-effective so as to ensure global benefits at the lowest possible cost’ has to be understood as referring to the global nature of the challenge and the fact that mitigation measures can be undertaken in a more cost-effective manner if done multilaterally and globally, rather than suggesting the selection of one measure prior to another based on the likely costs of the two approaches. In the context of sustainable development, this conclusion is of importance when the question of balancing diverse interests is at stake. Article 3.3 demands proactive mitigation rather than waiting for damage to occur even where the particular effects of climate change (as regards locality, timing, magnitude) still lack scientific certainty. Cost-effectiveness considerations cannot be used as a reason for increasing the threshold for action or for rendering mitigation 23 24

25 26



See Verheyen, 2005, 74. Yamin argues that the formulation of this ‘stronger’ version of the precautionary principle was advocated by small island developing States, emphasizing that for them pure survival is at stake, Yamin (ed.) 2005, 71. Verheyen, 2005, 77. Ibid.



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measures less effective. Rather mitigation measures need to be implemented in a way that reduces overall costs, by, for example, making use of multilateral flexibility mechanisms. c) Sustainable Development Article 3.4 UNFCCC is the climate regime’s anchor for the concept of sustainable development. It states that ‘Parties have a right to, and should, promote sustainable development’. Article 3.4 also notes that climate measures shall be appropriate to the specific conditions of each Party and integrated with national development programmes while recognizing that ‘economic development is essential for adopting measures to address climate change’. The textual reference to sustainable development in Article 3.4 is rather vague and gives no clear indication of how the concept should be construed. Negotiation history only partly helps to elucidate the meaning of these provisions. Initially, developing countries demanded the inclusion of a ‘right to development as an inalienable human right’.27 Developed countries refused to accept a right to development on the ground that it could possibly be used by developing countries to demand financial assistance from developed countries. Developed States, on the other hand, wished the inclusion of a duty to aim at sustainable development. In contrast, developing countries feared that sustainability might become conditional on development assistance as well as inhibiting their national development plans.28 The result is a compromise of both proposals. The Convention sets out that the Parties have a right to, and should, promote sustainable development, which is less than the ‘duty to sustainable development’ sought by developed countries, but qualitatively different from the ‘right to development’ demanded by developing countries. The reference to sustainable development in Article 3.4 can thus be seen as standard-setting for both mitigation of and adaptation to climate change in a way that it determines the legal standards and decisions regarding damage control or remedy for climate change damage.29 In assessing the impact of this reference to sustainable development on decision making, the evolution of the concept in general public international

27



28 29

Consolidated Working Document, Report of the Intergovernmental Negotiating Committee for a Framework Convention on the Work of its 4th Session, U.N. GAOR INF/FCCC, 4th Sess., U.N. Doc. A/AC.237/15 (1992), Annex II, art.II.1; Joint Statement of the Group of 77, UN GAOR INC/FCCC, 4th Session, Working Group I, Agenda Item 2(a), UN Doc. A/AC. 237/WG.I/L.8 (1999). See Bodansky, 1993, 504–505. So also Verheyen, 2005, 78.

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law plays a significant role. The development of the concept of sustainable development since the time of its inclusion in the Climate Convention in 1992 gives a more differentiated answer to the legal content of sustainable development in a climate context. Essentially, Article 3.4 now requires all Parties to consider the circumstances and overall, global and long-term environmental as well as societal effects of measures addressing climate change, while balancing the risks to and interests of current and future societies. It does not, however, modify the duty of all Parties to prevent dangerous interference with the climate system according to Article 2 UNFCCC. It would therefore be contrary to the principle of sustainable development to delay mitigation action for the economic benefit of the current generation, while accepting disproportionately stronger negative consequences of anthropogenically caused climate change for future generations. Although the demands of sustainable development are certainly wider than the reference in Article 3.4 UNFCCC reveals; tackling climate change and sustainable development are closely linked. The climate regime can, in fact, be seen as a test case of the ability of the international order to meet the broader challenge of sustainable development.30 At the same time, sustainable development will not be possible without tackling the challenge of climate change. Concluding, it can be said that the principles contained in Article 3 UNFCCC represent binding principles of international law to be applied in the specific context of climate change. All principles inform and complement the duty contained in Article 2 UNFCCC to prevent dangerous interference with the climate system. These principles can be used to guide decision-making processes, whether they concern future regulation of climate change mitigation strategies, the implementation of the Convention and the Kyoto Protocol into national legal systems, or the relationship and linkages with other international legal regimes. The principles thereby set the ‘parameters’ for interpretation and implementation and for the direction in which the future climate regime has to develop.

30



J. Gupta and M. Grubb (eds.) Climate Change and European Leadership: A Sustainable Role for Europe? (Dordrecht: Kluwer, 2000).



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3.2.3 Obligations The climate regime sets out different types of obligations for different groups of Members (all Parties, Annex I and Annex II Parties).31 The main substantive commitments comprise mitigation obligations (Article 4 UNFCCC and Article 3 Kyoto Protocol) flanked by obligations concerning research and systematic observation, education, training, public awareness (Article 5 and 6 UNFCCC) and reporting (Article 12). Adaptation to the adverse effects of climate change entails a number of obligations, such as adaptation preparation and certain planning commitments (Article 4.1(b) UNFCCC, Article 10 (b) Kyoto Protocol), technology commitments (Article 4.1. UNFCCC and Article 10(c) Kyoto Protocol), financing and technological assistance (Articles 4.1, 4.3 and 4.4. UNFCCC, Article 10 and 12.8 Kyoto Protocol) capacity-building and special adaptation-related provisions for Least Developing Countries (LDCs) (Articles 4.8 and 4.9 UNFCCC and Articles 2.3, 3.14 and 10(g) Kyoto Protocol), although no time scales, targets or particular policy solutions are mandated. For the purpose of this study, mitigation commitments, in particular those quantified by the Kyoto Protocol for Parties included in Annex I of the Convention, are of central importance. Other obligations that help to understand the concept of sustainable development will be assessed where relevant in the discussion of the relationship between the climate regime and sustainable development below in section 2.3. The mitigation commitments lie at the heart of the climate regime. Mitigation commitments (‘general commitments’) of all Parties are found in Article 4.1 of the Convention. The more stringent substantive commitments (‘specific commitments’) of Annex I Parties are contained in Article 4.2 UNFCCC, which obliges Annex I Parties to ‘adopt national policies and take corresponding measures’ to reduce greenhouse gas emissions and to protect and enhance greenhouse gas sinks, to communicate detailed information … with the aim of returning individually or jointly to their 1990 levels of … emissions of carbon dioxide and other greenhouse gases (Article 4.2.[b]), by the end of the present decade (Article 4.2.[a]), i.e. by the year 2000. Taking such measures would ‘demonstrate that developed countries are taking the lead in modifying longer-term trends in anthropogenic emissions consistent with the objective of the Convention’. The legal status of Article 4.2 UNFCCC was subject to debate. Most scholars agree that Article 4.2 UNFCCC does not constitute an obligation of

31

For a comprehensive overview over the diverse obligations under the Convention and the Kyoto Protocol, see Yamin and Depledge, 2004.

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result, i.e. a return to 1990 levels by 2000.32 However, with a view to scientific advances since 1992 and the fact that the time frame indicated in Article 4.2 has elapsed, could the wording be interpreted as an obligation of conduct, i.e. a primary rule of concrete damage prevention which when broken could be applied in the context of State responsibility.33 Independent of the Kyoto Protocol, and in addition to it, Article 4.2 of the Convention in conjunction with Article 2 retains the primary obligation of Annex I States to modify long-term trends of greenhouse gas emissions in order to stabilize atmospheric concentration at safe, i.e. non-dangerous, levels. Such a reading of Article 4.2 UNFCCC is mandated by Articles 18 and 31 of the VCLT. Article 18 stipulates that a Party is obliged to ‘refrain from acts which would defeat the object and purpose’ of the treaty. With regard to the objective of preventing dangerous interference with the climate system (Article 2), this means that every Annex I Member is obliged to omit actions running counter to the objective. Given the current status and trend of emissions, this obligation is a positive one, i.e. to actively contribute to the significant reduction of greenhouse gases in order to stabilize gas concentrations in the atmosphere. This primary obligation of Annex I Members follows from Articles 4.2 and 3.1 (‘taking the lead’). The Convention’s objective, however, applies to all Member States. If it becomes clear that Article 2 will not be achievable without effective mitigation action by developing countries, a duty also for developing country arises to co-operate and to participate in mitigation efforts. The commitments of Annex I States are further quantified by Article 3.1 of the Kyoto Protocol in conjunction with Annex B, generally referred to as ‘quantified emission limitation and reduction obligations’ (quelros). The Kyoto Protocol complements the Convention, it does not, however, replace it. The obligations of Annex I Parties contain clear targets and timetables adding up to about 5 per cent reduction in aggregate greenhouse gas emissions compared to levels emitted in 1990 in the period 2008 to 2012 (‘first commitment period’). The Kyoto targets allow for a ‘net approach’ to reduction of greenhouse gases, i.e. accounting for both emissions and up-take of carbon by terrestrial sinks. Each Annex I Party has an assigned amount of greenhouse gas emissions which it shall not exceed (Article 3.1). This amount equals the overall emissions of the six greenhouse gases listed in Annex A (‘basket approach’) in 1990 minus the percentage target listed in Annex B (Article 3.7).

32 33



Verheyen, 2005, 81; Bodansky, 1993, 521; Sands, 1992, 274. Verheyen, 2005, 81.



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The quelros are no specification of Article 2 UNFCCC, let alone an attempt to apply Article 2 in terms of quantified emission allowances on the basis of stabilizing atmospheric concentrations. They are the result of political bargaining. In fact, taking into account the withdrawal of the US as one of the main emitters, together with actual emission reductions due to political developments in Eastern Europe and Russia and the use of carbon sinks for accounting purposes, the Kyoto Protocol actually lowers the target for Annex I countries as a whole by 1.9 per cent from the original target of 5.2 per cent. Accordingly, the implementation of the Kyoto commitments would represent a factual stabilization of emissions at 1996 levels by 2012.34 While the Kyoto Protocol is undeniably inadequate in terms of reaching the objective of the Convention, its significance has to be understood from its place and context in the climate regime. It was clear from the beginning that the estimated targets of the Protocol would only marginally modify global emission trends. However, in going further than the Convention in setting out binding reduction targets, the Protocol is an important, if small, first step. The climate regime and the structure of the Protocol in particular are designed to evolve toward an increasingly ‘climate effective’ system of measures and instruments, including respective stronger targets and ambitious timetables.35 According to Article 3.9 of the Kyoto Protocol, consideration of commitments for subsequent periods shall start to be considered in 2005. On a ‘dual-track’ at COP 11, a post-2012 process was also initiated under the Convention, which was seen to better allow for broadening scope and coverage, both on substance and participation. At COP 13 in 2007 the so-called ‘Bali Road Map’ was signed by all Member States to the UNFCCC. In this document the willingness of these States was expressed ‘to launch a comprehensive process to enable the full, effective and sustained implementation of the Convention through long-term cooperative action, now, up to and beyond

34



35

See for an explanation of calculations: GRID Arendal, available at: . See, for example, the EU proposal of an emissions reduction target of 15–30% by 2020 and 60%-80% by 2050. European Parliament Resolution on ‘Winning the Battle Against Global Climate Change’ (2005/2049(INI), P6_TAPROV(2005) 0433, 3. Also: Commission of the European Communities, Brussels, 10.1.2007, COM(2007)2 final, Communication from the Commissions to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Limiting Global Climate Change to 2 degrees Celsius. The way ahead for 2020 and beyond. Germany considers the reduction of global greenhouse gas emissions by 50% by 2050 necessary for keeping global temperature increases within an acceptable limit. See: BMU Report (Federal Ministry for the Environment); Umwelt-Wirtschaft-Innovation: Der Anfang ist gemacht (Die ersten 100 Tage), 27. February, 2006, at 2 (available at ); see also: C. Voigt, ‘Year in Review – Germany’ 16 YbIEL 2005.

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2012’ based on ‘a shared vision for long-term cooperative action, including a long-term global goal for emission reductions, to achieve the ultimate objective of the Convention, in accordance with the provisions and principles of the Convention, in particular the principle of common but differentiated responsibilities and respective capabilities’.36 Summarizing, it can be stated that in the light of the common duty of all Members to the Convention to prevent dangerous interference with the climate system, the compromise of the Kyoto Protocol represents, so far, the consensus of the overwhelming majority of 177 States37 on how to approach the objective of the Convention. This approach is evidence of the understanding of the State community on how to deal with a severe environmental threat in a global and long-term perspective while taking into account the social and economic impacts, both of actions and the omission to act. In this sense, the Kyoto Protocol represents the most defined approach to sustainable development as it is currently understood by the international community. This applies equally to Members of the Convention that are not Parties to the Kyoto Protocol as long as they do not come up with an – at least equally – effective climate change mitigation strategy. Also they are committed to the objective of stabilising greenhouse gas concentrations in the atmosphere at a level which prevents dangerous anthropogenic interference with the climate system. States included in Annex I are further committed to taking the lead in combating climate change and its effects (Article 4.2 and 3.1 UNFCCC). The close relationship between the normative design of the Kyoto Protocol and the requirements of sustainable development becomes particularly evident with the introduction of the so-called flexibility mechanisms, which aim at increasing cost-effectiveness of climate mitigation measures by reducing compliance costs. As will be shown in part III, while this attempt has come far en route to sustainable development, potential for improvement remains. 3.3 The Flexibility Mechanisms of the Climate Regime The Parties included in Annex I can make use of so-called ‘flexible mechanisms of the Kyoto-Protocol’. These flexible mechanisms are market-based tools that allow for meeting the emissions reduction obligations by means of joint projects among Annex I countries (Joint Implementation – JI, Article 6 Kyoto Protocol), projects in developing countries (Clean Development Mecha36 37



Decision –/CP.13, Bali Action Plan. (last visited 3. March 2008).



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nism – CDM, Article 12 KP) and emissions trading among Annex I countries (Article 17 Kyoto Protocol). While CDM and JI are project-based mechanisms, enabling Annex I countries to cooperate on specific greenhouse gas reduction projects with other countries where abatement costs are lower, international emission trading aims at the establishment of an international market for buying and selling emission credits, which can be used to comply with the specified reduction targets. Tradable emission units can be the assigned amounts units (AAUs) accorded to Annex B countries of the Protocol or the rights derived from project-based activities, i.e. Certified Emission Reductions (CERs) from CDM activities and Emission Reduction Units (ERUs) from JI. Emission units can be traded freely on the market and their price will depend on demand and supply. Each Government can issue as many emission certificates as quantified by its assigned amounts and allocate them to public and private entities according to its national climate change policy. In order to prevent overselling, a country is required to hold a certain minimum of units in its national registry at any time (so called Commitment Period Reserve, CPR).38 This system is supposed to stimulate policy changes since polluting entities have to decide whether it is more costly to buy emission certificates or reduce the amount of GHG emissions. The flexible instruments of the Kyoto Protocol are intended to serve two goals: first, to significantly lower compliance costs of the Kyoto Parties with their emission reduction and limitation obligations. Since 1990 many of the Annex I Parties to the Kyoto Protocol have substantially increased their emissions. The commitment to reduce emissions to 1990 levels by 2012 has therefore become commensurably more rigorous, and the potential economic impact of these obligations unparalleled in international law. Second, to provide incentives for sustainable development. It has been warned however that these mechanisms need to be governed by clear rules for emission reduction measurement and compliance procedures to ensure that measures taken by developed countries are accompanied by genuine emission reductions.39



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39

The Commitment Period Reserve is set at 90 per cent or above of a Party’s assigned amount or 100 per cent of five times its most recently reviewed inventory, whichever is the lowest. (Decision 5/CP.6) This reserve can be composed of any Kyoto units valid for a commitment period. The limit adopted is supposed to protect against non-compliance by overselling without limiting the liquidity of the market. The Marrakesh Accords require that ‘a Party shall not make a transfer which would result in these holdings [of AAUs, CERs, ERUs, and/or RMU’s] below the required level of the commitment period reserve’. (Decision 18/CP.7, Annex, paragraph 8). See X. Wang and G. Wiser, ‘The Implementation and Compliance Regimes under the Climate Change Convention and its Kyoto Protocol’ (2002) 11:2 RECIEL 187.

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The flexibility mechanisms are based on the global geographic availability of mitigation efforts and the theory of ‘marginal abatement costs’. The cost of financing emission reduction is relatively lower in countries with lower levels of industrialization. Because location of abatement measures is climatically irrelevant, global cost-effectiveness prescribes basically that measures should be implemented where they are cheapest. Key developed countries considered the introduction of flexibility in the way they could implement their commitments as a requirement of equity. Part of the argument for flexibility was that marginal costs vary from country to country, from sector to sector and source to source.40 To require all countries to meet their targets by using a prescriptive list of policies and measures was considered insufficient and ineffective. Equity considerations therefore demanded flexibility in sharing the burden of meeting commitments. This flexibility is premised on the idea that countries with high costs for meeting their environmental obligations and countries that can provide low cost opportunities should benefit by cooperating and thereby exploiting comparative advantages.41 While strong arguments can be made in favour of the use of flexible instruments, also criticism against them needs to be addressed. Based on ethical arguments, emissions trading in particular has been characterized as ‘turning pollution into a commodity to be bought and sold’, thereby removing the ‘moral stigma that is properly associated with it … rendering pollution just another cost of doing business, like wages, benefits and rent.’42 The ‘legitimacy’ of such criticism depends on whether one considers all emissions of greenhouse gases to be ‘wrong’ by definition or whether to accept some level 40



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D. Stowell, Climate Trading – Development of Greenhouse Gas Markets (Basingstoke: Palgrave Macmillan, 2005) 15. See Cullet, 1999, 171. See generally, M. Sagoff, Controlling Global Climate: The Debate over Pollution Trading, Report from the Institute for Philosophy and Public Policy, 1999, available at: . See also C.D. Stone, The Gnat is Older than Man: Global Environment and Human Agenda (Princeton, N.J.: Princeton University Press, 1993) 141–149. Also: C. Blumm, ‘The Fallacies of Free Market Environmentalism’ (1992) 15 Harvard Journal of Law and Public Policy, 371, and G. Torres, ‘Who Owns the Sky? Seventh Annual Lloyd K Garrison Lecture on Environmental Law’ (2001) 18:2 Pace Envtl. L. Rev., 227. Torres argues that the ‘privatization of the atmosphere results in an abuse of the global commons, for which States have the responsibility to protect, not to give away. By treating the atmosphere as though it were a common resource of no substantial public interest other than the protection of its quality and by dividing it in little pieces that get distributed to States and industries, governments have taken too narrow a view and neglected their duty as trustees towards public resources by transferring significant public resources to private hands, especially where this happens free of charge.



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of pollution. With regard to the emission of greenhouse gases, which also occurs naturally, such absolute ethical positions are difficult to sustain. Another critical argument concerns the overall focus on economic efficiency and cost-minimization for Annex I Parties which may consolidate the economic power of industrialized countries by allowing them to ‘buy their way out of their obligations’. This argument can be met with reference to the ‘price tag’ that is put on emissions by a cap-and-trading system. ‘Buying out’, in fact, entails internalizing the costs of emitting greenhouse gases. Furthermore, incentives to circumvent domestic reductions and to avoid necessary technological changes by Annex I Parties will be drastically reduced by a stringent regulatory framework for emissions trading coupled with a strict emission cap, the avoidance of ‘hot air’ as well as stringent methodologies for baseline scenarios and additionality, and monitoring and reporting requirements backed up by an effective compliance and enforcement mechanism. Prior to the Kyoto Protocol, the use of market-based mechanisms as a tool in international agreements to address environmental concerns had not been widely tested. The primary focus of environmental regulation was on traditional command and control or voluntary approaches. Thus, only a very few countries had experience of emissions trading.43 The application of economically motivated mechanisms on a global scale is thus unprecedented in international law. Project-based mechanisms that enable countries to carry out projects abroad in order to receive credits that could assist them in meeting their national commitments at the same time as they support development in host countries are absolutely novel. The regulation of these mechanisms therefore has been described as the ‘cutting edge of international environmental law’.44 It might not be too far off the point to generalize this statement to international law, at least as far as the complex and novel procedural and technical challenges as well as the moral, economic and environmental considerations which these new mechanisms raise are concerned. That the far-reaching and speedy developments entailed by the mechanisms have attracted the close attention of States, the scientific community, business and environmental organisations alike is therefore not surprising.



43



44

Examples include the Ontario SOx and NOx Trading Scheme under the Environmental Protection Act, entered into force 31 December 2001 and the UK Emissions Trading Scheme (see ). Sands, 2003, 389.

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3.4 International Emissions Trading International emissions trading is subject to the modalities agreed at Marrakesh45 and adopted by the MOP1 in Montreal in 2005.46 These modalities set out the principles, nature and scope of emissions trading and address issues relating to equity, fungibility and environmental integrity.47 To ensure this, the Kyoto Protocol combined with the Marrakesh Accords set up strong requirements for national registries and inventories, accounting, baselines and their methodologies, monitoring and reporting. In fact, compliance of the Parties included in Annex I with their quantified emission limitation and reduction targets will – inter alia – depend on the rigorous design of the flexibility mechanisms. 3.4.1 Private Participation The participation of private companies and other private entities in emissions trading is clearly desired although not explicitly mentioned in the Kyoto Protocol. Article 17 contains no reference to the private sector in contrast to other articles of the Protocol. It is nevertheless generally accepted among Annex I countries that private entities may participate in such trading with the authorization of the respective Party.48 Authorization can be given by the implementation legislation, government acts or by single authorization, e.g. via letter of approval. Authorized non-State entities could use the allocated emission units for compliance or for trading with other private or public entities within the same 45



46



47

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FCCC/CP/2001/13/Add.2, Decisions 15 and 18/CP.7, ET Modalities. Decision 15 sets out the principles, nature and scope of all three mechanisms while Decision 18 contains operational rules for emissions trading. FCCC/KP/CMP/2005/3, FCCC/KP/CMP/2005/Add. 1–4. Environmental integrity in this particular context refers to the ability of a climate measure to support the objective and purpose of the climate regime. It therefore relates to the quality of the regime, its instruments and institutions. The extent to which the means are able to achieve the ultimate objective of the Convention as stated in its Article 2 is essential for considering the environmental integrity of the climate regime. With regard to the flexibility mechanisms, it will depend on their capacity to ensure that the Parties included in Annex I do not exceed their assigned amounts. Emissions, reductions and removals need therefore not only be quantifiable by using the same standard worldwide but also real, complete, accurate, environmentally conservative, comparable and verifiable. C. Hepburn and C. Brown, ‘Privatising the Commons? A Global Greenhouse Emissions Trading Regime at COP-6’, 19 Austral. Mining & Petro.L.J. (2000) 169–70. T. Voon, ‘Sizing up the WTO: Trade-Environment Conflict and the Kyoto Protocol’ (2000) 10:1 J. Transnational Law & Policy, 94; Werksman 1999, 253.



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or foreign countries. Transborder trading needs to involve the reciprocal recognition by the States involved of each other’s emission trading system and respective allowances or credits. Private entities, when engaging in emission trading, cannot actually acquire, hold or transfer any of the rights created by the Kyoto Protocol. They are not bound by international law in general nor by the Kyoto Protocol or any of the WTO covered agreements since public international law in general only binds States. According to the traditional – but still widely accepted – view, private entities cannot be held directly responsible for sovereign obligations that emanate from a public international legal agreement between States. As much as a private entity cannot be held responsible for State failure to comply with sovereign obligations, a private entity cannot fulfil this sovereign obligation. The exchange of emission units at this level perceives its validity from domestic regulation of the respective State. If private entities engage in a transboundary transfer of emission allowances, their transfers require the simultaneous exchange of sovereign obligations between the respective States.49 Therefore, as mentioned above, any transboundary transaction of tradable emission units between private entities of different countries needs to be mirrored by a sovereign transaction between two involved States which leads to a ‘reallocation’ of assigned amounts.50 After the start of the first commitment period in 2008, sovereign-to-sovereign exchanges of emission units are to be seen as re-allocations of commitments with the consent of the States involved in the transaction. The need to parallel transactions of private emission units with a transfer of AAUs is indicated in the negotiation texts.51 Furthermore it is a necessity under international law because States, whose private entities trade with emission units will remain obliged to fulfil their quantified reduction obligations.52 Despite the complexity of private entity involvement, the interest of Kyoto Parties to engage private entities in emissions trading is high. There are various reasons for this. First, emission of greenhouse gases is only in the fewest instances the result of public activity. Mostly, private activities generate and emit greenhouse gases. The obligations under the Kyoto Protocol however 51 49 50



52

Werksman, 1999, 253. Ibid., 252. Report of the first part of COP6 in FCCC/CP/2000/5/Add.3 (Vol. V) and the consolidated negotiation text proposed by the chairman in FCCC/CP/2001/2/Add.2. See J. Werksman and J. Lefevre, WTO Issues Raised by the Design of an EC–Emissions Trading System, Scoping Paper No. 3 (London: FIELD, 1999), 6; and M. Buck and R. Verheyen, International Trade Law and Climate Change – A Positive Way Forward (Bonn: FES, 2001) 24.

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remain sovereign obligations of the State Parties to the Protocol.53 States therefore will need to regulate private industries in a way that enables the State to comply with its international obligations. In order to link the international obligation of the State with the actual emitters States may authorize private undertakings to acquire, hold or transfer emission allowances. Second, the involvement of the private sector seeks to encourage the implementation of the international emissions limitation and reduction obligations by States at the place where emissions occur. Emissions trading with private entity involvement aims at producing more cost effective regulation than State-to-State emissions trading or traditional regulation to the extent that significant differences in the marginal costs of emission control and reduction exist between pollution sources.54 Emissions trading is, for example, considered more attractive than the imposition of carbon taxes, because a tax system extracts revenues from firms without offering any compensation. Even if an undertaking was obliged to buy emission allowances to cover all of its emissions, it still acquires the value of these allowances (and permits) which can be sold in the future if its actual emissions are lower than the allowed limit. This in turn creates an incentive for firms to comply with their ‘caps’.55 Third, politically the introduction of a cap-and-trade system might face lower political resistance than the introduction of taxes. 3.4.2 The Global Carbon Market and Linking of Domestic Trading Schemes The institutional structure between domestic systems and the international trading system is still somewhat ambiguous. It is interlinked, though complex and not clearly defined yet. Attempts to link existing domestic emissions trading schemes under the Kyoto Protocol between Member States. Linking is a means to support and embed an international emissions trading scheme. In fact, the extension of the EU ETS – which is the world’s largest emissions trading scheme – by linking to the other flexibility mechanisms and to other

53 54 55



See in particular para. 33 of FCCC/CP/2001/13/Add.2, Decision 17/CP.7. See J.T.B. Tripp and D.J. Dudek, ‘Institutional Guidelines for Designing Successful Transferable Rights Programs’ (1989) 6:2 Yale J. on Reg., 374. See Z.X. Zhang, ‘Greenhouse-Gas Emissions Trading and the World Trading System’ in W.B. Chambers (ed.) Inter-linkages: The Kyoto Protocol and the International Trade and Investment Regimes (Tokyo: United Nations University, 2001) 121–123.



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national trading schemes, such as those of Norway, Japan or New Zealand could be seen as the first step in establishing an IET scheme.56 Under the Kyoto Protocol, each Annex I Party is required to have a National Registry in place before it can engage in transboundary or international emissions trading.57 National registries may also perform the same or similar functions for units issued in any domestic or regional scheme.58 National registries ensure compliance with emissions limitations and reduction commitments either imposed on Parties to the Kyoto Protocol or private/public entities within the countries. If the following conditions are fulfilled, international emissions trading can be made real: the participant is eligible to participate and, if a private entity, is authorized to hold, receive and transfer Kyoto units; it holds an account (government or private account) in a National Registry that complies with the requirements and technical standards set out by the Marrakesh and Delhi Decisions; and the National Registry is linked to the Independent Transaction Log (ITL). In fact, the system of National Registries establishes the heart of the international emissions trading system by making the holding, accounting, and transfer of Kyoto units possible.59 At the international level, the UNFCCCbased ITL links all National Registries and acts as a central communication ‘clearing house’ through which National Registries will exchange data.60 Once the National Registries are in place and linked up to the ITL, Kyoto Parties (Annex I) themselves will be able to transfer Kyoto Units to and from their national accounts held by the National Registries. The linking of the EU ETS follows this envisaged path.

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D. Meadows, The Emission Trading Scheme and Linking Greenhouse Gas Markets, paper presented at IEA-EPRI 4th Annual Workshop on Greenhouse Gas Trading, Paris, 4 October 2004. Meadows calls the EU ETS ‘the nucleus of the international carbon market’. The Marrakesh Accords in Decision 19/CP.7 set out the key functional requirements for National Greenhouse Gas Emissions Trading Registries to satisfy the requirements of the Kyoto Protocol. These registries are electronic databases for recording and tracking Kyoto Units, necessary for accurate accounting of the issuance, holding, transfer, acquisition, cancellation, banking, and retirement of all units. According to the EU ETS, each Member State’s registry must be capable of functioning as that Member State’s National registry pursuant to the Kyoto Protocol. Art. 6(1) of Decision 280/2004/EC. Each National registry is linked to the Community Independent Transaction Log, which is then linked to the ITL. Transaction in the EU ETS which will also be transaction under the Kyoto Protocol will be checked and processed simultaneously. See A. Hobley and P. Hawkes, ‘GHG Emissions Trading Registries’ in Freestone and Streck (eds.) 2005, 134. Decision 19/CP.7 and Decision 24/CP.8 (Delhi Decision).

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Moreover, initiatives emerge to link domestic trading schemes of Kyoto Annex B States with national or sub-national schemes of non-Kyoto Members, e.g. Regional Greenhouse Gas Initiative of some US States.61 Such linking initiatives are contract-based and aim at the further development of a single global carbon market where States can participate irrespective of their Kyoto membership. At present, the global carbon market comprises of the EU ETS, CDM and JI projects and some national emissions trading schemes. Recent analysis shows a strong growth of the market. In 2006, 1.6 billion t CO2 eqv. were traded equalling €22.5 billion.62 Another recent study reveals that carbon trading reached an estimated value of $59.2bn in 2007 – an 80% growth from 2006.63 However, managing the expansion of the international carbon market will be a complex task. Alone the linking of emissions trading schemes to an international emissions trading system holds a number of intricate legal challenges.64 One of the major challenges is the insurance of environmental effectiveness of international emissions trading. Environmental effectiveness requires total emissions by all sources to be equal to or less than the combined caps.65 Linking, however, opens for a number of environmental risks in this regard. It can increase non-compliance which again compromises effectiveness.66 The stringency of the cap, common requirements for eligibility, monitoring, reporting 61



64 62 63

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See RGGI (Regional Greenhouse Gas Initiative): under the RGGI seven Northeast US states: Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont – Maryland is to join by June 2007 – will launch a regional cap-and-trade system. Beginning in 2009, emissions of CO2 from power plants in the region would be capped at approximately current levels – 121 million tons annually – with this cap remaining in place until 2015. The states would then begin reducing emissions incrementally over a four-year period to achieve a 10 percent reduction by 2019. Compared to the emissions increases the region would see from the sector without the program, RGGI will result in an approximately 35 percent reduction by 2020. See: Model Rule and Memorandum of Understanding, published 15. August 2006 at: . Point Carbon, Carbon 2007. A New Climate for Carbon Trading, 13 March 2007. Worldwatch Institute, Vital Signs, 2007. See M. Mehling, ‘Bridging the Transatlantic Divide: Legal Aspects of a Link between Regional Carbon Markets in Europe and the United States’, 7 Sustainable Development Law and Policy (2007). Environmental effectiveness and environmental integrity are used interchangeably in the context of the flexible Kyoto mechanisms: both terms refer to the ability of the measure to contribute to the ultimate objective of the UNFCCC, i.e. stabilization goal. In effect, they mean the capacity of the measure to secure real, measurable emissions reductions. See E. Haites and X. Wang, Environmental Effectiveness of Linked Trading Schemes, paper presented at the Conference ‘Linking Schemes: Potential Impacts of Linking the European Union Emissions Trading System with Emerging Carbon Markets in other Countries’, Brussels, May 30 2006.



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and verification, integrity of the allowance registries and means of effective enforcement as well as mutually agreed targets and timetable are some of the crucial safeguards to sustain environmental effectiveness.67 The Kyoto Protocol creates an incentive for Annex B national governments to systematically ensure environmental effectiveness when linking of trading schemes with other Kyoto Parties.68 Linking with non-Kyoto Parties, however, could potentially endanger the environmental integrity of the emissions trading system under the Kyoto Protocol.69 Because trading with nonKyoto Parties is generally excluded under the Kyoto Scheme, such trading can only be based on individual contractual relationships, most likely in the form of bilateral agreements between the Kyoto Party and the non-Member. In this case, an absolute cap on emission by the non-Kyoto State is an essential requirement that none of the States which have not ratified the Kyoto Protocol is yet able to fulfil. Thus, while all States listed in Annex B of the Kyoto Protocol can exchange AAUs based on the institutional design of IET under the Kyoto Protocol, nonMembers are systemically excluded from such trading, unless agreed otherwise. The negotiation of trading contracts lies within the sovereign discretion of the respective States. Still, a bilateral trading agreement which does not require strong safeguards for environmental integrity might endanger the environmental performance of international emissions trading and of the entire Kyoto regime. Kyoto Member States might therefore choose not to extent their trading schemes to States that have not ratified the Kyoto Protocol. Such exclusion may have significant trade implications which will be further discussed in part II. 3.4.3 Supplementarity to Domestic Action During the negotiations of the Kyoto Protocol concerns were raised that emissions trading and the use of the project mechanisms might consolidate as well as exacerbate existing emission inequalities between Annex I and non-Annex I countries by encouraging the former to seek cheap reductions abroad. The Marrakesh Accords therefore include the provision that Annex I Parties ‘shall 69 67 68

Ibid., and Meadows, 2004. Haites and Wang, 2006. R. Schüle, Linking Schemes: Potential Impacts of Linking the European Union Emissions Trading System with Emerging Carbon Markets in other Countries, paper presented at the Conference ‘Linking Schemes: Potential Impacts of Linking the European Union Emissions Trading System with Emerging Carbon Markets in other Countries’, Brussels, May 30 2006.

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implement domestic action in accordance with national circumstances and with a view to reducing emissions in a manner conductive to narrowing per capita differences between developed and developing countries while working toward achievement of the ultimate objective of the Convention’,70 and take such considerations into account when reviewing demonstrable progress under Article 3.2 of the Protocol. Further, Article 17 clearly requires emissions trading to be supplemental to domestic action. This has so far be interpreted as ‘constituting a significant element’, which entails no concrete quantitative connotation. However, in order to support sustainable development, it will be necessary to further concretise this requirement as it is a prerequisite for environmental effectiveness promoted by the emissions trading system. This argument will be further discussed below in part III. 3.4.4 In Sum Emissions trading is a flexible and cost-effective means of meeting an environmental goal that allows Annex I Parties to ‘take the lead’ in climate mitigation. It seeks to integrate economic concerns as well as considerations of developmental inequalities and differentiated responsibilities into the achievement of the emissions limitation and reduction obligations of the Kyoto Parties without modifying the environmental aim. In this context, it can be seen as a practical example of an attempt to implement sustainable development.71 3.5 The Clean Development Mechanism The Clean Development Mechanism (CDM) and Joint Implementation (JI) represent the two project-based instruments that allow for investments in foreign countries, i.e. in Parties with quantified emission limitation and reduction commitments for JI and in non-Annex Parties for CDM, which seek to reduce greenhouse gas emissions or increase sequestration capacities. As a result, these investments can generate emission credits that, if verified, confer the right to the benefit accruing with respect to a certain removal or reduction of GHG emissions to the entity carrying out the project and its home State, if the government recognizes these credits. While the CDM and JI have certain 70 71



Decision 15/CP.7, Preamble and para. 6. P. Sands, ‘International Law in the Field of Sustainable Development’ (1994) 65:5 BYBIL, 304; French, 2005a, 274.



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common features, for example the requirement that emission reductions need to be ‘additional’72 or the need for approval by all Parties involved, in particular the host country,73 there are significant differences between the two mechanisms. The CDM emerged out of separate, non-overlapping negotiations that were characterized by the attempt to (i) give developing countries the possibility to benefit from the economic instruments laid down by the Protocol; while (ii) adhering to the interests of developed countries in involving developing countries in mitigation action; (iii) providing developed countries a cost-effective means to achieve compliance with their commitments under the Kyoto Protocol; and (iv) contributing to the ultimate objective of the Convention.74 The multifaceted objective of the CDM is stated in Article 12.2 KP. The operation of the CDM is supervised by the Executive Board (EB), operating under the MOP. The EB’s function is, inter alia, to accredit operational entities (Designated Operational Entities – DOEs) that will validate a proposed activity on the basis of a Project Design Document (PDD). A different DOE verifies and certifies emissions reductions, before the EB, based on the certification report by a DOE, finally issues Certified Emission Reduction credits (CERs) and distributes them to the accounts of Parties and project participants as requested by them.75 The question of legal ownership of CERs has been given little consideration and is not explicitly dealt with in the Kyoto Protocol and the Marrakesh Accords. The general approach is that in the absence of any law or contract to the contrary the home country of the project developer is the ‘legal owner’ of any CERs and entitled to deal with them exclusively. It has been argued that the ‘nationalization’ of credits by the host Government would remove incentives for investors, and tendencies in this direction exist. Nonetheless, the international legal nature of the Kyoto Protocol remains, providing rights and obligations for State governments. Accordingly, CERs should generally be considered sovereign rights which can only be legally owned by governments. Legal ownership can, however, be determined by State contracts or laws, which can allocate private ownership to these sovereign rights. However, the sovereign rights do not cease to exist when allotted to private entities but are (also) transferred to the home Government (Annex I Party) of the project 74 72 73



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Arts. 6(1)(b) and 12(5)(c) Kyoto Protocol. Arts. 6(1)(a) and 12(5)(a) Kyoto Protocol. See for an overview over the history of the CDM: J. Werksman, ‘The Clean Development Mechanism: Unwrapping the “Kyoto Surprise”’ (1998) 7:2 RECIEL 151. See for information Marrakesh Decision 17/CP.7, Annex; see also . Also Yamin and Depledge, for an overview of the project cycle, 2005, 162–164.

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developer to whose quantified emission limitation and reduction obligations they will be added (Article 3.12 KP). The situation gets even more complicated when there are multiple project participants, for example, different land and forest owners, constructors, lessees of the land, project manager, multi-Party joint ventures etc. The legal title to emission credits needs then to be defined by a network of complicated legal arrangements.76 A share of the proceeds from a CDM activity is automatically deposited in the CDM registry to fund adaptation in developing countries vulnerable to climate change77 and to cover CDM-associated administrative expenses.78 The process cycle leading to the issuance of CERs requires stringency and multilateral oversight both by the EB and the DOEs. The high transaction costs and the rather complex and lengthy process have been criticised as creating disincentives for investors to engage in CDM.79 However, the lack of quantitative mitigation commitments of host countries and the interest of the project developer in receiving a possibly high number of credits creates incentives to inflate the amount of CERs claimed80 which necessitates a clearly defined process with reliable methodologies and independent evaluation.81

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For a more detailed discussion on the various forms of contracts, see M. Wilder, M. Willis and M. Guli, ‘Carbon Contracts, Structuring Transactions: Practical Experiences’ in Freestone and Streck (eds.) 2005, 295–311; I.L. Worika, M. Brown and S. Vinogradov, ‘Contractual Aspects of Implementing the CDM and other Flexibility Mechanisms Under the Kyoto Protocol’ in Chambers (ed.) 2001, 215–246; For a discussion of arbitration in ‘carbon contracts’, see D. Ratliff, ‘Dispute Settlement in ‘Flexible-Mechanism’ Contracts’ in Freestone and Streck (eds.) 2005, 377–400 The share of proceeds that goes to the Adaptation Fund is 2% (FCCC/CP/2001/L.7). MOP 1 decided that the share of proceeds for administrative purposes should be US$ 0.10 for the first 15,000 CERs issued to a project per calendar year and US$ 0.20 for the remaining amount (FCCC/KP/CMP/2005/L.7). Twenty-seven items for reform of the CDM were registered during the negotiations of COP11/MOP1, relating to general issues, governance, methodological issues, broader participation and resources. See for an early warning note, A. Michaelowa, ‘Joint Implementation – the Baseline Issue: Economic and Political Aspects’ (1998) 8:1 Global Environmental Change 81–92; see also J. Lefevere, Greenhouse Gas Emission Allowance Trading in the EU: a Background Report, FIELD, 27 September 2002, 9. See A. Michaelowa, ‘Determination of Baselines and Additionality for the CDM: a Crucial Element of Credibility of the Climate Regime’ in Yamin (ed.) 2005, 289.



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3.5.1 Additionality One of the key issues for the environmental integrity of CDM projects is the additionality of emission reductions or removals.82 Article 12(5)(c) provides that CERs shall be certified if based on reductions that are additional to any that would occur in the absence of the project. Additionality is a necessary requirement for making the CDM function as a mechanism to compensate for emissions that are not being reduced domestically by Annex I Parties. If CERs are created that represent emission reductions which would have happened anyway, these ‘paper reductions’ will undermine the integrity of the Kyoto Protocol. 3.5.2 Prospects The CDM is becoming a popular instrument of climate change regulation by providing a cost-efficient means of complying with the requirements of the Protocol. A CDM project attracts substantial transfers in financial and technological services to developing countries while promoting climate protection and diminishing the extent of national climate change mitigation in developed countries. Given the importance of this market mechanism in the structure of the global climate regime, it is particularly important – and opportune – that the design of CDM aims for a synergetic relation with the concept of sustainable development. There are currently about 950 registered CDM projects in 49 developing countries, of about 3000 projects in the project registration pipeline. The registered projects have resulted in almost 200,000,000 issued CERs.83 The CDM is expected to generate more than 2.7 billion CERs by the time the first commitment period of the Kyoto Protocol ends in 2012, each equivalent to one tonne of carbon dioxide.84 Considering the CDM market size, the price of incoherence may be high, risking not just the investment but also the credibility and public acceptance of the climate change regime. It is this credibility and the environmental integrity



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83 84

Other ‘safeguards’ for environmental integrity are the determination of baselines, their methodology and modalities to avoid ‘leakage’, that is, the increase of GHG emissions elsewhere. See E. Meijer and J. Werksman, ‘Keeping it Clean – Safeguarding the Environmental Integrity of the Clean Development Mechanism’ in Freestone and Streck (eds.) 2005, 197–203. (last visited 09.03.2008). Ibid.

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of CDM projects which will have crucial implications for the future of any market-based international environmental measures. The CDM is without precedent in facing such a wide variety of interest and legal challenges with regard to establishing a coherent legal system of nonconflicting inter-linkages with other regulated fields. Making such measures operational while ensuring environmental integrity of this mechanism will demand legal finesse and, not the least, political willingness. Whether it will provide a basis of future multilateral climate policy will depend on the willingness of nations to commit themselves to the deeper emission cuts scientific evidence suggests are necessary.85 Discussions on the CDM during the negotiations of COP11/MOP1 in Montreal, December 2005, signified the considerable potential of the CDM to bring about consensus on the terms of global climate policy at some point in the future. But it will also depend on the CDM’s ability to meet its triplet goals in an environmentally safe manner. The implementation of the Protocol’s Clean Development Mechanism, however, has the potential to interact with trade-related regulation. CDM is promoting investments in Parties not included in Annex I of the UNFCCC. Eligibility to host a CDM project will be granted to developing countries only, while eligibility requirements for receiving CERs as a result of a successful CDM includes the ratification of and continued compliance with the Kyoto Protocol. In other words, projects from non-Annex I countries and non-complying Annex-I countries are not eligible. These requirements establish restrictions on services and investments likely to clash with non-discrimination clauses, common to trade and investment regulation.86 While the focus primarily needs to be on the avoidance of conflict by appropriate legal design, it does not mean that the CDM should be compromised by free-market imperatives. Some requirements of the mechanism might necessarily conflict with trade regulation in order to guarantee its environmental integrity. Those cases and their possible outcome will be assessed in part II of this book.

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Haites, 2005, 337. See: J. Werksman, K.A. Baumert and N.K. Dubash, Will International Investment Rules Obstruct Climate Protection Policies? (Washington D.C.: World Resources Institute, 2001); J. Werksman and C. Santoro, ‘Investing in Sustainable Development: The Potential Interaction between the Kyoto Protocol and a Multilateral Agreement on Investment’ in W.B Chambers (ed.) Global Climate Governance: Inter-linkages between the Kyoto Protocol and other Multilateral Regimes (Tokyo: United Nations University, 1998) 59–74; K. von Moltke, An International Investment Regime: Issues of Sustainability (Winnipeg: IISD, 2000.)



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3.6 Joint Implementation The third flexibility mechanism, Joint Implementation (Article 6 KP) was envisioned already in the UNFCCC.87 Developed further, Kyoto Protocol Article 6 now allows Annex I Parties to jointly meet their Article 3.1 commitments by transferring to, or acquiring from another Annex I Party, Emission Reduction Units (RMUs) achieved by investment in specific project activities. Such projects either entail actual reduction of emissions or the enhancement of removal by sinks, both vis-à-vis an established baseline scenario. The amount of ERUs generated by a JI project equals the difference between the baseline emissions and the project emissions. JI projects are supposed to be of particular interest to EIT (Economies in Transition) States, such as Eastern European and the former Soviet States, and Annex I States outside Europe, in particular New Zealand, Japan and Canada.88 The particularity of JI is its combination of elements of emissions trading under a cap-and-base system with a baseline-and-credit approach. Accordingly, it is a ‘hybrid’ mechanism to be placed between international emissions trading and the CDM. Once a minimum number of requirements have been met, that is – inter alia – the membership of and compliance with the Kyoto Protocol by both State Parties, approval by the States, and proof of additionality of the reductions to any that would otherwise have occurred, Joint Implementation of a project can be carried out in one of two ways (Track I and II). Under the Track I Procedure, the host country itself may verify reductions in anthropogenic emissions and removals by sinks if it has met extensive monitoring and inventory requirements. Upon such verification, the host country may issue the appropriate number of ERUs in accordance with Decision 19/CP.7. This is done by converting host country AAUs into ERUs and transferring them



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JI has its roots in Articles 3.3, 4.2(a) and 4.2(d) UNFCCC. Art. 3.3 opens for flexibility and cost-effectiveness, while Art. 4.2(a and d) explicitly provides for implementation of measures ‘jointly’ with other Parties and mandates the COP to take decisions regarding criteria for such implementation. See for an early discussion: R. Loske and S. Oberthür, ‘Joint Implementation under the Climate Change Convention’, 6:1 International Environmental Affairs, 1994, 45–58. For a historic overview see Yamin and Depledge, 2004, 188–189 and C. Streck, ‘Joint Implementation: History, Requirements, and Challenges’ in Freestone and Streck (eds.) 2005, 107. See for an overview over JI policies in New Zealand and Japan, M. Wilder, ‘Implementing the Clean Development Mechanism and Emissions Trading beyond Europe’ in Freestone and Streck (eds.) 2005, 244–246.

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through the system of National Registries to the acquiring country’s account while reducing the amount from the host countries assigned amount. Track II differs to the extent that it involves a complex approval and verification process by an independent entity, which is to be conducted under an international procedure overseen by the JI Supervisory Committee. The procedure is based on the validation and registration requirements of the CDM, including the design and scope of PDD and the methodologies for measuring a project’s additionality. The contentious question of designation of independent entities was finally resolved in Montreal. In this compromise solution, private audit DOEs under the CDM do not automatically qualify for evaluating Track II JI projects. Instead, entities have to apply for accreditation. Until they are accredited they can serve as provisional independent entities.89 Still, countries engaging in JI projects remain ultimately responsible for achieving their emission targets and JI projects do not challenge the ‘fixed cap’ of Annex I Parties involved in a project. JI also requires the acquisition of ERUs to be supplemental to domestic actions (Article 6.1(d) KP). JI has been accorded the lowest priority in negotiations on the three flexibility mechanisms. Complex negotiations on the other mechanisms and on compliance issues resulting in capacity constraints, the absence of a cohesive political bloc of JI host countries in negotiations and of a coherent vision on JI modalities in general, together with contentious financial questions and the assumed competition between CDM and JI, have led to a slow progress on JI. The decisions taken in Montreal are, however, expected to speed up the process of operationalizing JI especially if the funds necessary to support the work of the JI Supervisory Committee are set up. For the purpose of this study, the focus of the remaining chapters will therefore primarily be confined to emissions trading and the CDM. 3.7 Concluding Remarks The clear advantage of flexibility mechanisms, such as emissions trading and joint implementation, is the finite number of emission units, clearly defining the environmental goal. This ‘absolute cap’, if combined with a strong compliance mechanism,90 ensures that it will become unattractive for States to emit more than they are allowed under the Kyoto Protocol. 89 90



FCCC/KP/CMP/2005/L.6. See for a comprehensive overview of the compliance system under the Kyoto Protocol: J. Werksman, ‘The Negotiation of a Kyoto Compliance System’ in O. Schram Stokke, J.



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The climate regime must – and the flexibility mechanisms make it more likely to – progressively convince a wide range of currently hesitant or resistant actors to reframe climate protection as the (only) sustainable way forward. This shift in conviction, however, involves not only legal measures, but complex and dynamic social processes. Still, as Mitchell supposed, ‘the flexibility mechanisms … may, over time, initiate social processes that lead to deepseated normative changes that, in turn, may produce the dramatic, long-term changes in human behaviour that are necessary to avert climate change.’91 The use of economic flexibility instruments, in particular the JI and CDM, can promote the development and distribution of new technologies, generating capital flows and transfer of technologies into regions with cheaper, older technologies or limited financial means and capacities to implement climate friendly technologies, promoting not only emission reductions at reduced costs but also positive feedback across the whole, global economy.92



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Hovi and G. Ulfstein (eds.) Implementing the Climate Regime: International Compliance (London: Earthscan, 2005) 17–37. R.B. Mitchell, ‘Flexibility, Compliance and Norm Development in the Climate Regime’ in Stokke, Hovi and Ulfstein (eds.) 2005, 81. See J. Lefevre, ‘The EU Greenhouse Gas Emission Allowance Trading Scheme’ in Yamin (ed.) 2005, 92.

Chapter 4

Sustainable Development in the Context of International Climate Change Law

4.1 Introduction Climate change touches two questions of fundamental importance: humankind’s interaction with and relation to nature and humanity’s relationship with itself. The principle of sustainable development addresses the same questions. Climate change, however, not only lifts these questions into a real-world scenario, but urgently demands a practical answer. In other words, climate change requires the international community to define what it means by sustainable development. It poses the challenge of integrating ecological limitations into all other aspects and sectors of human life, both in an intragenerational and intergenerational context. The apparent, albeit complex, symbiosis of the challenge of tackling climate change and sustainable development has been captured by the Intergovernmental Panel on Climate Change in its 2007 Fourth Third Assessment Report: A key finding is that through climate mitigation alone, it will be extremely difficult and expensive to achieve low stabilization targets (450 ppmv CO2) from baseline scenarios that embody high emission levels … Achieving low emission baseline scenarios consistent with other principles of sustainable development, that is viewing climate change through a sustainable development lens, would illustrate the significant contribution sustainable development can make to stabilization.1

1

IPCC, Sustainable Development and Mitigation, in: Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 696. Already the Third Assessment Report commented at this relationship in the following way: ‘The climate change issue is part of the larger challenge of sustainable development. As a result, climate policies can be more effective when consistently embedded within broader strategies designed to make national and regional development paths more sustainable. This occurs because the impact of

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Similarly, the 2001 UNFCCC Marrakech Ministerial Declaration assumes a close connection between measures undertaken within the climate regime and the aim of sustainable development. The Preamble of the Declaration expresses the belief of the negotiators that ‘addressing the many challenges of climate change will make a contribution to achieving sustainable development.’2 The importance of successful climate change strategies as one of the main issues in the context of sustainable development was reaffirmed at the 2002 Johannesburg World Summit on Sustainable Development. Recalling the preambular wording of the Climate Convention, the ‘Plan of Implementation’ states that ‘change in the Earth’s climate and its adverse effects are common concern of humankind’ and refers to the UNFCCC as being the key instrument for addressing climate change, a global concern” and affirms the “commitment to achieving its ultimate objective of stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system, within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner, in accordance with our common but differentiated responsibilities and respective capabilities.”3

The analysis of sustainable development in the context of the climate regime aims at providing a better, more practical understanding of the concept. At the same time, there is a positive feed-back loop. A better understanding of the principle of sustainable development is not only a desirable side-effect of this analytical endeavour, it is a necessary condition for the success of the international climate regime. As long as the claim of conceptual uncertainty surrounding sustainable development remains, also the development of an international consensus on climate change is hindered, if not endangered. But as long as the climate regime remains ineffective, it impairs the achievement of sustainable development. Long-term solutions to resolving the threat of climate change



2 3

climate variability and change, climate policy responses, and associated socio-economic development will affect the ability of countries to achieve sustainable development goals. Conversely, the pursuit of those goals will in turn affect the opportunities for, and success of, climate policies. In particular, the socio-economic and technological characteristics of different development paths will strongly affect emissions, the rate and magnitude of climate change, climate change impacts, the capacity to adapt, and the capacity to mitigate.’ IPCC, 2001c, 4. FCCC/CP/2001/13/Add.1, 3f, Preamble, para. 3. See Report of the World Summit on Sustainable Development, UN Doc. A/CONF.199/20., PoI, para. 38. For more information on the political reasons for choice of this wording see Gray, 2003.



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depend on the comprehension of sustainable development while sustainable development requires effectively tackling the climate challenge. In order to find a long-term solution to the global challenge of climate change, I suggest envisaging the linkage between sustainable development and climate change strategies in a direct and reciprocal manner. In fact, they need to be seen as two sides of the same coin. Sustainable development is inherently defined by ecological limits set by fundamental natural processes and functions, among which a stable global climate is arguably the most crucial. The ability of the global community to tackle the challenge of climate change by setting up a comprehensive and effective international climate regime is giving an indication of the attempt to understand and implement sustainable development as a global concept.4 Phrased in a slightly different way, the consensus of the world community regarding the core of sustainable development is decisive for the success of the climate change regime. As climate change is a challenge to be addressed in a sustainable – global, long-term, effective and equitable – manner, only solutions that are based on commitments of the entire world community may be considered as ‘tackling’ climate change. In order to gain worldwide consensus and commitment, however, these solutions need to be based on the concept of sustainable development. My argument, is that sustainable development should be seen as a global norm – a principle – to approach issues of vital and global importance, such as climate change. Simultaneously, the climate challenge in all its complexity makes clear the urgent need to further defining sustainable development and to developing a common understanding of this concept. The linkage between climate change and sustainable development might thereby lead to a renewed appreciation of fundamental ecological limits at the core of sustainable development. Coherence between climate strategies and sustainable development is necessary. Not only because coherence between climate change strategies and sustainable development is a precondition for the functioning of any ‘climate deal’,5 it is also a prerequisite for dealing with other ‘international priorities’ like the globalization and liberation of trade, where they seem to overlap with climate measures. But coherence in design and structures presupposes a coherent understanding. It is my claim that such a coherent understanding – or conceptualization – of the relationship of climate change measures to other ‘priorities’ and sustainable development is possible and is slowly evolving.

4 5

Sands, 1994, 304; French, 2005a, 274 See for support of this argument: T. Athanasious and P. Baer, Dead Heat, Global Justice and Global Warming (New York: Seven Stories Press, 2002).

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Furthermore, the inter-relationship between sustainable development and the design of climate measures also has important implications for the status of climate law in a wider context. As will be shown in Part III, the relationship of climate law to other areas of international regulation, e.g. international trade law, will ultimately be defined by the level of coherence between climate law and sustainable development. In other words, a consensus on climate measures based on a consensus on sustainable development might provide the strongest argument for the precedence of climate law where it threatens to overlap and come into conflict with other areas of international law. In this section it will be shown that the concept of sustainable development is a central element already of the multilateral climate regime. Numerous provisions in both the UNFCCC and the Kyoto Protocol reiterate references to sustainable development. The design of the climate regime itself gives an indication of sustainable development as seen in a climate context. In fact, the analysis of the multilateral response to climate change is a study par excellence of the attempt by the international community to understand and implement sustainable development.6 The continuing debate surrounding climate negotiations highlights the difficulties facing the international community in applying sustainable development to a particular – but complex – global issue. At the same time, it is evidence of an increasing acceptance of the core parameters of sustainable development. This evidence, as will be demonstrated below, can be drawn from explicit references to sustainable development in the Climate Convention and the Kyoto Protocol, as well as from central characteristics of the climate regime. 4.2 References to Sustainable Development in the UNFCCC The term ‘sustainable development’ is used twice in the text of the Convention. Article 3 on ‘Principles’ notes that ‘The Parties have a right, and should, promote sustainable development,” (para. 4) while para. 5 calls for ‘sustainable economic growth and sustainable development in all Parties, particularly developing country Parties’. There are numerous references to sustainable economic growth, and sustainable social and economic development. Paragraph 22 of the Preamble, for example, recognizes that all countries, especially developing countries, need access to resources required to achieve sustainable social and economic development and that, in order for developing countries to progress toward that goal, their energy consumption will need to grow taking

6

See French, 2005, 73.



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into account the possibilities for achieving greater energy efficiency and for controlling greenhouse gas emissions in general, including though the application of new technologies on terms which make such application economically and socially beneficial.

More importantly, Article 2 refers to a time frame for dealing with climate change which allows economic development to proceed in a sustainable manner. Article 2 states that [t]he ultimate objective of this Convention and any related legal instruments that the Conference of the Parties may adopt is to achieve, in accordance with the relevant provisions of the Convention, the stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.

Meeting this objective will clearly entail radical changes in human behaviour in the shorter and longer term. Humankind does not have much experience in making long-term predictions and commitments such as demanded by sustainable development. The challenge of climate change, however, demands the self-imposition of stringent patterns of behaviour on States, the impact of which will primarily be perceived by future generations, though already present impacts are palpable.7 Thus, the objective of the climate regime as such can be seen as a regulatory attempt to define a sustainable development path that, by seeking to meet the needs of the present generations, does not compromise freedom of future generations to decide for themselves. It is this complex task which led to the Convention’s more programmatic than prescriptive character. Another reference to the term ‘sustainable’ is found in Article 4.1(d) which specifies under the heading ‘commitment’ that countries must promote sustainable management of sinks and reservoirs of greenhouse gases. And finally, Article 4.2(a) notes that developed countries will need ‘strong and sustainable economic growth’ in order to achieve the objective of the Convention. Thus, one is left with a puzzling array of references to sustainability, sustainable development or sustainable growth while no explanation or definition is given within the text of the Convention. The Convention comprises of an amalgamation of sustainability issues. Our assessment in chapter 2 could help



7

See C. Voigt, ‘From Climate Change to Sustainability – An Essay on Sustainable Development, Legal and Ethical Choices’ (2005) 9:1 Worldviews, 112–137.

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to overcome conceptual ambiguities and to establish a coherent reading and understanding. Most references suggest that Parties used the terms sustainable economic growth and sustainable development synonymously. At the same time, however, Article 3.4 suggests the opposite. Sustainable development is explicitly referred to as a right. In this context it appears to be a central term in the entire convention, which contains two substantive rights – the other one being the sovereign right of States to exploit their own resources, pursuant to their own environmental and developmental policies.8 The reference to sustainable development as a right gives this term a different standing to sustainable economic development. Furthermore, Article 3.5 suggests that the two terms are not synonymous, as it calls for both ‘sustainable economic growth and sustainable development in all Parties, particularly developing country Parties’. From the Convention alone, therefore no clear preference can be ascertained for either one of these terms. 4.3 References to Sustainable Development in the Kyoto Protocol and Subsequent Documents The Kyoto Protocol gives stronger credentials to sustainable development. The preambular reference to the ultimate objective of the Convention – which follows already from Article 2 of the Convention – incorporates the concept of ‘economic development in a sustainable manner’ into the Protocol.9 In addition, an explicit reference is made in Article 2.1(a) of the Protocol where a list of policies and measures is presented that Annex I Parties (i.e. developed country Parties) in achieving their quantified emission limitation and reduction commitments under Art. 3 ‘in order to promote sustainable development’ shall ‘[i]mplement and/or further elaborate, both individually and co-operatively’. These policies and measures include – inter alia – enhancing energy efficiency, promotion, research, development and increased use of new and renewable form of energy, of carbon dioxide sequestration technologies and of advanced environmentally sound technologies. All obligations listed in Article 3 are thus subject to the goal of sustainable development according to the mandate in Art. 2.1 and on the grounds that the commitments to reduce greenhouse gas emission amounts to 1990 levels according to the assigned amounts (targets) and the commitment to show

8 9

Preamble, para. 8. Art. 2 UNFCCC notes explicitly “this Convention and any related legal instrument”. Such an instrument is, inter alia, any adopted Protocol under Art. 17 UNFCCC.



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demonstrable progress by 2005 are in themselves requirements of sustainable development.10 Article 10 of the Protocol stresses that all Parties need to implement their commitments according to Article 4 of the UNFCCC with regard to financial assistance to developing countries, technology transfer, and the special role of developing countries in the implementation of the Convention in order to achieve sustainable development. In the course of implementation, costeffective national programmes with measures to update local emission factors, energy, transport, industry and agriculture, forestry and waste-management and to further cooperation with developing countries are to be taken. Moreover, Article 12.2 states that the purpose of the Clean Development Mechanism shall not only be to assist Annex I Parties in meeting their emission limitation and reduction commitments and to contribute to the Convention’s ultimate objective, but should also ‘assist Parties not included in Annex I in achieving sustainable development’, despite the already existing commitment to sustainable development.11 This reference to the concept is a good example of what is often referred to as a ‘win-win’ situation where the solution to a specific problem, e.g. greenhouse gas emission reduction, is linked to the wider goal of sustainable development. Finally, the Marrakech Accords add further emphasis to our conclusions concerning the importance and understanding of sustainable development in the Kyoto Protocol. The Marrakech Declaration states that decisions to deal with climate change may contribute to sustainable development.12 More clearly, it demands that the synergies between the United Nations Framework Convention on Climate Change, the Convention on Biological Diversity, and the United Nations Convention to Combat Desertification … should continue to be explored through various channels in order to achieve sustainable development.13

In particular, the Declaration’s references to capacity-building in developing countries and countries with economies in transition are closely aligned with sustainable development. Capacity building ‘will, in a coordinated manner, assist them in promoting sustainable development while meeting the objective of the Convention’. Furthermore, it demands technological assistance and

10 11



12 13

Arts and Gupta, 2004, 524. Some authors contend that the reference to sustainable development in Art. 12 was not necessary, “since a general obligation for all policies to be consistent with sustainable development already exists”. See Art and Gupta, 2004, 525. Decision 1/CP7. Ibid., para. 3.

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capacity building to ‘effectively integrate vulnerability and adaptation assessments into sustainable development programmes.’14 Sustainable development is further referred to in provisions on adaptation, land-use and forestry activities and the flexibility mechanisms.15 In the subsequent instruments, sustained economic growth occupies a less dominant position to its place in the Convention. Thus, a clearer perception of sustainable development and climate change emerged in the evolution of the climate regime. It can safely be said that sustainable development is generally prioritized and that all measures undertaken to combat climate change are linked to the achievement of sustainable development.16 Much of the abovementioned ambiguity of the Convention has disappeared in the Protocol. By including sustainable development in the introductory clause of Article 2 of the Kyoto Protocol, all policies and measures implemented by Annex I Parties are subject to the requirement of consistency with sustainable development. Certain specific, innovative elements included in the Kyoto Protocol will be briefly assessed in the following two sections. First, the North–South relationship has received specific attention along with issues associated with funding and technological assistance. Second, the inclusion of flexibility instruments is relevant to sustainable development by allowing a certain degree of flexibility and alleviation of economic burdens. 4.4 Implicit References to Sustainable Development Sustainable development is not only explicitly mentioned in the legal documents of the climate regime, it also is implied in the very structure and design of the regime. 4.4.1 Intragenerational Equity: Differentiation, Partnerships and Funding a) Differentiation Climate change is a global problem but contributions to it differ. Disregarding where gases are emitted, they all contribute equally to the problem. But there are large differences between States regarding their historic and (still) present greenhouse gas emissions. So far, the development paths of industrialized countries have caused most of the anthropogenic greenhouse gases that are 16 14 15

Ibid., 17.c. See generally the decisions of CDM 17/CP.7. See Arts and Gupta, 2004, 533.



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currently concentrated in the atmosphere and which already are impacting on climate stability. Future climatic changes will however be equally if not largely determined by the developmental patterns of the currently less developed countries, for example, India, China and Brazil. Also the negative impacts of rising greenhouse gas concentrations will be unevenly distributed. Developing countries are in general more vulnerable to climatic changes than industrialized countries, although differences exist also among the former. Many developing countries have a higher dependence on agriculture, limited infrastructure, partial lack of a profound knowledge base and capacities, lack of technology and limited means of financial and institutional governance. To account of these contributive and distributional differences, the entire climate regime in its current form operates basically on the principle of equity based on the differentiation between countries included in Annex I of the Convention and those that are not.17 This differentiation expresses the recognition that taking measures to tackle climate change must be in accordance with States’ ‘common, but differentiated responsibilities and respective responsibilities and their social and economic conditions’.18 With regard to climate change this means that each State has a responsibility to protect the climate system. In this regard, common responsibility and common concern express both a sense of ‘commonality’ regarding the climate problem and its consequences.19 Certain legal responsibilities are attributable to all States in respect of the stability of the climatic system. The legal interest in the stability of the climate system includes a legal responsibility to prevent damage to it. However, there is a need to take account of the differing circumstances regarding each State’s special responsibility, capability and needs. ‘Differentiated responsibilities’ require historical, social, economic, geographic, contextual, and other circumstances to be considered when attributing roles and responsibilities under international law.20 The UNFCCC states in Article 3(1) and 4 (2.a) that developed country Parties ‘should take the lead’. The concept of common but differentiated responsibilities becomes evident in that so far only developed countries have specific, quantified obligations to reduce greenhouse gas emissions. Moreover, different

17



18



19 20

See F. Yamin, ‘Equity, Entitlements and Property Rights Under the Kyoto Protocol: The Shape of ‘Things’ to Come’ (1999) 8:3 RECIEL 265–274. Preamble and Art. 3.1 UNFCCC. See also: L. Rajamani, ‘The Principle of Common but Differentiated Responsibility and the Balance of Commitments under the Climate Regime’ (2000) 9:2 RECIEL 120–131. Sands, 2003, 286. See Melkas, 2002, 125.

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reporting requirements apply to the respective country groups.21 Different roles are ascribed to different States based on the abovementioned criteria. In this regard the principle applies differentiation as a requirement of fairness and justice to the otherwise substantial equality of States.22 The sovereign equality of States has been modified in order to take account of other factors than statehood. Nowhere is the application of common but differentiated responsibilities – implying preferential and non-reciprocal treatment of developing States – more pronounced than within the climate regime. In fact it appears likely that the climate regime stands as a landmark of differentiation in a sustainable development context, integrating economic and social requirements within the ecological limit set by ‘safe atmospheric greenhouse gas concentrations’. The Convention and the Protocol recognize differentiations based on historic and current emissions trends of developed countries and vulnerability and special circumstances of developing countries. The Convention allows for special circumstances of developing countries and their right to development in the Preamble and Article 3(2), even after considering the potential that development will increase the share of emissions from those countries. In this context, the concept of sustainable development is of importance. The Convention does not state that increased emissions from developing countries are generally compatible with the ultimate objective. What it says is that the share of emissions coming from developing countries might increase – but to the disadvantage of the shares of developed States. The third paragraph of the Preamble makes it clear: if the share of global emissions originating in developing countries is to rise, it implies that the share of emissions from developed countries is supposed to decline. Both shares have to be seen in relation to the overall aim of keeping atmospheric concentrations on a level below 450 ppm CO2 eqv. Thus, if the differentiation of emission amounts is to be equitable and in accordance with the common but differentiated responsibilities and respective capabilities of Parties, drastic reductions of emissions in developed countries and decoupling economic growth and carbon emissions in particular in developing countries need to be the main goals of climate change mitigation.23 The references to sustainable development support this view. As we explored above, sustainable development implies developing within global ecological limitations. If equity concerns allow for increased

23 21 22

See UNFCCC Arts. 4 and 12. See Melkas, 2002, 123. E. Claussen and L. McNeilly, Equity and Global Climate Change: The Complex Elements of Global Fairness, reprinted edition (Arlington, VA.: Pew Center on Climate Change, 2000).



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emissions in some less developed parts of the world, these increases have to be ameliorated by significant decreases in developed countries. The global nature of climate change calls for the widest possible cooperation. Despite differentiation, there is a fundamental common responsibility to find a solution. In this context, differentiation between developed and developing countries in the Protocol has to be seen as a ‘first step toward comprehensive climate strategies’.24 In addition, developing countries are no longer a homogeneous group that in its entirety is distinguishable from developed States. The traditional North–South divide is no longer the only line of differentiation. There are further groups of countries that find themselves in particular situations with regard to the climate challenge. Low-lying small island States for example, like Tuvalu and Fiji; least developed countries and countries with particularly fragile ecosystems, in particular a number of Central-African countries, and parts of Asia; large industrial developing countries, like India and China and countries with economies that to an especially high degree depend on income generated from fossil fuels, generally the members of the Organization of Petroleum Exporting Countries (OPEC) – whose economies are not so much threatened by the effects of climate change as by the international responses to it – give an indication of much more complex divisions within the group of ‘developing countries’. The climate regime attempts to give due regard to the various aspects that are of particular interests to the several groups. This attempt, however, requires us to ask how far these diverse concerns could stand in the way of establishing a ‘comprehensive’ and effective climate strategy. If sustainable development meant taking account of all and every interest in the name of equality or political and economic justice, then it might indeed obstruct progress in meeting the climate challenge. As argued above, this is not what sustainable development requires. The concept sets a clear preference for protecting a stable climatic system to other developmental interests. Or, in other words, other developmental interests have to be defined in relationship to their contribution to protecting a stable global climate system. The differentiation in obligations between the various players according to their contributions, exposure to damage, their capacities and vulnerability is a means to establish an equitable system within the limitations set by a safe global climate. It gives evidence of the understanding that social and economic considerations need to play a significant role in determining appropriate responses to the climate threat – without putting in danger the overall aim of the climate regime. However, the urgency of the task coupled with the

24

Preamble, UNFCCC.

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complexity of the matter may not allow for a stronger differentiation. Rather all States will eventually be required to actively contributing to solving this challenge. Munansinghe addressed the dynamic connection between society, development and climate change. In his words, ‘climate change measures and impacts address the larger question of how complex social, economic and environmental sub-systems interact and shape prospects for sustainable development’.25 b) North-South Partnerships Developed countries have a responsibility not only to commit to sustainable development themselves but also to assist developing countries’ sustainable development.26 Based on equity concerns, financial resources and other forms of assistance, such as capacity building and technical cooperation, shall be made available to developing countries to address climate change. These contributions range from adaptation measures that deal with the negative impacts of climate change; to measures that aim at increasing energy sufficiency or which have a positive impact on the global climate and guide national policies and measures toward sustainable development. The Convention seeks to establish a solution to break the deadlock between the ‘affluent’ and the ‘aspiring’ in that it not only addresses climate change but also a development strategy where developed countries not only are supposed to develop sustainably but where they also should fund the sustainable development of the South. Article 4.5 UNFCCC states, for example, that developed country Parties and other developed Parties included in Annex II shall take all practical steps to promote, facilitate and finance, as appropriate, the transfer of, or access to, environmentally sound technologies and know-how to other Parties, particularly developing country Parties, to enable them to implement the provisions of the Convention. In this process, the developed country Parties shall support the development and enhancement of endogenous capacities and technologies of developing country Parties.

25



26



See M. Munasinghe, Analysing the Nexus of Sustainable development and Climate Change: An Overview, OECD, 2003, COM/ENV/EPOC/DCD/DAC(2002)2/FINAL, 8. See also: M. Munasinghe and R. Swart, Primer on Climate Change and Sustainable Development. Facts, Policy Analysis, and Applications (Cambridge: Cambridge University Press, 2005); M. Munasinghe and R. Swart (eds.) Climate Change and its Linkages with Development, Equity and Sustainability (Geneva: IPCC, 2000); Metz et al., 2002, 212. See Y. Matsui, ‘The Principle of “Common but Differentiated Responsibilities”’ in Schrijver and Weiss (eds.) 2004, 85.



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The commitments of developed countries to financial, technological and other forms of cooperation with less developed or developing countries are not just a unilateral promise, but form part of the negotiated nexus of rights and responsibilities between the Parties to the UNFCCC.27 This is made clear by Article 4.7 of the UNFCCC: The extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources and transfer of technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of the developing country Parties.

These commitments can be described as ‘partnership-obligations’28 or obligations of cooperation.29 The legal status of such a solidarity provision is contentious. For some it is merely descriptive of the economic and political reality of the situation. It is seen as a means of persuasion.30 But persuasion also functions the other way. The effects of making obligations conditional in this way is to give developing States a means to put pressure on developed States. If developed countries wish developing countries to adopt and implement certain commitments, the developed world will have to contribute to the additional expenditure such measures involve. Or as Birnie and Boyle put it in similar words, ‘it becomes irrelevant whether developed States have a legal duty to provide assistance: if they want developing countries to participate actively in securing the goals of each agreement they must honour the expectation that the necessary resources will be provided.’31 At the same time, the solution of global problems like climate change demands cooperation at a widest possible level. Such co-operation clause could therefore be considered a kind of precautionary measure that ensures effective implementation by and compliance of developed countries. Developed 29 27 28



30



31

See French, 2005, 93. Ibid. This kind of cooperation has been called for by the 1992 Rio Declaration. In its Preamble the Declaration notes: “With the goal of establishing a new and equitable global partnership through the creation of new levels of cooperation among states.” Boyle notes, for example, “the arguments for linking [financial and technology transfer] provisions to environmental protection measures are different from the focus on economic self-determination that prevailed in the resource conflicts of the 1970s. Now the problem is to persuade developing states to participate in treaty regimes that may be perceived as offering little benefit or as hindering their freedom to develop.” Boyle, A. ‘Comment on the Paper by Diana Ponce-Nava’ in W. Lang (ed.) Sustainable Development and International Law (1995) 138. Birnie and Boyle, 2002, 94.

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States increasingly recognize how much they stand to lose in political, legal and moral authority if they fail to respect the terms of the original compromise. Article 4.7 encapsulates within a single provision the very nature of the climate regime. It is ‘a carefully negotiated, evenly balanced and, most importantly of all, a mutually interdependent compromise’.32 This compromise reflects to some extent current thinking on and commitment to sustainable development. c) Funding and Financial Obligations Financial contributions from developed countries are meant to meet the additional costs incurred by the implementation of the commitments under the climate regime. According to Article 3 UNFCCC, these costs are divided into two main categories: first, the ‘agreed full costs’ of a developing country’s communication to the COP as required under Article 12.1 UNFCCC, and second the ‘agreed full incremental costs’ of activities undertaken by developing countries under Article 4.1 UNFCCC, which sets out the general obligations of all Parties. Into the first category fall costs such as national inventories of anthropogenic greenhouse gas emissions under Article 12.1(a). The second category is more difficult to define. The notion of ‘incremental costs’ remains debated, in particular its relation to ‘global benefits’ and the promotion of sustainable development (Article 4.1(d)). The extent of this funding is still to be ‘agreed’ by the developing States that undertake to implement their commitments under Article 4.1 UNFCCC and the ‘international entity or entities’ entrusted to operate such funding. To continue to make the concept of agreed incremental costs and global benefits more understandable, the process for determining incremental costs should be transparent, flexible and pragmatic.33 Furthermore, the reference to ‘new and additional financial resources’ in Article 4.3 clearly means additional financial support for developing countries. Here, traditional channels – mostly foreign aid, direct foreign investment or official development assistance (ODA) – need to be extended and supplemented by more innovative means and sources of financial assistance for reasons of global environmental protection.34 In particular, the Clean Development Mechanism as an investment mechanism is supposed to contribute also financially to the host country’s development. However, these contributions 34 32 33

French, 2005, 94. Decision5/CP.8 para. 4.c A. Jordan and J. Werksman, ’Financing Global Environmental Protection’ in J. Cameron, J. Werksman and P. Roderick (eds.) Improving Compliance with International Environmental Law (London: Earthscan, 1996) 248.



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need to be evaluated separately from and in addition to Article 4 UNFCCC.35 Financial contributions for climate reasons are additional if they do not lead to diminished financial flows for poverty eradication and development needs otherwise. Other provisions indicate further, broader financial commitments. Article 4.4 requires developed country Parties to assist developing countries that are particularly vulnerable in meeting adaptation costs, while Article 4.8 calls for funding, insurance and transfer of technologies to meet specific needs of developing country Parties from the effects of climate change or from the effects of response measures. Articles 10 and 11 of the Kyoto Protocol extend the financial commitments of developed countries. As mentioned above, also Article 12 opens for additional financial contributions. Article 11 of the UNFCCC defines a financial mechanism. The debate around this particular mechanism remains contentious. While developed States have expressed a strong desire to avoid the creation of a new institution, developing countries are calling for a new multilateral fund or funding institution under the auspices of the Parties themselves.36 However, despite the establishment of two funds under UNFCCC and one under the Kyoto Protocol,37 most climate projects in developing countries are funded by the World Bank-based Global Environment Facility (GEF). In sum, it can be said, that the inclusion of funding mechanisms and means in the climate regime is an indication of the consensus of the international community as to their necessity and appropriateness. All these measures concern the relation of developed to developing countries with regard to the delicate balance of responsibility, distribution of costs and allocation of commitments, evidence of the general understanding of intragenerational justice as a part of sustainable development.38

35 36



37

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Meijer and Werksman, 2005; Huq and Reid, 2005. See J. Werksman, ‘Consolidation Governance of the Global Commons: Insights from The Global Environmental Facility’ (1995) 6 YbIEL 49. The two funds under UNFCCC are a Special Climate Change Fund (SCCF) to provide financial means for adaptation, technology transfer, energy, transport, agricultures, forestry and waste management in developing countries and a Least Developed Countries Fund (LDCF). Under the Kyoto Protocol there is the Kyoto Adaptation Fund (AF), which shall finance specific adaptation projects in developing country Parties and receives a share of proceeds of 2% of the CERs generated under the CDM. These three funds are to be financed on a voluntary basis by Annex I parties. The EU, Canada, Iceland, Norway and New Zealand issued a joint political declaration on their preparedness to collectively contribute US$450 million annually to these new funds. See G. Loibl, ‘The Evolving Regime on Climate Change and Sustainable Development’, in N. Schrijver and F. Weiss (eds.) International Law and Sustainable Development (Leiden: Martinus Nijhoff, 2004) 113–114.

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4.4.2 Intergenerational Equity The intergenerational aspect of the climate change regime is prompted by the fact that while the climate regime seeks to guide States to take action to mitigate climate change today, the effects may not be felt for many years. This aspect concerns primarily mitigation measures. In the absence of response measures, the effects of continuing climate change are likely to become more severe, affecting future generations disproportionately. This links to our previous discussion in chapter 2 about the ethical issue of duty to save future generations from detrimental impacts. It is in this context the reference to climate change in UNFCCC’s Preamble as a ‘common concern of humankind’ can provide guidance. Common concern indicates the universality of the issue,39 and measures to address this common concern should be based on a supreme principle of duty. Because future generations and those living today are fundamentally equal, they are in principle entitled to the same stable climatic conditions. It follows that present generations, represented by States, are obliged to abstain from actions that threaten climatic stability and required to take actions to protect a safe climate system. Having said that, absolute stability of climate conditions is impossible to achieve not only because of natural variations, but because changes are already underway and likely to continue however drastic the mitigation measures. This is why the ultimate objective of the UNFCCC is the prevention of dangerous anthropogenic interference with the climate system, stated in scientific terms as maintaining GHG concentrations below levels likely to cause a 2°C rise in mean temperature above the pre-industrial level. However, even this rather minimal increase in global temperatures will bring about detrimental climatic changes.40 Arguments promoting the application of intergenerational justice to the climate challenge have been put forward. They are mainly based on five considerations, namely the seriousness and urgency of the problem, the potential for irreversible damages, the need for new ways of thinking about new challenges, the possibility for developing acceptable measures for accountability and the degree to which the problem serves as a useful prototype for analysis of crises that occur in other contexts.41 39



40



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This has to be seen together with the fact of almost universal ratification of the Convention. As of March 2008, 192 States have ratified the document. (). IPCC, Fourth Assessment Report, 2007 Synthesis Report, Summary for Policymakers, 9. (available at: ). Redgwell, 1991, 54.



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Considerations of intergenerational justice can already be identified in the design of the international climate regime. Intergenerational justice concerns have been explicitly recognized both in the UNFCCC and the Kyoto Protocol. In the Convention several references are made to future generations. Article 3.1 states that ‘the Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities.’ Closely linked with inter-generational justice is the precautionary principle, one of the guiding principles of the climate regime.42 Article 3.3 of the UNFCCC obliges Parties to take precautionary measures to anticipate, prevent or minimize the causes of climate change and mitigate its adverse effects. Where there are threats of serious or irreversible damage, lack of full scientific certainty should not be used as a reason for postponing such measures, taking into account that policies and measures to deal with climate change should be cost effective so as to ensure global benefits at the lowest possible cost.

The precautionary principle is based on the intrusion of uncertainty. Anticipatory, preventive action is envisaged as a response to risk of harm. Rather than requiring irrefutable proof that certain damage might occur, the principle urges Parties to ‘act first, and then ascertain the facts.’43 The precautionary principle incorporates into the climate regime an understanding of the threat of a changing climate as so severe and irreversible a phenomenon that (despite the lack of scientific uncertainty in several areas of climate change science) action to mitigate climate change is perceived necessary. Given the fact that mitigation actions will not have an immediate effect, probably not for many years, the linkage to intergenerational concerns becomes apparent. The principle of precaution can in this regard be recognized as a constituent of the principle of sustainable development.44



42



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44

On the precautionary principle see: Kiss and Shelton, 2004, 206–211; Sands, 2003, 266–279; De Sadeleer, 2002, 91–223; A. Trouwborst, 2002. De Sadeleer, 2002, 91. Also for a historical overview see: C. Voigt, ‘The Precautionary Principle and Genetic Engineering in New Zealand’ (2002) 6 New Zealand Journal of Environmental Law, 43–96. See for a strong proposition of the precautionary principle in this respect, Dissenting Opinion of Judge Weeramantry to the Order of the Court regarding the Request for an Examination of the Situation in Accordance with Paragraph 63 of the Court’s of December 20 1974 in the Nuclear Tests Case (New Zealand v. France) 22 September 1995.

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In sum, the protection of the climate system by the present international regime is motivated by the benefit future generations might derive from measures undertaken by the present generation.45 4.4.3 Economic Flexibility The relationship of the flexibility mechanisms to considerations of environmental effectiveness as well as to justice and equity and, thus, to sustainable development is still an intricate issue. Cost-effectiveness and environmental effectiveness or equity might not always be mutually supportive.46 Still, even if the rationale for flexibility mechanisms is cost-effectiveness, their implementation has to accord to the general principles of the Convention as well as to general principles of international law in general.47 The flexibility mechanisms of the Kyoto Protocol address equity concerns among developed countries. In order to comply, however, with wider objectives, such as intergenerational equity and the insurance of overall environmental integrity, these objectives need to be particularly safeguarded.48 a) Emissions Trading The establishment of an efficient flexibility mechanism alone is no guarantee of effective and equitable solutions. The market as such will function in one way or the other. Whether it also produces the desired results depends on its regulation. Therefore it is suggested that the initial allocation and the regulation of the market itself bear upon the ability of the mechanism to deliver equitable results. Both aspects will be given some more consideration. First, equity considerations with regard to emissions trading can arise at the level of initial allocation of tradable allowances. Emission units may be sold or auctioned to covered entities or allocated free of charge on the basis of historic or current emission levels. The consequence of this so-called ‘grandfathering’ method, which seems to be currently supported by most States when setting 45



46



47



48

See UNFCCC Preamble, Art. 3.1 and UN General Assembly Resolutions 43/53 of 6 December 1988, 44/207 of 22 December 1989, 45/212 of 21 December 1990 and 46/169 of 19 December 1991 on the protection of the global climate for present and future generations. See K. A. Baumert, J. F. Perkaus and N. Kete, ‘Great Expectations: Can International Emissions Trading Deliver an Equitable Climate Regime?’ (2003) 3:2 Climate Policy 137–148. Cullet, 1999, 173. See Meijer and Werksman, 2005.



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up a domestic emissions trading scheme, is the promotion of economic stability. Problematic in this context is that in praxis historic and current polluters have been given emission amounts almost equivalent to their current emission levels, allowing them to carrying on their polluting activities.49 There are, however, different rationales for allocative systems. Some proposals seek to employ criteria such as future needs, population size and dynamism, ability to pay, responsibility for emissions of greenhouse gases or a combination of factors.50 However, it is in particular those proposals that are most environmentally effective or that rest on egalitarian principles or principles of fairness and justice or focus more directly on the need to take action to mitigate climate change that are perceived as disruptive to the global economy. Furthermore, when considering the inclusion of developing countries in the global climate mitigation strategy, the distribution of burdens becomes a complicated issue. Developing countries seem to support an egalitarian approach based on equal per-capita entitlements,51 while the proposal supported by most developed States seeks to establish a basis for allocation which recognizes States’ different historic contributions to the problem, the different capacities to respond to the problem and the link between economic development and environmental degradation.52 So far, developing countries are not included in the scope of eligibility for emissions trading. Allocation criteria at both levels – national and international – reflect economic factors combined with egalitarian and fairness principles. While equality needs to be taken into account in the allocation process, promoting stability and confidence are at least equally decisive.53 Allocation that is purely based on equality might not necessarily lead to a functioning trading system.54 At the same time, allocation that is exclusively based on historic emissions and

49



50

53 54 51 52

See for a discussion of over-allocation in the EU ETS: S. Long and G. KaminskaiteSalters, ‘The EU ETS – Latest Developments and the Way Forward’, 1 Carbon and Climate Law Review 2007, 64–72. See, for example, T. Banuri, et al., ‘Equity and Social Considerations’ in J.P Bruce, H. Lee, and E.F. Haites (eds.) Climate Change 1995: Economic and Social Dimensions of Climate Change (New York/Melbourne, Cambridge University Press, 1996); and Tόth, F. and Mwandosya M., ‘Decision-Making Frameworks’ in Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change, B. Metz et al.(eds.) (Cambridge: Cambridge University Press, 2001). See Melkas, 2002. See Cullet, 1999, 173. See Baumert, Perkaus, and Kete, 2003, 146. Ibid. Furthermore, at the international level, allocation of national allowances on a per capita basis is widely seen as creating an incentive for increased population levels. See,

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economic stability will forestall climate friendly technological changes. Finding a balance, however, proves to be a challenging task. Second, not only allocation, but also the general design of both national and the international emissions trading scheme will be decisive for the functioning of the emissions trading market and its environmental integrity. A robust trading system, for example, cannot depend on only few predominant actors, whether sellers or buyers. In particular the success of the international emissions trading system will depend on the widest possible participation of States, on the stability of its regulatory framework, and on the way it promotes fairness, transparency, accountability and compliance. The Marrakech Accords contain a number of ‘safeguards’ that aim at mitigating systemic risks which could otherwise damage the credibility and jeopardize the underlying environmental goal. Such safeguards, for example, are included in trading eligibility requirements are ‘required reserves’ of non-tradable allowances.55 By aiming at ensuring the environmental integrity of emissions trading, these requirements are also safeguards for sustainable development. Accountability and liability rules are of central importance for environmental integrity of the flexibility mechanisms. Higher flexibility of States in meeting their commitments increases the demands on compliance and enforcement mechanisms. While in international law – and environmental law in particular – liability rules and their enforcement are still in their infancy, the Kyoto Protocol provides a notable exception. The advantage of the Kyoto (‘two-tier’) approach is the facilitation of compliance rather than deterring non-compliance.56 Compliance problems are to be resolved in a cooperative manner, rather than adversarially.57 Still, if compliance cannot be obtained, hard enforcement consequences remain available. The inclusion of such a ‘hidden stick’ can be explained by the stringency of the commitments and their economic and political impacts.58 Furthermore, the ‘flexibility carrot’ held out to States and the ‘stick’ of hard enforcement mechanisms are two sides of the

55 56



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for example, O. Benestad, ‘Energy Needs and CO2 Emissions: Constructing a Formula for Just Distributions’ (1994) 22:9 Energy Policy, 725–734. FCCC/CP/2001/13/Add.1–4. See for a comprehensive overview of the compliance system under the Kyoto Protocol: J. Werksman, ‘The Negotiation of a Kyoto Compliance System’ in O. Schram Stokke, J. Hovi and G. Ulfstein (eds.) Implementing the Climate Regime: International Compliance (London: Earthscan, 2005) 17–37. It has been questioned, however, whether such managerial, non-confrontational approaches can be fully effective if countries start to take in stronger obligations under the climate regime. Mitchell argues that initial compliance – even if relatively easy achieved – will “help establish a strong international norm that countries that fail to take action to reduce GHG emissions are acting improperly”. Mitchell, 2005, 65. Ulfstein and Werksman, 2005, 59.



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same coin. The more flexible the system, the more depend its effectiveness and integrity of environmental performance on the availability of authoritative determination of compliance59 and enforcement measures responding to non-compliance. The non-compliance mechanism under the Kyoto Protocol and the Marrakech Accords can be seen as a safeguard to ensure the functioning and environmental integrity of the climate regime in general and of the flexibility mechanisms in particular. However, while the compliance system under the Kyoto Protocol aims at ensuring the compliance of States that have committed themselves to quantitative reduction and limitation, the conduct of private participants is not covered. Indeed, the inclusion and involvement of the private sector in an inter-State agreement could place the demands of equity and environmental integrity and, thus, sustainable development, aside if care is not taken in regulating their liability. Cullet notes that private enterprises are taking on a much more prominent role and benefiting much more directly from the international regime in place. It becomes extremely important to devise a framework to ensure accountability and liability of these actors since international law is not well equipped at the moment for direct enforcement against private actors.60

While private companies gain access to new markets under the flexibility mechanisms, there has been a lack of emphasis on the definition of corresponding duties under international law. Accordingly, strengthening of private liability rules under international law is an important asset.61 The traditional State-to-State focus of State responsibility seems to become ‘clouded’.62 The engagement of the private sector triggers the application of domestic regulatory frameworks, as well as private international and domestic laws generated by commercial contracts. The intricate web of laws governing the flexibility mechanisms demands careful examination and, possibly, legal developments, such as, for example, rules on investor accountability and liability. In sum, while the emissions trading system still awaits some improvements there is no doubt that it has come to stay. Still, a number of shortcomings exist which yet remain to be addressed. As we will explore further, these concern the safeguarding of environmental effectiveness of emissions trading by

59

62 60 61

For the role of Expert Review Panels and due process requirements, see Ulfstein and Werksman, ibid., 49–54. Cullet, 1999, 173. Ibid., 175. See Meijer and Werksman, 2005, 194.

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avoiding possibilities for circumvention and manipulation of the environmental goal back trading. Moreover, it has to be ensured that emissions trading does not lead to forestalling technological development. Rather, emissions trading needs to be designed in a way that encourages rather than discourages investment in new and low-carbon technologies in the long-term. The latter requirement calls for international political decision and the creation of a predictable long-term climate strategy. b) Clean Development Mechanism With regard to promoting sustainable development, the clean development mechanism plays a special role in that it seeks to combine a micro and a macro level approach to sustainable development. At a micro level, the CDM is intended to promote sustainable development of host countries according to Article 12 KP. This requirement is generally subject to determination by the host country. The Marrakesh Accords state that Parties participating in the CDM shall designate a national authority for the CDM. The purpose of the authority is to provide written approval of [1] voluntary participation from the designated national authority of each Party involved, including [2] confirmation by the host Party that the project activity assists it in achieving sustainable development.63

During the negotiations of the Kyoto Protocol consensus could not be reached on standard sustainability indicators, criteria or objectives for host countries. It was agreed that these should be determined at the national level.64 Many host countries already include the concept of sustainable development in national laws and policies. Sustainable development criteria are often incorporated into environmental laws, for example, as part of environmental impact assessments or as constitutional provisions.65 In the absence of sus63



64



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FCCC/CP/2001/13/Add.2, Decision 17/CP.7/CMP.1 ‘Modalities and procedures for a clean development mechanism’, Annex, para. 40(a). S. Thorne and S. Raubenheimer, Sustainable Development Appraisal of Clean Development Mechanism Projects – Experience from the SouthSouthNorth Project, available at: . See also C. Sutter, Sustainability Check-up for CDM Projects: How to Assess the Sustainability of International Projects under the Kyoto Protocol (Berlin: Wissenschaftlicher Verlag, 2003) 26, who notes that there is a general agreement on the integration of economic, social and ecological sustainability. See R. O’Sullivan and C. Cormier, ‘Meeting Participating Country Responsibilities under the CDM: Designating a National Authority’ in Freestone and Streck (eds.) 2005, 217, giving the example of approaches taken by South African, Chile, Morocco, Argentina, Peru, Colombia, India and Uruguay.



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tainable development criteria that focus on project level assessment, most countries have adopted an approach that combines references to national legislation with general sustainable development indicators provided by international agencies, such as the United Nations Commission on Sustainable Development66 or the Gold Standard.67 Yet, problematic examples remain of host States without own sustainability criteria or no references to international standards. At a macro level, sustainable development demands the environmental integrity of the mechanism. CDM as a flexibility mechanism needs to fit within the ambit of the principles of the Convention. The use of the CDM, albeit motivated by economic considerations of cost-effective implementation, is subjected to the overall objective of the climate regime. The environmental performance of the Kyoto Protocol, therefore, depends also on the environmental integrity of the CDM. Environmental integrity in the context of the CDM is understood as the demonstrated ability of a measure to approve projects and to certify emission reductions that are additional to what would otherwise have occurred, and contribute to the long-term reduction of greenhouse gas concentrations in the atmosphere while not causing other detrimental environmental effects. The Conference of the Parties emphasized that ‘environmental integrity is to be achieved through sound modalities, rules and guidelines for the mechanisms, sound and strong principles and rules governing land use, land-use change and forestry activities, and a strong compliance regime’.68 Certain safeguards have been set up to address concerns with respect to environmental integrity, e.g. calculation standards for baselines and additionality, processes for encouraging technical assessments, transparency and public scrutiny, eligibility and participation, and mechanisms for rejecting or discounting CERs. Also a set of institutions has been created to oversee the procedures that apply to the creative mix of relationships between States, private actors, and international institutions. It has been suggested that a close partnership between States and private entities that combines the strengths of an innovative market and a more traditional regulator could be the best way to safeguard environmental integrity.69

66 67



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69

See: . WWF, The Gold Standard: Quality Standards for CDM and JI Projects, Final Draft for Consultation and Draft Technical Appendices, December 2002. Now: . FCCC/CP/2001/13/Add.2 and decision –/CMP.1/2005 (Mechanisms) Principles, Nature and Scope of the Mechanisms Pursuant to Articles 6, 12 and 17 of the Kyoto Protocol. Meijer and Werksman, 2005.

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c) In Sum The use of economic measures, such as emissions trading or project based mechanisms, is subordinated to the overall goal of complying with the ultimate objective of the Convention and the more specific quantitative reduction commitments. Thus, the use of the flexibility mechanisms is supposed to support equity and environmental integrity. All policies and measures adopted by developed countries are subject to the requirement of consistency with sustainable development.70 Further, by including sustainable development in Article 10, all measures to implement existing obligations under the Convention are likewise subject to the obligation to be consistent with sustainable development. Within the framework of sustainable development, cost-effective, flexible means can be elaborated. The Kyoto Protocol clearly puts sustainable development above economic development and cost-effectiveness.71 Both are seen as means to reach the goal of sustainable development based on safe climatic conditions, not as ends in themselves. More importantly, the flexibility mechanisms give counter-evidence to the often proclaimed indeterminacy of the concept of sustainable development and the feared ‘trend’ that the ecological component of sustainable development is reduced to insignificance. On the whole, the design of the flexibility mechanisms reflects the ‘compound’ of interests that generally characterizes the concept of sustainable development. Emissions trading and CDM are multilateral, flexible, and cost-effective instruments to reduce greenhouse gas emissions. In a novel and unprecedented way are equity, economic efficiency and ecological constraints inextricably linked in the design of these mechanisms.72 Based on equitable, differentiated commitments of a high number of participants, emissions trading and the project mechanisms reduce the total cost of achieving their commitments and thereby improve efficiency. If care is taken in the further development of the mechanisms, they have the potential to actually deliver a positive environmental result while, if not delivering positive, at least minimizing negative equity and economic implications. Given the overall subordination to the ultimate objective of the Climate Convention, the flexibility mechanisms crystallize as a prime example of integrating multiple, diverse interests as demanded by sustainable development.

72 70 71

Art. 2 KP. See Arts and Gupta, 2004, 550. See C. Carraro, Costs, Structure and Equity of International Regimes for Climate Change Mitigation, Nota Di Lavoro 6.1.2000, Milan: Fondazione Eni Enrico Mattei.



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4.5 Concluding Remarks and Summary By conclusion, it can be stated that sustainable development and climate change mitigation are inseparable issues. Any sustainable development path has to be attuned to the need of establishing safe atmospheric greenhouse gas concentrations. If the climatic balance is affected by human activities, these activities – albeit contributing to wider development goals such as enhancing economic growth, improving living conditions, or alleviating poverty in the shorter term – cannot be deemed sustainable. Sustainable development is a multifaceted concept covering integration of economic and social and environmental concerns, equity and justice between generations and within the present generation. With regard to climate change, these issues have been taken out of the rhetorical debate and put into practical action. They are rightly accorded prominence in the climate regime. The international community, in striving to find a consensus on how to mitigate dangerous climate change, is simultaneously setting the scope for sustainable development. The development of the climate change regime can be seen as an emerging understanding of the international community’s of the concept of sustainable development. Sustainable development certainly demands more than what has been achieved so far and remains a guide to global change. Still, the design of the climate regime consolidates the general acceptance of sustainable development. This linkage will become even more apparent in the design of future climate treaties. There, the acceptance of stronger emission limitation and reduction commitments by developed states and quantified commitments by at least major developing countries will be crucial. The importance of developing country commitments was made clear by the IPCC as early as in its second report. ‘[I]t is not possible for the rich countries to control climate change through the next century by their own actions alone, however drastic. It is this fact that necessitates global participation in controlling climate change, and hence, the question of how equitably to distribute efforts to address climate change on a global basis.’73 The approach adopted by the Kyoto Parties is an affirmation of the international community’s attempt to conceptualize sustainable development in the context of climate change.74 Still, whatever the outcome of future ne

73



74

IPCC, Climate Change 1995: Economic and Social Dimension of Climate Change. Contribution of Working Group III to the Second Assessment of the Intergovernmental Panel on Climate Change (J.P. Bruce et al. (eds.) (Cambridge University Press, 1995b) 97. P. Sands, International Law in the Field of Sustainable Development, BYbIL, 304; French, 2005a, 274.

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gotiations, a successor agreement to the Kyoto Protocol will need to deliver stronger commitments further into the future, requiring a deeper and more universal understanding of the considerations of justice – including ecological justice – that lie within the concept of sustainable development and inherent in the climate change problem.75

75



See X. Wang, ‘Sustainable International Climate Change Law: A Future Legal Research Agenda’ in Cordonier Segger and Khalfan, 2004, 352–353.

Chapter 5

Sustainable Development in WTO Context

5.1 Introduction to WTO Law It is now opportune to introduce another important international regime that attracts an equal amount of global attention. The World Trade Organization (WTO) has become one of the most interesting, albeit controversial, intergovernmental organizations of our time. The WTO provides a forum for continued negotiations on the promotion and liberalization of free trade in goods and services. It also oversees and administers the complex matrix of international treaty law governing the global trading system, and it operates the busiest and perhaps most important international dispute settlement systems. The reason for choosing a discussion of the international trade system is two-fold. For one, the international trading system also attempts to support sustainable development, and examining the concept in the light of liberalization of international trade should provide some elucidation of its substance. Second, as part II will explore, there is potential for conflict between the norms of the international climate and the international trade regimes. One major point of this thesis is that sustainable development actually provides a legal tool for dealing with these normative conflicts. In order to discuss how sustainable development relates to the scheme of trade regulation, a brief overview will now be given of the coverage and scope of the WTO and its legal framework, without, of course, intending to give an exhaustive account of international trade law. Not only is the scope of this thesis limited, but countless sources exist already that explore international trade law in great detail and accuracy.1

1

See M. Matsushita, T.J. Schoenbaum and P.C. Mavroidis, The World Trade Organization: Law, Practice and Policy (Oxford: Oxford University Press, 2003); P. Van den Bossche, The Law and Policy of the World Trade Organization (Cambridge University Press 2005) 1–75, 598–627; J. H. Jackson, ‘The Changing Fundamentals of International Law and Ten Years of the WTO’ (2005) Journal of International Economic Law, 3–15; P.T. Stoll

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5.1.1 Coverage After having come into existence in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT), the WTO has now 151 Members,2 which makes it an important multilateral system. The WTO overlooks the ‘multilateral trade agreements’, generally referred to as the WTO agreements or the ‘covered agreements’, which are legally binding upon their Members. The package of agreements consists of various multilateral and plurilateral trade agreements annexed to a single document, the Marrakesh Agreement establishing the WTO (WTO Agreement). Among these agreements, the GATT, newly promulgated as ‘GATT 1994’, is the fundamental trade agreement administered by the WTO. The other agreements include, inter alia, the Agreement on the Application of Sanitary and Phytosanitary Measures, the Agreement on Technical Barriers to Trade, The Agreements on Trade Related Investment Measures, the Agreement on Subsidies and Countervailing Measures and the General Agreement on Trade in Services. The international trading regime exists to ‘facilitate the implementation, administration, and operation as well as to further the objectives’ of the WTO agreements.3 The system’s primary purpose is to help trade in goods and service to flow as freely as possible while avoiding undesirable side effects.4 The WTO agreements’ purpose of facilitating relations in the field of trade and economic endeavour is pursued with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services.5 5.1.2 Rules and Concepts The WTO’s ‘mission’ is trade liberalization by reducing barriers to trade and to market access, such as tariffs, quotas and custom rules, but also internal regulations, e.g. subsidies and technical barriers to trade. The system of trade liberalization is guided by non-discrimination principles, which impose both

4 2 3



5

and F. Schorkopf, WTO – World Economic Order, World Trade Law (Leiden: Martinus Nijhoff, 2005). As of July 2007, see: . GATT Art. III:1 R. L. Winter, ‘Reconciling the GATT and WTO with Multilateral Environmental Agreements: Can we have our cake and Eat it Too?’ (2000) 11:1 Colo. J. Int’l Envtl. L. & Policy, 227–228. Agreement Establishing the WTO, 1995, Preamble.



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relative and absolute standards of treatment of goods and services. These non-discrimination principles are essential to the full implementation of the Schedule of Concession, i.e. lowered tariffs, which are binding obligations under GATT Article II. These principles and the respective obligations of WTO Members are as follows: a) Most-Favoured-Nation (MFN) Rule Under the WTO agreements, countries cannot normally discriminate between their trading partners. On the basis of this relative standard, the WTO Members are prohibited from de jure and de facto6 discriminatory treatment of ‘like’ goods, services and service suppliers on the basis of their country of origin. Article I GATT states that any privilege granted to one Member State must also be granted to other Member States. The principle is designed to ensure equality of treatment of ‘like product[s] originating or destined for the territories of all other contracting parties’. This obligation is unconditional.7 It comprises not only tariffs and custom measures, but also internal taxes, charges and regulation affecting the sale, distribution, and use of products. Accordingly, different tariff rates or other kinds of discriminatory regulation for like products of different WTO Members are prohibited. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article II) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article IV), although in each agreement the principle is handled slightly differently. The concept of ‘like products and services’ is a cornerstone of the WTO’s legal framework.8 The MFN principle prohibits country-based discrimination with respect to ‘like products and services’. Products and services that are not like may be treated differently. ‘Likeness’ varies among the agreements and



6



7



8

See for a critical discussion L. Ehring, ‘De facto Discrimination in World Trade Law: National and Most-Favoured-Nation Treatment – Or Equal Treatment?’ (2002) 36:5 Journal of World Trade, 921–977. See generally W. J. Davey and J. Pauwelyn, ‘MFN Unconditionality: A Legal Analysis of the Concept in View of its Evolution in the GATT/WTO Jurisprudence with Particular Reference to the Issue of “Like Product”’ in T. Cottier and P.C. Mavroidis (eds.) Regulatory Barriers and the Principle of Non-discrimination in World Trade Law (Ann Arbor: University of Michigan Press, 2000) 13–15 also: G.C. Hufbauer, J.S Erb and H.P. Starr, ‘The GATT Codes and the Unconditional Most-Favoured-Nation Principle’ (1980) 12 Law & Pol’y Int’l Bus., 59–93. See, generally, W.M. Choi, ‘Like Products’ in International Trade Law: Towards Consistent GATT/WTO Jurisprudence (Oxford: Oxford University Press, 2003).

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the exact meaning and parameters of the concept still remain shrouded with uncertainty. Metaphorically, the Appellate Body stated, [t]he concept of ‘likeness’ is a relative one that evokes the image of an accordion. The accordion of ‘likeness’ stretches and squeezes in different places as different provisions of the WTO Agreement are applied. The width of the accordion in any one of those places must be determined by the particular provision in which the term ‘like’ is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply.9

Further, the determination of likeness should be based on a case-by-case analysis and involves an ‘unavoidable element of individual, discretionary judgment’.10 Against that general background, several approaches and tests have emerged. In pre-WTO jurisprudence certain criteria were identified, all of which are still relevant11 to the determination of ‘likeness’. They include the product’s tariff classification;12 its end-use, consumer’s tastes and habits, which can change from country to country, and the product’s properties, nature and quality.13 In EC–Asbestos, the Appellate Body contemplated but eventually did not expand this list by adding a criterion based on a product’s health effects. Rather, it stated, analysis of the health effects of asbestos should be subsumed under the analysis of the existing criteria. This list, however, is not exhaustive. Future additions to the list adopted in Japan–Alcoholic Beverages, could include criteria related to health or environmental concerns.14 They would refer, in particular, to the way in which a product is produced and whether it is legitimate under WTO rules to deem ‘unlike’ two products of which one was produced in an unsustainable manner while not the other. The question of ‘like products’ is thus central to the interaction between international trade law and national environmental measures. Domestic environmental measures can differentiate between products that are similar in their end use but have different environmental or health implications. It generally depends on the interpretation of WTO provisions whether environmentally sustainable products or their production methods are different from environmentally harmful ones, thereby granting considerable flexibility to WTO Members enacting national environmental or health measures or, adversely,

9

11 12 13 10

14



AB in Japan–Alcoholic Beverages, 1996, section H.1.a., 21–22. Ibid. 21. The equal relevance of all criteria was stressed by the AB in EC–Asbestos, 32–39. Panel in Japan–Alcoholic Beverages, 1987. Border Tax Adjustments: Report of the Working Party adopted on 2 December 1970, L/3464 (BISD 18S/97). See N. Bernasconi-Osterwalder et al., Environment and Trade: A Guide to WTO Jurisprudence (London: Earthscan, 2006) 13.



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significantly constraining national discretion. As we will see in part II, the precise definition of ‘likeness’ remains unclear, creating a considerable ‘political chill’ which may prevent States from implementing stronger environmental measures, for example, under the Kyoto Protocol. b) National Treatment (NT) Rule National treatment is the second market access rule. It imposes an obligation of like treatment and non-discrimination on imported and domestic products. Article III GATT requires foreign goods, once imported into a Member State, to be treated in the same manner as goods (products and ‘like products’) produced domestically in that State. National treatment is also a feature of the GATS. Article III GATT sets forth that no law, regulation, or taxation pattern may adversely modify the conditions of competition between like imported and domestic products in the domestic market. Similarly, also de facto discrimination violates Article III.15 Also in the context of the National Treatment rule, the determination of ‘like product’ and ‘like services’ is a crucial element.16 c) Further Obligations The WTO ‘absolute standards’ (e.g. Article XI GATT) prohibit quantitative restrictions on imports or exports, such as bans or quotas on imports from a particular country or measures whose direct or indirect effect is to prevent or limit such imports (e.g. quotas, import licenses). Tariff obligations require Member States to ‘bind’ or fix tariff levels, to progressively reduce tariff levels and to refrain from raising tariffs above the bound level (Art II GATT). Under certain transparency obligations, Member States are also required to regularly publish their trade laws in a transparent manner and regularly notify the Secretariat of WTO of actions taken inconsistently with the mentioned obligations (Article X GATT). Another Uruguay Round Agreement – Agreement on Subsidies and Countervailing Measures – in addition to a separate set of GATT Articles prohibits the imposition of governmental subsidies except in narrowly limited circumstances.

15



16

GATT Panel in Japan–Alcoholic Beverages, 1987. For a critique of the rather restrictive approach by the WTO to de facto discrimination by employing an ‘aim and effects test’ under GATT and GATS, see R.E. Hudec, ‘GATT/WTO Constraints on National Regulation: Requiem for an “Aim and Effects” Test’ (1998) 32:3 Int’l Law. 633. See Mavroidis et al., 2003, 158–162.

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5.2 Trade and Environment The relation between trade liberalization and the protection of non-economic issues, such as the protection of human rights and the environment, has been subject to a long and continuing debate.17 It is often claimed that the WTO deals only with trade, not the protection of the environment or any other societal concerns.18 In part II we will see that this general statement is not correct any longer as the WTO’s own claim it that it is developing into a regime whose overall aim is to facilitate sustainable development. In this respect, the protection of the environment is indeed part and parcel of the WTO’s legal framework. The link between international trade and the protection of the environment bears explanation. Some environmentalists condemn liberalized international trade as essentially bad for the environment on factual, ideological and political grounds. Criticism is directed on the effects of trade liberalization on local populations, in particular in weaker economies, and the accelerated exploitation of natural resources due to increased transportation, production, consumption and waste generation.19 From a legal perspective, critique focuses on more specific issues. Here, contra-trade arguments express the concern that WTO rules prevent Member States from adopting national measures to protect their domestic environment, such as setting higher levels of protection than international standards would prescribe.20 Other concerns relate to (i) the obstruction by WTO rules of a Member State effort to compel other Members to adopt high environmental standards necessary to prevent transboundary pollution, remove competitive advantages, or to conserve natural resources; and (ii) the frustration



17

18 19 20



It is impossible to detail the vast literature on the subject. Among others see the contributions by Matsushita, Schoenbaum and Mavroidis, 2003, 439–484; O. Perez, Ecological Sensitivity and Global Legal Pluralism: Rethinking the Trade and Environment Conflict (Oxford, Portland, Oregon: Hart Publishing, 2004), 31–47; Sands, 2003, 940–1019; P.T. Stoll, ‘How to Overcome the Dichotomy between WTO Rules and MEAs’ (2003) 63:2 ZaöRV 439–458; G. Winter, ‘The GATT and Environmental Protection: Problems of Construction’ (2003) 15:2 Journal of Environmental Law 113–140; T. Schoenbaum, ‘International Trade and Environmental Protection’, in Birnie and Boyle, 2002, 698–750. O.K. Fauchald, Environmental Taxes and Trade Discrimination (Kluwer Law Tax Publishers, 1998). See M. Mavroidis et al., 2003, 441. See J. Mander and E. Goldsmith (eds.) The Case Against the Global Economy and for a Turn Toward the Local (San Francisco: Sierra Club Books, 1996). See T. Schoenbaum, ‘International Trade and Environmental Protection’ in Birnie and Boyle, 2002, 714–721.



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of attempts to protect natural resource and the environment in areas beyond national jurisdiction. One of the most important and most contentious legal issues in this spectrum is the question how WTO rules relate to the implementation of Multilateral Environmental Agreements (MEAs) that employ or allow trade restrictive measures in pursuing their objective.21 No general exception exists in the structure of WTO rules for measures that are based on an international environmental agreement. In order to justify environmental measures, whether unilateral or multilateral, they have to pass the bottle-neck of narrowly framed environmental exception clauses entailed in the WTO agreements. While it is clear that the relationship between trade norms and environmental measures represents a systemic dilemma, no WTO or GATT panel had yet to directly address the conformity of a MEA-based trade measure with rules of the WTO. The validity of some MEA measures, however, remains doubtful, in particular where those relate to process and production methods (PPMs), discrimination between Parties and Non-Parties, extraterritorial application, or contain protectionist elements by aiming at offsetting competitive disadvantages of the implementing country. As part II will show, all of these elements are relevant in the context of climate measures and WTO rules. It is difficult to predict how a WTO panel or the Appellate Body would rule on particular MEA-based measures. Not only that practice exists exclusively with regard to unilateral measures, but existing practice only offers vague pointers for future decisions. No rule of precedent exists and power and interest differences in the panels or the Appellate Body could easily produce divergent outcomes. The uncertainty prevailing in this regard leads to what is sometimes referred to as a ‘chill factor’ to negotiation, implementation and enforcement of MEAs.22 In this respect, vulnerability to a WTO challenge is having a deterring

21



22

See for a general discussion: G.P. Sampson, The WTO and Sustainable Development (Tokyo: United Nations University Press, 2005) 113–143; D. Brack, ‘Environmental Treaties and Trade: Multilateral Environmental Agreements and the Multilateral Trading System’, in G.P. Sampson and W. B. Chambers (eds.) Trade, Environment, and the Millennium, 2nd ed., (Tokyo/New York: United Nations University Press, 2002) 321–352; and R.G. Tarasofsky, Ensuring Compatibility Between Multilateral Environmental Agreements and the GATT/WTO (1996) 7 YbIEL 52–74. For a useful description of the relevant measures in MEAs, see WTO, Matrix on Trade Measures Pursuant to Selected MEAs: Note by the Secretariat, Geneva: WTO, WT/CTE/W/160, 19 September 2000. See, for example, WWF International, Trade Measures and Multilateral Environmental Agreements: resolving Uncertainty and Removing the WTO Chill Factor, Discussion Paper (Gland, Switzerland, WWF) November 1999, 1–22. Also: K. Conca, The WTO and the Undermining of Global Environmental Governance (2000) 7:3 Review of International Political Economy, 484.

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effect on ongoing multilateral environmental negotiations, which are becoming increasingly self-censoring in terms of trade restrictiveness.23 Moreover, it has given rise to conservative implementation of trade restrictive obligations in existing MEAs to avoid the threat of a legal claim. Therefore, there is an urgent need to clarify this relationship and to develop mechanisms and legal methodologies to deal with the situation where a national measure based on an MEA conflicts with rules of international trade law. This thesis aims at providing one legal mechanism by suggesting that sustainable development as a principle of integration has the potential to accommodate different concerns. This argument will be further developed in part III. 5.3 WTO Exception Clauses In brief we will now look at treaty-based ways of accommodating environmental concerns in WTO law. Many WTO agreements contain conditional exceptions for environmental measures.24 GATT Article XX (b) and (g) are among the most important environmental provisions. They read as follows: 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; … (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.



23



24



See ibid., 488. Debate over compatibility with WTO rules has surfaced in the negations of the Kyoto Protocol (see discussion in part III) and disrupted negotiations of the Cartagena Biosafety Protocol as well as the negotiations of the 2001 Stockholm Convention on Persistent Organic Pollutants (POPs). See, for example, GATT 1994 Art. XX, GATS Art. XIV(b), the Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPS), Art. 27.2, the Agreement on Subsidies and Countervailing Measures Art. 8.2(c), the Agreement on Technical Barriers to Trade (TBT Agreement) Art. 2.2, and the Agreement of Sanitary and Phytosanitary Measures which refers to GATT Art. XX(b).



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Legal scholars claim that a consistent theory of their interpretation has developed in WTO jurisprudence25 which has caused some to conclude that Article XX GATT 1994 has been transformed ‘into an adequate tool for a balanced approach to the trade and environment controversy’.26 Again, such general remarks appear to be somewhat precipitant taking into account the rather sparse amount of environmental cases. So far, a number of suggestions have been made to improve the relationship between a MEA and a trade agreement.27 They can be divided into two main groups: one aiming at altering the normative (textual) legal content of the agreements and the second attempting the adoption of an ‘authoritative’ interpretation. Both alternatives have significant shortcomings and therefore seem unsatisfactory. The first group entails three suggestions that aim at avoiding conflict, such as (i) waiver of obligations under ‘exceptional circumstances’ by using Article IX:3 GATT, (ii) the inclusion of a special norm in the respective WTO agreement providing that certain MEAs take precedence over WTO obligations,28 or (iii) the amendment or Article XX GATT by adding an explicit provision for excepting MEAs, similar to Article XX(h) which creates an exception for trade measures imposed pursuant to obligations in international commodity agreements that otherwise are illegal under WTO rules.29 The major disadvantage of all three alternatives is the necessity of

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Jurisprudence developed, in particular by the reports of the Appellate Body in United States–Reformulated Gasoline and United States–Shrimp for Art XX(g) and EC–Asbestos for Art. XX(b). Matsushita et al, 2003, 456. See also: J. Wiers, Trade and Environment in the EC and WTO. A Legal Analysis (Groningen: Europa Law Publishing, 2002) 419; J. Scott, ‘On Kith and Kine (and Crustaceans): Trade and Environment in the EU and WTO’ in J.H.H. Weiler (ed.) The EU, the WTO, and the NAFTA: Towards a Common Law on International Trade (Oxford: Oxford University Press, 2000) 166–167, although envisioning an additional process-based approach for balancing trade-environment conflicts in the WTO. See, for example, A. González-Calatayud and G. Marceau, ‘The Relationship between the Dispute-Settlement Mechanisms of MEAs and those of the WTO’ (2002) 11:3 RECIEL 280–286; WTO, Resolving the Relationship between WTO Rules and Multilateral Environmental Agreements, Submission by the European Union, Geneva, WTO Secretariat, WT/CTE/W/170, 19 October 2000; and WTO, The Relationship between Provisions of the Multilateral Trading System and Trade Measures for Environmental Purposes Including those Pursuant to Multilateral Environment Agreements, Communication from New Zealand, Geneva, WTO Secretariat, WT/CTE/W/162, 10 October 2000. This suggestion is modelled upon the North Atlantic Free Trade Agreement (NAFTA, 17 December 1992, 32 I.L.M. 289, 296 and 605), which contains such a ‘conflict clause’ in Art. 103. See for a discussion of this idea: V. Rege, ‘GATT Law and Environment-Related Issues Affecting the Trade of Developing Countries’ (1994) 28:3 Journal of World Trade, 124–128.

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negotiation and of a, at least, three-fourth majority for the desired change. Furthermore, waivers are subject to annual review, after which they may be extended, modified or terminated. The status of a MEA would therefore be pending from year to year. Moreover, the test of ‘exceptional circumstances’ is unduly vague, thus leaving the status of the MEA doubtful until it receives the ex post blessing of a waiver. Approval under the waiver provisions would be a merely political decision rather than one of the substance of the case or the MEA in question.30 While all three ways are open and possible routes, none have been taken as yet and as the political decisions have not yet been made they do not represent binding law. The second option is to adopt an authoritative interpretation of Article XX GATT or other exception clauses in WTO agreements that would validate existing MEAs. Again, the process is rather difficult: only the Ministerial Conference and the General Council have the power to adopt interpretations of the WTO agreements by a three-fourths majority of the Members.31 The validation would then be ex post, leaving the Member States in an uncertain situation until the adoption of an interpretation. Although an authoritative interpretation could set out certain criteria for MEAs to be fulfilled for receiving approval, this would in effect mean the subordination of MEAs to WTO prerogatives and further complication of MEA negotiations. Finally, there are two alternative ways of validating MEAs without resorting to decision making procedures for waivers, official interpretations or amendments. First, the treaty texts of the WTO can be interpreted by reference to rules and principles ‘out-side’ the WTO. Article 31.3 of the Vienna Convention on the Law of Treaties, which indirectly applies to the interpretation of WTO agreements and requires that, in the interpretation of a treaty (i) any subsequent agreement between the parties, (ii) any subsequent practice; and (iii) and relevant rules of international law ‘shall be taken into account’. This possibility is further discussed below. However, given certain inherent limitations of interpretation, a second alternative is suggested, promoting the application of the principle of sustainable development and thereby applying non-WTO law in the context of the WTO where the outside law directly accords to sustainable development.

30 31



See Mavroidis et al., 2003, 458. WTO Agreement Art. IX:2.



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5.4 Sustainable Development and Trade Law The reconciliation of globalization and liberalization of trade on one side and environmental and social protection on the other is expressed in the concept of sustainable development. Chapter 2 of Agenda 21 promotes sustainable development through trade and the mutual supportiveness of trade and environment policies by suggesting [a]n open, equitable, secure, non-discriminatory and predictable multilateral trading system that is consistent with the goals of sustainable development and leads to the optimal distribution of global production in accordance with comparative advantage is of benefit to all trading partners. Moreover, improved market access for developing countries’ export in conjunction with sound macroeconomic and environmental policies would have a positive environmental impact and therefore make an important contribution toward sustainable development.32

Similarly, the Rio Declaration sets out the commitment to ‘reduce and eliminate unsustainable patterns of production and consumption’ in order to ‘achieve sustainable development and a higher quality of life for all people’.33 Within the context of development the Declaration identified international trade as a means to promote development that would be environmentally sustainable. Principle 12 suggests that States should cooperate to promote a supportive and open international economic system that would lead to economic growth and sustainable development in all countries, to better address the problem of environmental degradation’.34

This broad statement stimulated rather than resolved the debate. Nevertheless, as French reminds us, ‘if sustainable development is to become a meaningful concept in its own right, it must also have a substantial role in the politics and institutions of wider legal and political systems, with particular regard to the functioning and operation of the international economy’.35 Akin to the reciprocal relationship of climate change law and sustainable development, also trade liberalization and sustainable development have to be seen as mutually supportive and complementary. Again, French notes, ‘[t]he extent to which sustainable development can permeate this system [the international economic system] will tell us a lot, not only about the fate of that

32

35 33 34

Agenda 21, Report of the UNCED, I (1992); UN Doc. A/ CONF.151/26/Rev.1, (1992) 31 ILM 874, para. 2.5. Rio Declaration, Principle 4. Rio Declaration, Principle 12. French, 2005, 168.

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particular concept, but also the future direction of the international economic system more generally.’36 Again, this is what distinguishes sustainable development from a purely environmental concept. While environmental concerns as such remain semisecluded and separate areas of global regulation, sustainable development is a concept common to and integrated into all aspects of the international society. By incorporating sustainable development within all regulatory regimes, including the international trade regime, environmental concerns become an integral part of those regimes. Such integration is clearly not an easy task. Sustainable development might face its severest test when confronted with the much more defined, rule-based framework of international trade law. However, this test would ultimately determine whether sustainable development is a valuable concept with a permanent and positive effect on the lives of billions of people or just a comet on the legal sky. Trade is surely not an end in itself. International trade is a means to establishing lasting conditions for human wellbeing.37 This end can only be achieved by developing sustainably. In this context, Brown-Weiss noted that ‘there are legitimate constraints on trading patterns and practices that are necessary to ensure that the ‘instrument of trade’ leads to environmentally sustainable development. Measures needed to protect the environment cannot be forsworn simply because they may adversely affect free trading relationships’.38 Sustainable development is the framework in which trade, environmental and social concerns need to be considered. That means that issues of environmental protection and conservation, development interests, trade, investment and other economic considerations, human rights issues, all have to accord with the end of sustainable development.39 In this context it has been suggested that sustainable development therefore is a central element of international economic law in general and international trade law in particular40 or even that 38 36 37

39



40



French, 2005, 169. Preamble to the WTO Agreement. E. Brown Weiss, ‘Environment and Trade as Partners in Sustainable Development: A Commentary’ (1992) 86:4 AJIL 728–735. Brown Weiss, ibid. at 731, adds that “[e]nvironmentally sustainable development offers the appropriate framework in which to view issues of environment and trade, or trade and environment”. For an overview see: Sampson, 2005; M.W. Gehring and M.C Cordonier-Segger (eds.) Sustainable Development in World Trade Law (The Hague: Kluwer Law International, 2005). See also French, 2005, 168 et seq.; E. Denters, ‘Free Riders, Claims and Countermeasures in Combating Climate Change’ in Schrijver and Weiss (eds.) 2004, 231–250; M. Gehring, ’Sustainable International Trade, Investment and Competition Law’ in Cordonier-Segger and Khalfan (eds.) 2004, 281–293; S.E. Gaines, ‘International Trade, Environmental Protection and Development as a Sustainable Development Triangle’



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the WTO is, de facto and de jure, gravitating toward becoming a World Trade and Sustainable Development Organization.41 For the precise normative framework and specificity of the international trade system this suggestion entails challenge and change. The necessity of such change lies in the fact, that sustainable development already is part and parcel of international trade law. Therefore, sustainable development needs to inform all decisions and developments within international trade law. Accordingly, sustainable development exhorts ‘internal pull’ on trade law. Moreover, sustainable development as part of general international law also provides ‘external push’. International trade law is part of public international law with the consequence that as long as general international law has not explicitly been ‘contracted out’ of WTO agreements, it remains applicable.42 Therefore, the relevance sustainable development enjoys in public international law is important for its permeation of WTO law. Both aspects will be examined more thoroughly in this work. The ‘internal pull’ of sustainable development in WTO law will be assessed in this chapter, while the ‘external relevance’ of its status in public international law to WTO law will be more closely examined in part III below. 5.5 References to Sustainable Development in WTO Law 5.5.1 WTO Agreement The 1994 Marrakesh Agreement establishing the WTO explicitly places the relations in the field of trade and economic endeavours of the Parties within the broader framework of sustainable development. In its Preamble, the Agreement recognizes that all trade relations should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development.43



41 42



43

(2002) 11:3 RECIEL 259–274; S. Shaw and R. Schwartz, ‘Trade and Environment in the WTO: State of Play’ (2002) 36:1 Journal of World Trade, 129–154. Sampson, 2005, 2. On the question of relevance of norms of general public international law for WTO law, see Pauwelyn, 2003. 1994 Marrakesh Agreement, Preamble, para. 1 (my emphases).

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The legal significance of this reference was subject of two High Level Symposia on Trade and Environment and Trade and Development in 1999. Despite the focus on sustainable development the institutional separation of these interlinked issues led to much discussion but limited actual progress. This institutional separation ‘reflected a more permanent partition within the WTO’,44 indicative of intellectual incoherence. If sustainable development is supposed to inform the entire body of the WTO-covered agreements, its components and their complex linkages need to be considered together. The reference to sustainable development in the Preamble is not reflected in any other part of the WTO agreements.45 Thus the reference needs first to be assessed in light of this preambular language alone. The acknowledgment of sustainable development in relation to ‘the optimal use of the world’s resources’ could be understood as putting a constraint on (otherwise maximal) resources use. Optimal resources use according to sustainable development implies environmental and social adjustments. While negative feed back loops from environmental or social implications of resources use are to be avoided, optimal use also implies that important ecological functions are not to be disturbed. The textual link of sustainable development to ‘protect and preserve of environment’ supports such argumentation. Moreover, tribute is made to ‘respective needs and concerns at different levels of economic development’. This reference links developmental considerations to environmental protection, thus completing the concept of sustainable development in this preambular phrase as including and integrating both developmental and environmental aspects.46 Following this argument, the division between ‘trade and environment’ on one side and ‘trade and development’ on the other not only appears artificial, it also hampers the implementation of sustainable development within international trade law. According to Principle 4 of the Rio Declaration, which states that ‘[i]n order to achieve sustainable development, environmental protection shall constitute an integral part of the developmental process and cannot be considered 44 45

46





French, 2005, 202. This is in particular due to the interest of the majority of parties to postpone the discussion of environmental issues to a later point of time, with some contention that it was done in the hope to remove this point entirely from the agenda. See W. Benedek, ‘Implications of the Principle of Sustainable Development, Human Rights and Good Governance for the GATT/WTO’, in W. Benedek, H. Isak, and R. Kicker (eds.) Development and Developing International and European Law: Essays in Honour of Konrad Ginther on the Occasion of his 65th Birthday (Frankfurt am Main: Peter Lang, 1999) 276. Similarly, French, 2005, 202.



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in isolation from it’, sustainable development is a concept of integration as explored in chapter 1. In this regard it demands the simultaneous consideration of developmental and environmental components. Since international trade and foreign investment are major components of the development process for most countries, the injunction to consider environmental issues as an integral part of development necessary implies the integration of environmental issues in trade policy.47 Such integration can have various implications. Gaines identifies three levels at which integration should take place. First decision-making procedures should provide for the participation of State officials with responsibility for environmental matters to engage in the determination of trade policy. Second, institutional structures need to be of such kind as to make the integration of environmental and developmental aspects into trade policy a routine. Third, economic, environmental and developmental considerations should be substantively integrated into trade policy and laws. It is at this level the real challenge of substantive integration lies. With Gaines’ words, ‘what matters for sustainable development is … policies and actions based on integrated thinking and analysis’.48 It has become apparent that such issues as environmental protection, labour standards and human rights cannot be confined to their respective ‘legal folds’. Sustainable development, by its very nature, requires inter-linking these issues. Hence, the compartmentalisation of various ‘trade and …’ topics is anathematic to this concept. Sustainable development provides the framework in which to elaborate the links between WTO law and other non-economic issues simultaneously. Viewed in the integrating context of sustainable development, durable solutions need to be sought that protect those ecological conditions that are essential for human welfare and development before defining in more detail the harmonization of other, e.g. social and economic, interests above this ‘ecological bottom-line’. It needs to be accepted that above this non-derogable, minimal, but fundamental, requirement of protecting essential ecological functions, free trade rules, wider environmental protection and conservation, and the protection of social interests are all merely means of reaching the common end of sustainable development. While the policies of sustainable development and of deregulation of international commerce need not necessarily be contradictory, certain constraints on regulation are necessary in order to ensure that the market-driven international economy governed by the WTO is reminded of its objective of enhancing human welfare in accordance with the objective of sustainable development.

47 48

See Gaines, 2002, 268. Ibid., 269.

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If not, the acceleration of global trade will cease to achieve durable well-being for people and turn into an end in itself. This was strongly emphasized by current WTO Director General, Pascal Lamy, in a number of recent speeches.49 The perhaps most direct reference was quoted in the beginning of this chapter. Lamy sees the WTO acting at the heart of global governance. Global governance, in his view, depicts the system that helps societies and individuals achieve their common purpose in a sustainable manner. But, in his words ‘we need to “reform globalization” with a clear view to enhancing the development of social, economic and ecological aspects of humanity’.50 This requires that WTO law to be re-examined, understood and enacted in conjunction with other laws, social norms and values and other mechanisms for framing human behaviour as coherently as possible so as to ensure collective, effective sustainable development. The WTO Preamble demands trade liberalization to be pursued only when it contributes to the objective of sustainable development. Where other ways of conducting sustainable development are found more suitable, vulnerability to a WTO challenge should be minimal. In other words, policies that pose obstacles to the conduct of trade relations among WTO Members should be assessed against the objective of sustainable development. Where they are in line with the objective they ought to be exempted from the purview of WTO rules.51 In this light, Gaines adds, ‘[a] sustainable development trade policy needs to allow appropriate deviations from core principles of “free” trade and non-discrimination’.52 5.5.2 Institutional Developments Aware of the difficulties in establishing and securing coherence between trade and other issues, Trade Ministers adopted a Decision on Trade and the Environment to co-ordinate policies in the fields of trade and the environment within the competences of the WTO.53 This decision also called for the estab49



52 50 51

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See, for example, transcripts of the following speeches: Trade can be a Friend, and not a Foe of Conservation, Geneva, 10. October 2005, and Humanising Globalization, Santiago de Chile, 30. January 2006, available at . See also P. Lamy, ‘Foreword’ in Sampson, 2005, vii–xi, where he states that ‘the achievement of sustainable development is a formal goal of the WTO’, viii. DG P. Lamy, speech: ‘Humanising Globalization’, Santiago de Chile, 30. January 2006. Brown-Weiss, 1992a 731, for a similar suggestion. S. Gaines, 2002, 260; also D.M. Driesen, ‘What is Free Trade?: The Real Issue Lurking Behind the Trade and Environment Debate’ (2001) 41:2 Va. J. Int’l L. 279–368. GATT Doc. L/3622/Rev.1 and C/M/74.



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lishment of a Committee on Trade and Environment (CTE).54 The decision to establish this permanent committee was premised upon the WTO Agreement’s Preamble, the 1992 Rio Declaration and Agenda 21. Of particular significance is the injunction in its terms of reference ‘to identify the relationship between trade measures and environmental measures, in order to promote sustainable development’ and ‘to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required, compatible with the open, equitable and non-discriminatory nature of the system as regards, in particular: the need for rules to enhance positive interaction between trade and environmental measures, for the promotion of sustainable development, with special consideration to the needs of developing countries, in particular those of the least developed among them’.55 Its expressed purpose is to ‘address’ a number of items, listed in its work programme. These include the relationship between (i) the provisions of the multilateral trading system and trade measures for environmental purposes, including those pursuant to multilateral environmental agreements, and between (ii) their dispute settlement mechanisms. Also the following items fall under the mandate of the CTE: (i) the relationship between environmental policies relevant to trade and environmental measures with significant trade effects and the provisions of the multilateral trading system; (ii) the relationship between the provisions of the multilateral trading system; and (a) charges and taxes for environmental purposes; (b) requirements for environmental purposes relating to products, including standards and technical regulations, packaging, labelling and recycling; (iii) the provisions of the multilateral trading system with respect to the transparency of trade measures used for environmental purposes and environmental measures and requirements which have significant trade effects; (iv) the effect of environmental measures on market access, especially in relation to developing countries, in particular to the least developed among them, and (v) environmental benefits of removing trade restrictions and distortions and the issue of exports of domestically prohibited goods.56 These items are to be addressed on the premise that ‘there should not be, nor need be, any policy contradiction between upholding and safeguarding an open, non-discriminatory and equitable multilateral trading system on the one hand, and acting for the protection of the environment, and the promotion

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Decision of April 14 1994 (MTN/TNC/45 (MIN)), 33 ILM 1994. Trade Negotiations Committee (TNC) decision of 15 December 1993, reference in Decision on Trade and Environment, adopted at the Uruguay Round Trade Negotiations Committee in Marrakesh on 14 April 1994. CTE Work Programme. See also: WTO Secretariat, Background Document on Trade and Environment, January 2002 ().

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of sustainable development on the other’ and ‘to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required, compatible with the open, equitable and nondiscriminatory nature of the system’.57 Despite, or perhaps because of, the ambitious agenda of the Committee, actual progress in ‘addressing’ these issues has been limited.58 So far, the Committee has only compiled the existing debates on trade and environmental issues. Birnie and Boyle criticize the work of the Committee for providing ‘very little analysis and evaluation and virtually no recommendations for specific actions’.59 In a way it has become obvious that ‘[t]here remain deep divisions between the most economically developed members, such as the EC and the USA, which support introducing environmental values more explicitly into trade agreements, and the majority of developing Member States, who see this as a cover for discrimination against their products.’60 The same difficulties were experienced in another Committee, the Committee on Trade and Development (CTD), mandated to act as a forum to identify and debate trade externalities in order to help achieve the objective of sustainable development. The Preamble to the WTO Agreement states that there is ‘a need for positive efforts to ensure that developing countries … secure a share in the growth in international trade commensurate with the needs of their economic development. The establishment of this Committee is an effort to provide for special and differential treatment provisions for developing country Members to facilitate their integration into the world trading system and to promote their economic development.61 According to its 1995 Programme of work the CTD is mandated to review the impact of the results of the Uruguay Round on developing country Members, in particular on the least-developed country Members; to review of the participation of developing country Members in the multilateral trading system, to provide guidelines for WTO technical cooperation activities as they relate to developing country Members and to consider measures and initiatives to assist in the expansion of trade and investment opportunities (including

57 58 59 60 61



1994 Mandate of the CTE. Sands, 2003, 952; S. Charnovitz, ‘A Critical Guide to the WTO’s Report on Trade and Environment’ (1997) 14:2 Ariz. J. Int’l & Comp. L. 341–379. Birnie and Boyle, 2002, 703. Birnie and Boyle, 2002, 703, with reference to the CTE Report 1999, WT/CTE/4, and WTO Special Studies, Trade and Environment, Geneva 1999. P. van den Bossche, The Law and Policy of the World Trade Organization (Cambridge: Cambridge University Press, 2005) 676.



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support for measures of trade liberalization) of developing country Members, in particular the least-developed country Members.62 The Committee on Trade and Development serves as a focal point for consideration and coordination of technical assistance work on development in the WTO and its relationship to development-related activities in other multilateral agencies. The delivery of WTO technical assistance is designed to assist developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines, implement obligations and exercise the rights of membership, including drawing on the benefits of an open, rulesbased multilateral trading system.63 Despite the undoubted importance of the work of this committee it remains questionable whether the separation of the work of the CTE and the CTD according to their respective mandates is effective or rather a hindrance to conducting international trade relations in accordance with the preambular objective of sustainable development. Given the complexity of this objective, its achievement could arguably become more likely if issues such as technical assistance and special and differential treatment were dealt with in one framework of integration of developmental and environmental aspects. Environment and development are intimately connected, especially in the lives and livelihoods of the people living in developing and least-developed countries who directly depend on their local ecological capital for their economic well-being.64 Institutional separation in this context is an indication of intellectual incoherence. Sustainable development as an integration principle is incapable of being discussed adequately and implemented in trade policies as long as its components are dealt with separately. An integrated discussion in one single forum might demand complex thinking and strain intellectual capacity to comprehend certain fundamental ecological processes that need to be protected to claim sustainability of trade policies and actions. Still, in my view, it is a necessity in order to truly understand the importance and extent of the objective of sustainable development.

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WT/COMTD/W/2/Rev.1 See . See The International Bank for Reconstruction and Development/ The World Bank, Where is the Wealth of Nations? Measuring Capital for the XXI Century, 2005, noting that ‘the large share of natural resources in total wealth and the composition of these resources make a strong argument for the role of environmental resources in reducing poverty, fighting hunger, and lowering child mortality. For a similar result, see the recent ‘happy planet index’ 2006 by the New Economic Foundation, UK ().

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5.5.3 WTO 2001–2006 Doha Development Agenda The Doha Trade Round was expected to give a more positive sign of integrating sustainable development into the wider policies of the WTO. The Doha Declaration refers explicitly to the objective of sustainable development. There the WTO Members state: We strongly reaffirm our commitment to the objective of sustainable development, as stated in the Preamble to the Marrakesh Agreement. We are convinced that the aims of upholding and safeguarding an open and non-discriminatory multilateral trading system, and acting for the protection of the environment and the promotion of sustainable development can and must be mutually supportive.65

In its decisions of 1 August 2004, the General Council called on all Members ‘to redouble their efforts toward the conclusion of a balanced overall outcome of the Doha development Agenda’ and agreed to continue negotiations beyond 1 January 2005, the time limit originally set by the Doha Declaration. The negotiations made clear that the Member States were still ‘determined … to maintain the process of reform and liberalization of trade policies’. This process of reform also included taking a more pro-active step to integrate sustainable development into the work of the WTO. According to Paragraph 51 therefore, [t]he Committee on Trade and Development and the Committee on Trade and Environment shall, within their respective mandates, each act as a forum to identify and debate developmental and environmental aspects of the negotiations, in order to help achieve the objective of having sustainable development appropriately reflected.66

Though still depending on the separation of the Committees, this paragraph however promises greater efforts to promote sustainable development. The work in both Committees could comprehensively address issues of sustainable development such as clarification of existing WTO rules and the legitimate interests of developing countries and the need to help build capacity in these countries so that sustainable development issues arising from trade, development and environmental concerns are dealt with in a comprehensive and coordinated manner by all WTO Members.

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2001 Doha Ministerial Declaration, WT/MIN(01)/DEC/1, 20 November 2001, Adopted 14 November 2001. 2001 Doha Ministerial Declaration, paragraph 51.



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In July 2006 the Doha Development Agenda was suspended in all issues after negotiations collapsed without an agreement.67 Thus the role assigned to sustainable development in this process has yet to be seen. Whatever paragraph 51’s potential, it will remain inevitable that ‘[a] balance must be struck between the three components of sustainable development: economic development, environmental concerns and social equity. Accordingly, both developed and developing economies should pursue development strategies that secure non-inflationary growth, while preserving environmental resources and promoting social equity.’68 Sustainable development undoubtedly has the potential to guide future legislative developments in this respect within the WTO. Because progress in positive integration has remained slow and marginal, if not insignificant, it is mainly within the WTO dispute settlement that some advances have been made in integrating environmental, social and trade concerns under the premise of sustainable development.69 5.5.4 WTO Dispute Settlement Sustainable development as enshrined in the Preamble of the WTO has been employed by the WTO dispute settlement system. In the case concerning the import prohibition imposed by the United States on certain shrimp and shrimp products from India, Malaysia, Pakistan and Thailand that were harvested in a manner which adversely affected sea turtles the Appellate Body noted that the Preamble specifically refers to ‘the objective of sustainable development’ and characterized it as a concept that has ‘generally been accepted as integrating economic and social development and environmental protection.’70 In this case, the WTO panel concluded that the US import ban was not consistent with Article X:1 of GATT 1994 and that it could not be justified under Article XX GATT.71 The Appellate Body, however, employed a three

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WTO News – DDA June/July 2006 Modalities: Summary 24 July 2006 ‘Talks Suspended’, ‘Today there are only Losers’. No date for resumption has been set. (). By December 2007, no new deadlines nor any date for resumption of activity in the Negotiating Groups have been proposed or are likely to be proposed. Towards Sustainable Trade. A Multilateral Approach: Advancing the Doha Development Agenda, March 2005, available at . See G. Winter, ‘The GATT and Environmental Protection: Problems of Construction’ (2003) 15:2 Journal of Environmental Law, 115. Winter refers to the ‘embedding’ of free trade principles into environmental concerns as a matter of ‘negative integration’, 138. AB in US–Shrimp, para. 129. WT/DS58/R, 15 May 1998.

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step analysis, where it first asked whether the approach taken by the Panel to the interpretation of Article XX was appropriate. Here it found that the Panel’s reasoning was flawed and ‘abhorrent to the principles of interpretation we are bound to apply’.72 Moreover, the Appellate Body asked whether the ban was ‘provisionally justified’ under Article XX(g). In this context the Appellate Body invoked the concept of ‘sustainable development’ as recognized in the Preamble of the WTO Agreement for introducing the legitimacy and importance of environmental protection. It found the justification was based on the decision that the ban is a measure concerned with the conservation of ‘exhaustible natural resources’. Here, the Appellate Body ruled that the words ‘exhaustible natural resources must be read by a treaty interpreter in the light of contemporary concerns of the community of nations about the protection and conservation of the environment. … [T]he Preamble attached to the WTO Agreements shows that the signatories to that Agreement were, in 1994, fully aware of the importance and legitimacy of environmental protection as a goal of national and international policy.’73 By reference to ‘the objective of sustainable development’ entailed in the Preamble of the WTO Agreement an interpretation of ‘exhaustible natural resources’ was applied that included exhaustible natural resources, both living and non-living. By encompassing sustainable development as an interpretative guide the Appellate Body made clear that it informs all covered agreements and has to be ‘read into’ all WTO treaty law to which the Preamble applies. For that reason the reference to the Preamble alone was sufficient to interpret ‘natural resources’ in a non-static, evolutionary and effective way, thereby allowing other international conventions and declarations such as 1982 UNCLOS, 1992 CBD, Agenda 21 and the Resolution on Assistance to Developing Countries adopted in conjunction with the Conservation of Migratory Species and Wild Animals (CITES) to support this interpretation of the term ‘exhaustible natural resource’ within the meaning of Article XX(g).74 Finally, it investigated the requirements of the chapeau of Article XX and found the application of the import ban to be in a manner which constituted ‘unjustifiable discrimination’ and ‘arbitrary discrimination’. In the two last steps the Appellate Body again invoked the concept of sustainable development as an ‘interpretative guide’. By referring to the objective of sustainable development it stated ‘[a]s this preambular language reflects the intentions of negotiators of the WTO Agreement, we believe it must add colour, texture and 74 72 73

AB in US–Shrimp, paras. 112–124. Ibid., para. 129. Ibid., paras. 129–131.



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shading to our interpretations of the agreements annexed to the WTO Agreement, in this case GATT 1994.’75 Notwithstanding the importance of this finding, the relevance of the concept of sustainable development when determining what constitutes arbitrary or unjustifiable discrimination remains somewhat unclear. It does appear however that the reference to it together with the reference to the Decision of Ministers at Marrakesh to establish a Permanent Committee on Trade and Environment are meant to include the notion of balance and to introduce an equilibrium. In line with the terms of reference of the CTE in the Ministerial Decision including references to Principles 3 and 4 of the Rio Declaration on Environment and Development and Agenda 21, this balance requirement opens for the consideration ‘that there should not be … any policy contradiction between upholding and safeguarding an open, non-discriminatory and equitable multilateral trading system on the one hand, and acting for the protection of the environment, and the promotion of sustainable development on the other’76 in the course of interpreting the chapeau of Article XX. Both aspects, i.e. balance and equilibrium, are linked to the doctrines of bona fide and prohibition of abusive exercise of States’ rights. The task of appropriately reading the chapeau of Article XX GATT 1994 in the light of the concept of sustainable development therefore involves ‘locating and marking out a line of equilibrium between the right of a Member to invoke an exception under Article XX and the rights of the other Members under varying substantive provisions … of the GATT 1994, so that neither of the competing rights will cancel out the other and thereby distort and nullify or impair the balance of rights and obligations constructed by the Members themselves in that Agreement’.77 Furthermore, ‘a balance needs to be struck between the right of a Member to invoke an exception under Article XX and the duty of that same Member to respect the treaty rights of the other Members.’78 The demarcation of this line in the present case went along such criteria as (i) ‘intended and actual coercive effect’ of the US measure that required all other members to adopt essentially the same regulatory programme and the absence of the following: (ii) consideration of different conditions in different Member States, (iii) engagement in serious, concerted and cooperative efforts to finding a multilateral solution, (iv) flexibility, transparency and (v) principles

75

78 76 77

Ibid., para. 153. The question of interpretational scope under Article 3.1 of the Dispute Settlement Understanding (DSU) and the possibility to report to other sources of law is discussed supra in Part III. Preamble of the Decision on Trade and Environment. AB in US–Shrimp, para. 159. Ibid., 156.

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of due process and basic fairness, i.e. notification, hearings, procedures for review or appeal.79 This balance, however, needs to be determined on a case-by-case basis. The concept of sustainable development appears to have been invoked to give a clearer understanding (“colour, texture and shading”) of the rights and obligations of Member States under the chapeau of Article XX GATT 1994. The application of the concept allowed the Appellate Body to include non-trade interests and instruments to ascertain what constitutes a reasonable and bona fide exercise of the right to invoke an exception. These ‘minimum standards’ were found to be met when the Appellate Body had to deal again with the Revised Guidelines to Section 609, issued by the US government following the Appellate Body’s recommendation. The guidelines allowed for the certification of exporting countries that could prove to have implemented and were enforcing a ‘comparably effective regulatory program’ to protect sea turtles. In addition, the Appellate Body found that the US had made serious, good faith efforts to negotiate a multilateral agreement for the protection of sea turtles. Thus, in the ‘second’ Shrimp-Turtle report, the Appellate Body found the environmental measure employed by the US to be justified under Article XX (g) GATT 1994. Here, the balance required by the concept of sustainable development which is read into the chapeau of Article XX GATT 1994 was ensured by the flexibility of the measure and serious recourse to diplomacy. In this way, sustainable development has been employed by the dispute settlement system as having both a substantive and a procedural element.80 A more recent case concerned Brazil’s ban on imports of retreaded tyres from the EU.81 The ban was based on health and environmental grounds, the tyres providing ideal breeding grounds for mosquitoes carrying dangerous diseases (malaria, dengue) and tyre fires generating dangerous toxins. Following the challenge by the EU, Brazil attempted to justify its actions in the Committee on Trade and Environment: “Moreover, in order to achieve the cited objectives, and in harmony with the widely accepted principle of sustainable development – included in the preamble of the WTO Agreement – Brazil banned imports of used and retreated tyres.”82 The choice of words is 79 80



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Ibid., 180. See P. Sands, ‘International Courts and the Concept of “Sustainable Development”’ (1999) 3 Max Planck UNYB, 403. Brazil: Measures affecting Imports of Retreaded Tyres – Panel Report (12 June 2007) WT/DS332/R. Committee on Trade and Environment, Trade in used and retreaded Tyres – Submission by Brazil (12 July 2005) WT/CTE/W/241; see also Committee on Trade and Environment, Report of the Meeting held on 6 July 2005 (2 September 2005) WT/CTE/M/40 [82].



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worth noting. No only that it was for the first time, that a developing country invoked Art. XX GATT to defend a trade restrictive policy, but only developed countries had sought to invoke a legally binding principle of sustainable development.83 Both, the Appellate Body and the panel rejected the EU’s argument of missing ‘necessity’ of the import ban. The Appellate Body accepted the panel’s ‘weighing and balancing’ of factors and did not find any of the alternatives proposed by the EU to be suitable and readily available to Brazil. Both therefore found the ban provisionally justified under Article XX (b). The panel did so by citing the US–Shrimp Appellate Body decision and the overall importance of the goal of sustainable development and interpreted Brazil’s reference to environmental protection as meaning the protection of human, animal or plant life or health (Art. XX (b) GATT). The two bodies, however, disagreed with respect to the chapeau of Article XX. The panel found the ban to constitute ‘unjustifiable discrimination’ and ‘disguised restriction’ on quantitative grounds. Import exceptions were made for imports from MERCOSUR countries and from other countries due to a number of court injunctions. The panel found especially the latter to generate sufficiently significant actual imports of retreaded tyres to counteract the purpose of the ban. The Appellate Body rejected this quantitative caveat and found the ban to be a ‘arbitrary or injustifiable’ discrimination, because neither of the exceptions had a basis in the rationale of the ban itself – defining this as the only criterion that mattered. It added: We recognize that certain complex public health or environmental problems may be tackled only with a comprehensive policy comprising a multiplicity of interacting measures. In the short-term, it may prove difficult to isolate the contribution to public health or environmental objectives of one specific measure from those attributable to the other measures that are part of the same comprehensive policy. Moreover, the results obtained from certain actions – for instance, measures adopted in order to attenuate global warming and climate change, or certain preventive actions to reduce the incidence of diseases that may manifest themselves only after a certain period of time – can only be evaluated with the benefit of time. In order to justify an import ban under Article XX(b), a panel must be satisfied that it brings about a material contribution to the achievement of its objective. Such a demonstration can of course be made by resorting to evidence or data, pertaining to the past or the present, that establish that the

83

Also Cuba also emphasized the importance of the principle of sustainable development and environment preservation policies, and recalled that waste tyre management presents a challenge in particular for developing countries, given the significant environmental and economic costs it involves. Brazil: Measures affecting Imports of Retreaded Tyres – Report of the Appellate Body (3 December 2007) WT/DS332/AB/R [85].

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import ban at issue makes a material contribution to the protection of public health or environmental objectives pursued. This is not, however, the only type of demonstration that could establish such a contribution. Thus, a panel might conclude that an import ban is necessary on the basis of a demonstration that the import ban at issue is apt to produce a material contribution to the achievement of its objective. This demonstration could consist of quantitative projections in the future, or qualitative reasoning based on a set of hypotheses that are tested and supported by sufficient evidence.84

Here the Appellate Body underscored the long-term sustainability of a measure adopted by the parties and lowered the burden of proof of ‘necessity’ in environmental cases. There is no obligation to provide costly and difficult in-depth analyses, in particular quantitative economic projections and the like, when establishing ‘necessity’. Qualitative, inductive and logical reasoning based on available science and other information will normally be quite sufficient to provide cover.85 This might be of special importance to developing country governments with limited resources at their disposal. In analysing these cases we find that sustainable development has been embraced by the WTO dispute settlement body to provide and support legal arguments. In this context Gehring agrees that ‘[t]he reasoning of the WTO dispute settlement body […], taken together, demonstrates that the objective of sustainable development has become an integral part of the world trading system. Legal arguments encompassing an integrated developmental and environmental approach have been made by the parties and accepted by the relevant dispute settlement organs.’86 5.5.5 Invocation of Sustainable Development in WTO Law: Procedural and Substantive Requirements Let us now have a closer look at the procedural and substantive requirements of the invocation of sustainable development. As for (i) procedural elements, there is a particular need of exhaustion of appropriate diplomatic means, namely negotiations, before unilateral measures may be taken. Whether this requirement derives directly from the concept of sustainable development or from the principle of peaceful settlement of 84



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Brazil: Measures affecting Imports of Retreaded Tyres – Report of the Appellate Body (3 December 2007) WT/DS332/AB/R [151] (my emphases). See also commentary by H. Schloemann, ‘Brazil Tyres: Policy Space Confirmed under GATT Article XX’, 1 ICTSD Bridges, 2008, 13–14. M. Gehring, ‘Sustainable Development in World Trade Law – a Short History’, in H.C. Bugge and C. Voigt (eds.) Sustainable Development in International and National Law (2008).



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disputes (Article 2.3 UN Charter), which as a minimum requirement seeks to base solutions to disputes on the consent of the involved States, is not clear. Negotiation as a means of solving dispute is seen by some as an internationally recognized component of this principle. Its nexus to sustainable development, however, not only remains blurred, but also seems to potentially dilute the concept of sustainable development by submitting aspects under the concept’s scope that are already appropriately addressed. Other procedural requirements and suggestions thereof encompass, inter alia, more transparent and participatory policy-making processes,87 a sustainability impact assessment (SIA),88 the attempt to negotiate subsidiarity clauses89 or a ‘savings clause’ for environmental agreements, a reversal of the burden of proof in disputed cases,90 waivers,91 international cooperation,92 and the integration of the precautionary principle in WTO law.93 While all these suggestions are important and certainly relevant to meeting the objective of sustainable development within the international trade regime, many of them

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92 93

T. Santarius et al., Balancing Trade and Environment: An Ecological Reform of the WTO as a Challenge in Sustainable Global Governance. What Kind of Globalisation is Sustainable?, No. 133 Wuppertal Paper, (Wuppertal: Wuppertal Institute for Climate, Environment, Energy, 2004) See C. George, and C. Kirkpatrick, ‘Trade and Development: Assessing the Impact of Trade Liberalisation on Sustainable Development’ (2004) 38:3 Journal of World Trade, 441–469. The authors elaborate on the potentialities of a sustainable impact assessment (SIA) as an ex ante method of integrated appraisal of trade policies. This assessment is supposed to accord the same level of consideration to economic, social and environmental impacts of proposed trade measures on sustainable development. See also C. George, and C. Kirkpatrick, ‘Putting the Doha Principles into Practice: The Role of Sustainability Impact Assessment’ in H. Katrak and R. Strange (eds.) The WTO and Developing Countries (Basingstoke: Palgrave Macmillan, 2004) 315–338; and D. Wilkinson, M. Ferguson and P. ten Brink, Sustainability Impact Assessment: Background Paper (London: Institute for European Environmental Policy, 2002). K.W. Steininger, ‘International Trade Regulation and Sustainable Development: An Outlook’ (1996) 31:6 Intereconomics, 295. See also: C. Helm, Sind Freihandel und Umweltschutz vereinbar? Ökologischeer Reformbedarf des GATT/WTO Regimes (Berlin: Edition Sigma, 1995); F. Biermann, Internationale Umweltverträge im Welthandelsrecht, WZB Discussion Paper FSII 99–403 (Berlin: Wissenschaftszentrum Berlin, 1999). For an overview of reform proposals regarding the expansion of environmental exception clauses see: Santarius et al., 2004, 11–12. WTO, Committee on Trade and Environment, Special Session: Compilation of Submissions under Paragraph 31(i) of the Doha Declaration, 31. January 2003, TN/TE/S/3. See the discussion on J. Pauwelyn, ‘WTO Compassion or Superiority Complex?: What to Make of the WTO Waiver for “Conflict Diamonds”’ (2003b) 24:4 Michigan Journal of International Law, 1177–1207. Steininger, 1996, 298 De Sadeleer, 2004, 352; G. Marceau, ‘A Call for Coherence in International Law’ (1999) 33:5 Journal of World Trade Law, 87–152.

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remain, however, reform proposals. Unlike many of the authors contributing to this issue, my approach is not to focus on the question of lex ferenda or institutional reform. Rather, my aim is to provide a doctrinal construction on the integration of the pillars of sustainable development within international trade law. Here, the law as it is already existent within the WTO-covered agreements and within the body of general public international is supposed to provide the framework for decision making and the settlement of disputes based on the objective of sustainable development. As one writer notes, such an effort ‘is not l’art pour l’art … the precise construction of freedoms and restrictions has major implications for the margin States possess to introduce environmental protection measures.’94 As for the (ii) substantive part of sustainable development, it can be argued that the concept exerts a legal pull both by aiming at integrating and balancing various contradicting interests, and by extending the legal scope of Article XX GATT by means of interpretation.95 Accordingly, Sands concludes that sustainable development ‘has a significant substantive element’,96 at least in the course of interpretation. The importance of the application of the concept of sustainable development by the Appellate Body in US–Shrimp lies not so much in an ‘evolutionary interpretation’ of the phrase ‘exhaustible natural resources’ or the influence on interpreting the chapeau of Article XX GATT 1994. More importantly, it is the systematic inclusion of the concept within WTO DSB jurisprudence, which indicates a significant change, not only for the dispute settlement system, but for the WTO in general. The reference to sustainable development and the inclusion of concerns entailed by other multilateral agreements, illustrate the 94 95

96





Winter, 2003, 115. The extension of the jurisdictional scope can be drawn from the finding that between the migratory and endangered sea turtles and the United States a nexus existed, sufficient enough to extend the geographical scope of Article XX(g) to territories outside US jurisdiction. Although the Appellate Body did not explicitly refer to the concept of sustainable development in order to justify the semi-extra-territorial application of the protection measure, it derives from its previous reference to the concept that the protection of endangered species that traverse or migrate through US territory are encompassed by its scope. Sands notes that “the concept [of sustainable development] appears to inform that conclusion, apparently establishing the necessary link between the interests of the United States in the proper conservation of a distant natural resource located from time to time outside its jurisdiction, and the finding that Section 609 is “provisionally justified” under At. XX(g).” (Sands, ibid., 400) Another question, which was not addressed, is whether the findings of the Appellate Body would have been different had the turtles never crossed into US waters. Here the scope of the protection measures would have been entirely extraterritorial. Sands, 1999, 400.



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extent to which the judicial function (at least within the WTO context) has departed from formal positivism. The Appellate Body expressly confirmed its acceptance of sustainable development as a concept that seeks to integrate economic and social development and environmental protection. The acceptance of this integrative function of the concept of sustainable development indicates its substantive legal force. The Appellate Body has invoked the ‘concept’ as part of its legal analysis to justify a legal conclusion, though without indicating its status. Yet, it has been used as a significant guide in order to reach a decision that has been described as ‘fairly radical’.97 Further, it has been used by reference to its inclusion in the WTO Agreements Preamble, thereby informing – as an objective – all WTO-covered agreements. Which conclusions can be drawn from this reference? ‘Informing’ means ‘to give knowledge’, while an objective refers to the point at which operations are directed. The Preamble indicates the direction and substance according to which the covered agreements are to be implemented and interpreted. Sustainable development as an objective is thus the goal – the direction – of this implementation and interpretation. 5.6 Summary Both the legal texts and jurisprudence of the Dispute Settlement System show how far sustainable development has been incorporated as a guiding objective of the international trade system. Sustainable development as enshrined in WTO law requires the interpretation of trade law in the light of concerted bilateral or multilateral action to protect other interests than solely trade interests. Those actions which protect certain collective interests that are considered of great importance, if not fundamental, become – via the preambular reference to sustainable development – part of the corpus of trade law. Sustainable development is the framework under which a balance between rights of WTO Member States under the WTO agreements and the right of a Member to invoke an exception to trade rules for measures pursuing non-trade objectives needs to be established. Liberalization of trade therefore is no end in itself but is subjected to the objective of sustainable development. Ultimately, the application of sustainable development in a trade context subordinates all trade relations to the requirement of not endangering essential ecological functions that support life on earth. In other words, where the protection of

97

Ibid., 403.

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such environmental or ecological functions is better taken care of by measures that conflict with trade rules, these measures may be justified despite their trade-restrictive nature. Eventually, the inclusion of sustainable development as an objective of international trade law might justify appropriate deviations and exceptions from core principles of free trade and non-discrimination. This last point led some scholars to suppose that sustainable development calls for an independent balancing test.98 Rather than – and in addition to – only being part and parcel of international trade law, the question raised here is whether sustainable development has a legal status of its own in international law and can therefore be applied independently of the respective provisions in various international legal regimes. The independent application may have the advantage of assessing various, apparently conflicting interests at the same legal footing without viewing the conflict through an exclusive ‘trade lens’.99 This question is substantially different to the purpose of this chapter and will therefore be examined in the next chapter.

98 99



Brown-Weiss, 1992a. Ibid.

Chapter 6

Sustainable Development as a General Principle of Law

6.1 Introduction In this chapter, we shall examine the legal status of sustainable development in international law as a principle of integration. It is assumed that if sustainable development gains legal recognition as a general principle in international law, it can be applied in various ways in the settlement of disputes. It could be applied as ‘relevant international law’ in the course of treaty interpretation. It could also be applied as a general ‘balancing principle’, which ultimately would allow it to be used independently of specific treaty formulations, such as exception clauses for non-trade objectives within WTO law. As such, the principle of integration could provide a solution to normative conflicts. Determining the legal status of any norm in international law is not an easy task. However, it is an important one. Much criticism has been levelled at attempts to subsume norms under the rather narrow legal focus of the catalogue of sources listed in Article 38.1 of the Statute of the International Court of Justice.1 At the same time, radical advocacy of certain preferred norms of international law, regardless of their acceptance by the international community, has fuelled scepticism and caution in discussions about the legal relevance of new or developing norms. International law as a normative system is not static. It evolves and grows in response to modern challenges. One of the areas where international law is developing is in the extension of its ambit to individuals, regional communities and the wider civil society. Another area is the international community’s concern for sustainable development. The repetitious references to sustainable development throughout a multitude of international and domestic laws, regulations, conventions and non-binding documents is evidence of its general

1

R. Higgins, Problems and Process: International Law and How We Use It (Oxford: Clarendon Press,1994 reprinted in 2003) 17.

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acceptance as a normative concept. The significance of sustainable development in a legal context seems apparent. However, having legal bearing is one thing, determining the ‘legal fold’ to which sustainable development belongs is quite another. As one prominent legal scholar phrased it, ‘[p]erhaps it is inevitable that content and contours of an integrative concept such as that of sustainable development which was endorsed as such by the world community as a whole, lacks the kind of clarity of articulation of concepts one might be accustomed to in a more limited, homogeneous group of States.’2 If there is conceptual uncertainty about the legal status of sustainable development, then it is only reflective of the uncertainty about how to identify norms in general, that, in Judge Higgins words, lies at the heart of the international legal system.3 Still, the list provided by Article 38 of the Statute of the International Court of Justice is indicative of what the actors believe has normative force in their relations with each other. While norms may have other provenances, if it can be shown that a norm can be fitted within the catalogue of Article 38, its legal significance is no longer debatable For this reason I consider it important to analyze whether sustainable development has reached a stage where it warrants a place under one of the categories of this list. Recalling what has been said in the previous chapters, it is evident that sustainable development constitutes an important element of international treaty law. Treaties, bi- or multilateral conventions are principally a source of obligation between the contracting parties.4 In those cases where States make explicit reference to sustainable development in treaty texts, this could be taken as meaning that they principally committed themselves to sustainable development. As we have seen, in the context of climate and international trade law, the references to sustainable development in the treaty texts incorporate sustainable development into the normative design of the respective obligations. The exact commitment depends, of course, on the precise formulation and context of the reference.

4 2 3

Simma, 2004, vi. Higgins, 2003, 17. J. Cameron, ‘The Status of the Precautionary Principle in International Law’ in T. O’Riordan, T. and J. Cameron (eds.) Interpreting the Precautionary Principle (London: Cameron May, 1994) 278; G.G. Fitzmaurice, ‘Some Problems Regarding the Formal Sources of International Law’ in F.M. van Asbeck et al. (eds.) Symbolae Verzijl: Présentées au Prof. J.H.W. Verzijl á l’occasion de son LXX-ieme anniversaire (The Hague: Nijhoff, 1958) 158 et seq.



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6.2 Limitation of Scope From the sources listed in the ICJ Statute, it is in particular customary law and general principles of law that seem most likely to capture the normative significance of sustainable development. I shall, however, limit my focus to the legal relevance of sustainable development as a general principle. The reason for such limitation lies in the fact that the determination of the emergence of a new customary law norm demands reliable empirical evidence of almost universal State practice.5 Needless to say, attempting to induce the principles of customary law directly from State practice would not only be a Herculean task,6 but legal methodology may not be sufficiently equipped to carry out this task.7 For this reason we are not bound to attempt to prove the customary status of sustainable development. Despite the urgency of research on this matter, it would far exceed the frame of this study to perform a thorough assessment of State practice.8 The intention of this chapter is therefore to investigate the legal nature of sustainable development as a principle of integration in situations where different interests conflict. In other words, it is the capability of the principle to function as a tool of legal reasoning that is important in this context. State practice of sustainable development as an integrative principle in this judicial understanding might, thus, be difficult – if not impossible – to assess. Resulting from its widespread acceptance in international law, sustainable development has frequently been titled as one of the ‘general principles of international environmental law’.9 Generality in this sense refers to its possible applicability to all members of the international community, across the whole range of human activities. It is the principle-based significance of sustainable development in a judicial context we shall explore in what follows.



5



6 7



8



9

See D. Bodansky, ‘Customary (And Not So Customary) International Environmental Law’ (1995) 3:1 Ind. J. Global Legal Stud., 108–109. Ibid., 113. Bodansky suggests that anthropologists and historians are more likely to do a better job in systematically surveying state behaviour than lawyers. Bodansky, 1995, 113. The task of undertaking a survey of State and organizational practice has recently been taken on by the International Law Association’s Committee on International Law on Sustainable Development. The Committee suggested the following steps: (i) preparation and dissemination of questionnaire (autumn/winter 2006); (ii) analysis and initial evaluation of questionnaire findings (spring/summer 2007); (iii) seminar to discuss findings and other known examples of State/organizational practice (autumn 2007). ILA, Toronto Conference Report 2006, Committee International Law on Sustainable Development, 22. Sands, 2003, 252–266; Kiss and Shelton, 2004, 216–218.

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First, however, we consider it necessary to explore in more detail general principles as an ambiguous source of law. 6.3 General Principles in International Law 6.3.1 An Ambiguous Source of Law General principles are recognized as a distinct source of international law.10 Article 38.1(c) of the Statute of the International Court of Justice refers to general principles of law recognized by civilized nations. The wording of Article 38(1)(c) of the ICJ Statute reveals however a fundamental controversy in public international law. The Committee that prepared the Statute could not find a definite consensus on the role and significance of general principles. This situation is indicative of the division in international law between the concepts of natural law and positive law. Descamps, the President of the Committee, had supposedly a natural law concept in mind when suggesting ‘rules of international law as recognized by the legal conscience of civilized nations’ as one of the (four) rules11 to be applied by the judge in the solution of international disputes.12 These rules, he stated, constitute ‘objective justice’ by being ‘the rules necessary for the system of international relations’.13 On the other hand, Root, another member of the Commission, took a rather positivistic stance in expressing the concern of whether ‘a Government would agree to allow itself to be arraigned before a Court who bases its sentences on 10





11

12 13



See H. Thirlway, ‘The Sources of International Law’ in M.D. Evans, International Law (Oxford: Oxford University Press, 2003) 132; I. Brownlie, Principles of Public International Law, 6th ed. (Oxford: Oxford University Press, 2003) 15; M. Bogdan, ‘General Principles of Law and the Problem of Lacunae in the Law of Nations’ (1977) 46 NJIL 42 B. Cheng, General Principles of Law (London: Stevens & Sons, 1953); P. Hulsroj, ‘Three Sources – No River: A Hard Look At the Sources of Public International Law with Particular Emphasis on Custom and “General Principles of Law”’ (1999) 54 ZöR 244; B. Simma and P. Alston, ‘The Sources of Human Rights Law: Custom, Jus Cogens and General Principles’ (1991) 12 AYbIL, 102; M. Bos, ‘The Recognized Manifestation of International Law’ (1977) 20 GYIL, 33. The other three rules were 1) conventional international law, whether general or special, being rules expressly adopted by the States; 2) international custom, being practice between nations accepted by them as law; and 3) international jurisprudence as a means for the application and development of law, Permanent Court of International Justice, Advisory Committee of Jurists, Procès-Verbaux of the Proceedings of the Committee, June 16 – July 24, with Annexes, 1920, 306. Ibid., 306. Ibid., 323.



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its subjective conception of the principles of justice’.14 Descamps countered the argument by clarifying that ‘the fundamental law of justice and injustice is deeply engraved on the heart of every human being and is given its highest and most authoritative expression in the legal conscience of civilized nations.’15 Despite the various views, the Committee was able to prepare a text intended to give the Court a certain power to develop and refine the principles of international jurisprudence.16 This text, suggesting ‘the general principles of law recognized by civilized nations’ as one of the sources of international law, was finally transposed into Article 38.1 of the Statute of the ICJ. 6.3.2 Custom and General Principles Before assessing the status of sustainable development as a general legal principle, it seems appropriate to offer a few remarks on the nature of general principles. In this context the confusion-prone relationship of customary principles and general principles of law calls for some elucidation. The most distinct difference to customary norms is that states become bound by general principles after actively having participated in the development of the norm. Thus, State practice is generally not required for the establishment of a general principle. General principles extend ‘the concept of the sources of international law beyond the limit of legal positivism, according to which the States are bound only by their own will’.17 Simma and Alston plead in favour of keeping the two notions separate. They base their argument ‘on the ground … that the concept of a “recognized” general principle seems to conform more closely than the concept of custom to the situation where a norm invested with strong inherent authority is widely accepted even though widely violated’.18 Similarly, Cheng regarded the practice element to be unnecessary in the context of general principle when he stated: ‘In the definition of the third source of international law, there is also an element of recognition on the part of civilised peoples but the requirement of a general practice is absent.’19 16 17 14 15



18



19

Ibid., 309. Ibid., 310–311. See Brownlie, 2003, 16. Dissenting opinion, Judge Tanaka, South West African cases (Second Phase) ICJ Reports 1966, 298. Simma and Alston, 1992, 102. See also G. Herczegh, General Principles of International Law and the International Legal Order (Budapest: Akadémiai Kiadó, 1969) 11–33. Cheng, 1953, 24. See also: M. Bos, ‘The Identification of Custom in International Law’ (1982) 25 GYIL 11. According to Bos, ‘[w]ith a general principle of law … there is no

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In the absence of general principles international law would be nothing but the law of the consent and auto-limitation of States. In this case, de Laparelle warned during the preparation of Article 38 of the ICJ Statute, ‘the tasks of the Court would be limited to registering the acts of the powerful’.20 The behaviour and consent of States are thus not a prerequisite to the recognition of general principles.21 6.3.3 The Function of General Principles and the Objection of Indeterminacy The normative role of principles is another contentious area of legal scholarship.22 Some principles have been seen as means of describing and organizing the system of individual (positive) norms, but are deprived of any normative content.23 As descriptive statements they are more or less factual reconstructions of the law by academic scholars. These principles are considered mere generalizations, or, in other words, a kind of summary of other positive norms. They bring together certain ‘sets of individual norms or statements about such norms’.24 Their validity is dependent on the validity of other norms, and is not therefore seen as having normative meaning by and of itself. While such a view of general principles usually finds support among positivistic lawyers, it is not shared here in its entirety as the author considers some general principles of law as being of normative nature in their own right.25 Where legal doctrine recognizes normative substance, the ascribed role of general principles is to ensure a coherent legal order. From this point of view,

20



21



22



23



24



25

practice to be taken into account – at least not in the sense attributed to the term in the context of custom’. See PCIJ, Advisory Committee of Jurists, Proces-Verbaux, of the Proceedings of the Committee, 1920, 319–320. Dissenting Opinion by Judge Tanaka, in South West African Cases, ICJ Report 1966, 298. See for an excellent, albeit critical, overview of the normative theory on principles: M. Koskenniemi, ‘General Principles: Reflections on Constructivist Thinking in International Law’ in M. Koskenniemi (ed.) Sources of International Law (Aldershot: Ashgate, 2000) 129–141. See Koskenniemi, 1985, 367. For a attempt to categorize principles of legal theory see e.g. A. Peczenik, ‘Principles of Law: The Search for Legal Theory’ (1971) 2 Rechtstheorie 17–36; H. Mosler, ‘General Principles of Law’ in R. Bernhard (ed.) Encyclopedia of Public International Law, vol. 7 (Amsterdam: North-Holland, 1984) 90. Koskenniemi, 1985, 143 See C. Voigt, ‘The Role of General Principles in International Law and their Relationship to Treaty Law’, Retfærd, forthcoming in 2008.



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general principles are considered essential to the international legal system in that ‘they ensure systematic unity of the law amid the disorder of positive rules’.26 Arguing that the need for coherence is inherent in the rationality of modern law, MacCormick defended the legitimacy of recourse to general principles. ‘Working out the principles of a legal system to which one is committed involves an attempt to give it coherence in terms of a set of general norms which express justifying and explanatory values of the system’.27 General principles of law furthermore provide a necessary means by which Courts and Tribunals can construe the law in a dynamic fashion that is responsive to today’s problems. Jenks stated already in this context: Neither agreement nor practice, even in the widest sense, can, however, provide sufficiently vigorous seeds of growth to enable the law to cope with new problems pressing for solution as the result of the activities of the international organisations. Legal principles therefore have an indispensable part to play in the development of the proper law of international organisations and its assimilation into the general body of international law.28

These principles are ‘an authoritative recognition of a dynamic element on international law, and of the creative function of the courts which may administer it.’29 Law is a continuing process and general principles thus provide for a ‘welcome possibility for growth’,30 in which capacity they also contribute to the development of international law. One of the objections to letting general principles of law play such a significant role is the indeterminacy of their scope. It has been critizised that general principles give too wide a margin of appreciation to the judge as they dictate no particular solution but supply relevant arguments in support of one or another solution.31



26



27



28

31 29 30

M. van de Kwerchove and F. Ost, Legal System Between Order and Disorder, translated by I. Stewart (Oxford: Oxford University Press, 1994) 82. N. MacCormick, Legal Reasoning and Legal Theory (Oxford: Clarendon Press, 1978) 177. C.W. Jenks, The Proper Law of International Organisations (London: Stevens, 1962) 259–160. Brierly, The Law of Nations, 1963, 63. See Bos, 1977, 42. T. Eckhoff and N. K. Sundby, Rettsystemer: Systemteoretisk Innføring i Rettsfilosofien (Oslo: Tanum-Norli, 1976) 129. See also M. Koskenniemi, ‘General Principles: Reflections on Constructivist Thinking in International Law’ (1985) Oikeustiede Jurisprudentia (Yearbook of the Finnish Law Society) 117–163 who contends with regard to general principles that ‘it is not seldom that even conflicting practices are legitimized by the discursive use of one widely formulated principle.’, 159.

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General principles, however, must necessarily comprise of such quality. They are inherently broad and open-textured, leaving room for specification by other norms of international law. As such, they are never ‘finished products’. It is a ‘continuing process’ from their identification to the final determination of the principles’ content in a particular context.32 And yet, it is precisely this ‘unfinished nature’ of general principles that makes them appropriate for ‘filling the gaps’ left open by treaty and custom.33 The international legal system is not sufficiently developed, and is constantly facing new and unprecedented challenges. With regard to legal responses to global environmental threats, not least, the function of general principles should not to be underestimated. Given the increasingly fragmented structure of international law, with hundreds of treaties dealing with separate issues, coherent solutions are urgently needed where gaps and overlaps occur. For international law to fully address the problem of fragmentation and regulatory overlap or gaps in a dynamic and flexible but still coherent fashion, the technique of applying general principles needs to be retained – or, perhaps, revived. Against this background, general principles ‘constitute both the backbone of the body of law governing international dealings and the potent cement that binds together the various and often disparate cogs and wheels of the normative framework of the international community.’34 In this sense, they could fulfil the important role of go-between and converging factor’ among the laws of a particular field or international organization and the wider corpus of public international law.35 In general, those to whom principles have a distinctly normative function, acknowledge them as guiding the behaviour of States and underlying adjudicative reasoning. And as norms, they can play a significant role in a normative conflict36 and in the settlement of disputes by international tribunals.37 The ‘gap filling’ function of general principles is, however, only one of several normative functions. In the context of our examination, another important purpose of principles is that they allow courts to weigh and reconcile highly divergent interests.38 The technique of weighing objectives and interests is crucial in the resolution of conflicts. Consequently, general principles that aim at balancing and 34 32 33

37 38 35 36

Bos, 1977, 42. Pauwelyn, 2003, 128. Cassese, 2005, 188; A. Cassese, International Law (Oxford: Oxford University Press, 2001) 151. Pauwelyn, 2003, 130. Pauwelyn, 2003, 126. Cheng, 1953, 1, Lauterpacht, 1927, 216 De Sadeleer, 2002, 250.



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resolving a diverse set of interests play a pivotal role in the resolution of normative conflicts that are the focus of our investigation. Directing principles ‘are needed to introduce a degree of rationality in a world that has become Kafkaesque through the production of an excessive number of rules and a high degree of instability … These principles serve to reassemble dispersed rules into a coherent whole.’39 The fair balance of interests has been perceived as a state of justice. Thus, the application of general principles aims at providing a just solution in situations where conflicting positive rules are not able to do so. General principles can be a source of arguments for judges in situations where other sources fail. Arguably they may not dispense set answers to every abstract question. The legal notions expressed in general principles are neither overly prescriptive nor particularly measurable, but a reasonably clear jurisprudence of what they do and do not permit might or has already evolved.40 Thus, when put into practice and applied by the judge, they provide a practical means of finding an answer to a legal question.41 While general principles, like the principle of equity or the principle of proportionality, help balance competing interests, it is another question whether the process of weighing interests has to adhere to some substantial requirements, some hierarchy of values that determines the outcome. In other words, do they entail an obligation of process or an obligation of result? Principles of equity and proportionality probably encompass both. In a similar way, as will be suggested below, current and future development of jurisprudence will establish what sustainable development does and does not require.42 6.3.4 Provenance of Principles Despite inclusion in the Statute of the International Court of Justice, uncertainty also remains as to the origin of general principles. Some writers view



39 40



41



42

De Sadeleer, 2002. R.Y. Jennings, ‘What is International Law and How do We Tell it when We See it?’ (1981) 37 Schweizerisches Jahrbuch für Internationales Recht 59 See R. Dworkin, Taking Rights Seriously (Cambridge, Massachusetts: Harvard University Press, 1977) 105–130. R. Dworkin argues that judges are generally bound by general principles which they have to identify and to apply in cases where no other (positive) law exists. Opposing positivist theories he contends that judges are not intended to create law themselves. The right answers are ‘in the law’ that consist of positive legal rules and general principles. ILA 2006 Report, 20–1.

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general principles as obtaining from municipal law only.43 They have been described as mere principles of legal logic or general jurisprudence common to most legal systems.44 This rather minimalist view is misleading. Not only have general principles of substantive nature been applied in the practice of international tribunals.45 They also have been resorted to without reflecting domestic derivatives. Others therefore suggest they primarily – or even exclusively – are principles of international law.46 Excluding the possibility of domestic origin, Verzjil, for example, warns the international lawyer in the following way: the nature of inter-state relationships differs so radically from that of relationships between individuals (private law) or between the Government or State and their subjects (public and penal law) that there is a very strong presumption against the possibility of applying the general principles accepted in municipal orders for the latter groups of relationships without reservations or qualifications to the former group of interstate relations.47

Brownlie goes so far as to suggest that ‘domestic law analogies have caused more harm than good in this sphere’.48 In fact, the reference to domestic law might give uncertain results as the models of identification differ. Where principles were applied as being represented in domestic systems, the principles themselves were not identified by way a detailed investigation of the respective national legal systems. Still another group of writers maintain the formulation is intended to refer exclusively to principles of private law.49

43



44



45



46



47



48



49

Verdross and Simma, 1984, 386–387; A. Verdross, Die Quellen des universellen Völkerrechts: Eine Einführung (Freiburg: Rombach, 1973) 127–128. Examples are the principle nemo judex in re sua, PCIJ Mosul Boundary Case, 32, the duty of reparation for international wrongs, PCIJ Chorzow Factory (Merits) 29, the principle that one cannot take advantage of one’s own misconduct, PCIJ Chorzow Factory (Merits) 31, the principle of estoppel or acquiescence, PCIJ Eastern Greenland Case, 1933, Ser. A/B. no. 53, 52., 62, 69. Examples include decisions on the acquisition of territory or on the question of responsibility of the State for the acts of its agents, Fabiani Case, 1896, La Fontaine, 344, RIXX83. D. Anzilotti, Cours de Droit international (Paris: Recueil Sirey, 1929) 117; F. Castberg, ‘La méthodologie du droit international public’ (1933) 43 Recueil des cours 313. J. H. W. Verzijl, International Law in Historical Perspective, Vol. I (Leiden: Sijthoff, 1968) 62–63. Brownlie, 2003, 16. See, for example, Lauterpacht, 1927, 71: “Those general principles of law are for most practical purposes identical with general principles of private law.” For more references see Cheng, 1953, 3, fn. 8.



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However, it is far from established that general principles exclusively derive either from acceptance in foro domestico or from international law. Looking back on the work of the Advisory Committee of Jurists no clear perception is apparent. Root and Phillimore regarded general principles as domestic law principles accepted by all civilized States; while Descamps’ terminology seemed to include not only principles applied in municipal jurisprudence but also principles encompassed by a normative concept of law as applied in international relations.50 The answer, it is suggested, lies somewhere in between, apparently encompassing both, domestic and international elements. Brownlie seems to argue for an accumulation of legal reasoning borrowed from both elements of State’s concern (domestic and international). In his statement that [i]t would be incorrect to assume that tribunals have in practice adopted a mechanical system of borrowing from domestic law after a census of domestic systems. What has happened is that international tribunals have employed elements of legal reasoning and private law analogies in order to make the law of nations a viable system for application in a judicial process … An international tribunal chooses, edits, and adapts elements from better developed systems: the result is a new element of international law the content of which is influenced historically and logically by domestic law51

he suggests the application in foro domestico is part of the ‘source’ of a principle, but that it receives a certain degree of modification in the process of its application by an international tribunal. Thus, contrary to what is often argued, general principles were not only obtained from foro domestico, but often accepted as ‘general tenets capable of being induced from the rules of international law or deduced from legal logic’.52 Besides, some principles may not be able to be traced back to municipal jurisprudence. Arguably, the principles of non-intervention, of noninterference in the internal affairs of other States, of sovereign right to exploit natural resources, of prohibition of use of force and even the principle of selfdetermination of people have rather minimal, if any, foothold in foro domestico of States. The narrow focus on general principles as common to all major legal systems of the members of the community of nations is therefore misleading. They can as well be found in international law. Birnie and Boyle point out that ‘it has to be recognized that the most frequent use of general principles

50 51



52

Bos, 1977, 37 Brownlie, 2003, 16, with references to G.I. Tunkin, ‘Co-existence And International Law’ (1958) 95:3 Hague Recueil des Cours 23–26; C. de Visscher, Theory and Reality in Public International Law (Princeton, N.J.: Princeton University Press, 1957) 356–358; and A. McNair, Status of South-West Africa, Separate Opinion, ICJ Reports 1950, 148–150, 149. Cassese, 2005, 192.

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derives from the drawing of analogies with domestic law concerning rules of procedure, evidence, and jurisdiction’.53 ‘Most frequent use’, in this context, indicates other possible fields of provenance in addition to induction from domestic law. As Cassese mentions, principles are ‘hidden in the interstices of the normative network’, and identifying them might demand recourse to a wider array of methods, i.e. deduction from international legal logic. General principles therefore not only encompass principles induced from foro domestico but a wider variety of sources.54 Judge Tanaka in the South West African case (second phase) stated accordingly, general principles of law are not qualified, the law must be understood to embrace all branches of law, including municipal law, public law, constitutional and administrative law, private law, commercial law, substantive and procedural law.55

Discussing how principles are identified, Cheng contends an element of recognition is required, but the requirement of a general practice is absent.56 The object of recognition is thus no longer the legal character of the rule implied in an international usage, but the existence of certain principles intrinsically legal in nature. General principles are therefore principles that are recognized by a kind of common sense of nations. In can thus be said that general principles are norms adopted by the international community, whether the norm is derived from municipal law or not.57 They are norms ‘of general validity which is manifested not in a single statutory provision, but by a group of mutually interdependent legal rules or their system.’58 The fact that general principles cannot always be traced to treaty texts or consistent State practice is an indication of their abstract and open-textured na53



54



57 55 56

58



P. Birnie and A. Boyle, International Law and the Environment (Oxford: Oxford University Press, 1992) 24. Categorization or classification of principles remains a fascinating exercise among international legal scholars. Various attempts include the following categories: ‘necessary principles’ as opposed to ‘complementary principles’ (Bos, 1977, 38) ‘metanorms’ (Koskenniemi, 1985, 133), ‘subsidiary principles’ (Lauterpacht, 1927, 69), ‘superconstitutional principles’ (G. Scelle, Manuel de Droit international public (Paris: Domat-Montchrestien, 1948) 580) principles of international law (Cassesse, 2005, and A. Cassesse, ‘General Round-Up’ in A. Cassesse and J.H.H Weiler (eds.) Change and Stability in International Law-Making (Berlin: De Gruyter, 1988) 170. ICJ Reports 1966, 294, diss. Cheng, 1953, 24. Hulsroj, 1999, 245. B. Simma and P. Alston, ‘The Sources of Human Rights Law: Custom, Jus Cogens and General Principles’ (1991) 12 Australian Yearbook of International Law, 102, fn 85. Herczegh, 1969, 36.



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ture. Despite the need for specification in a particular setting, there is a shared understanding in the international community of their existence and their implications. Such a view is based on a ‘common legal conscience’; an opinio juris communis.59 If a normative statement can be shown to be part of the ‘common legal conscience’ it becomes a legal norm as a general principle. 6.3.5 Common Legal Conscience The questions that arise in this context are, first, when can a norm be said to be deriving from a legal conscience, and, second, whose conscience is relevant in this respect. If it can be assumed that the concept of ‘common legal conscience’ is crucial to the origin of general principles, one needs to determine what is meant by this term. Cheng suggests that the initial phrases suggested by Descamps ‘manifestation la conscience juridique des peuples civilizes’60 may be translated into English as ‘the sense common to all civilized peoples of what is juridically right or wrong’61 or simply as ‘the opinio juris communis of civilized mankind’.62 Others refer to it as ‘Rechtsbewußtsein der Menschheit’.63 How then can it be established that a given legal norm is part of the common legal conscience? If the view is adopted that only principles applied in foro domestico are relevant, then the exercise of determining their existence is one of comparative analysis of municipal legal systems and induction from domestic practice. Here, however, it is suggested that in addition to domestic principles, general principles can also be found in the international relationships among States. This brings up a similar problem as to the evidence of opinio juris in the establishment of custom.64 Also in customary law, opinio juris is an expression of legal conscience. Already Grotius suggested a tacitus consensus populorum as necessary for any norm based on custom.65 The classical judi 61 62 63 59 60



64



65

Ibid. A. Favre, Principes du Droit des Gens, Fribourg, 1974, 275. Cheng, 1953, 9. Ibid. There is a general recognition today that the term ‘civilized’ applies to all States. See J.C. Bluntschli, Das moderne Völkerrecht der civilisirten Staaten: als Rechtsbuch dargestellt, 1878, 65. He sees this Rechtsbewußtsein as the all-embracing concept for all non-written international law. Hulsroij, 1999, 249. See also: D’Amato, 1971; H. Lauterpacht, The Development of International Law by the International Court (London: Stevens, 1958a); and M. Bos, A Methodology of International Law (Amsterdam: Elsevier, 1984) 62 et seq. See for an account of the historical development of customary law: P. Guggenheim and D. Kappeler, Traité de Droit International Public; Avec mention de la practique interna-

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cial locus classicus on this point is the North Sea Continental Shelf Judgment by the ICJ: Not only must the acts concerned amount to a settled practice, but they must also be such, or to be carried out in such a way, as to be evidence of a belief that this practice is rendered obligatory by the existence of a rule of law requiring it. The need for such a belief, i.e., the existence of a subjective element, is implicit in the very notion of the opinio jure sive necessitatis.66

Whose legal conscience is relevant in this regard? There is evident difficulty attributing conscience to an entity like a State. With regard to custom, it is acknowledged that the legal ‘state of mind’ has to be deduced from State conduct, that is, pronouncements, statements, actions by foreign ministers, civil servants, judges etc. The ongoing debate with regard to development of customary law is whether these elements constitute the ‘practice’ element of custom or are two-sided in a way that practice is generally indicative of a legal conscience, except in circumstances where legal conscience is attributed to a motive other than such conscience.67 While custom to a certain extent is based on consent to what States believe is obligatory to their conduct, general principles include normative requirements not necessarily directed at State conduct but which introduce a sense of what is right and what is wrong into judicial reasoning. One source of ‘legal conscience’ is thus clearly to be detected in the jurisprudence of domestic and international courts. However, general principles also appear to derive from a wider acceptance than just that of States. While for customary law the ‘state of mind’ and behaviour of States is the exclusive criterion, the establishment of general principles includes an opinio juris communis which not only embraces a ‘state of mind’ of State actors but a ‘legal animus’ supported by a wider spectrum of actors. Hulsroj contends in this context [t]hat every actor on the international law scene is relevant – and that the need for broad consensus means that it will be the attitude of a mix of categories of actors that will be formative of a ‘general principle’.68

67 66

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tionale et suisse, Vol. I, 2nd ed. (Geneve: Librairie de l’Université, 1967) 94–103. ICJ Reports 1969, p. 3, para. 177. See Thirlway, 2003, 126. The ICJ in The North Sea Continental Shelf case contended that the States Parties to the 1958 Geneva Convention on the Continental Shelf had in some instances acted in the application of the Convention when delimiting maritime boundaries. Because of the motive of the parties to apply the Convention the Court found that ‘from their actions no interference could be drawn as to the existence of a rule of customary law’ (ICJ Reports 1969, p. 3, para. 76). Hulsroj, 1999, 246.



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He does, however, not explain to the interested reader which other categories of actors to include. Given Descamps proposal mentioned above that ‘the sense common to all civilized peoples’ can be exchanged with the ‘opinio juris communis of civilized mankind’, a suggestion can be made that includes actors at sub-national levels, e.g. indigenous peoples, communities, national NGO’s or cross-national levels, e.g. international NGOs, other international organizations, such as WTO, IMF, WB etc. The expression ‘civilized nations’ or ‘ nations civilisées’ that are now to be found in the text of Article 38(1)(c) of the Statute of the International Court of Justice originate from an amendment made by Root. The original text of the proposal referred to ‘peuples civilisées’, i.e. ‘civilized peoples’ or ‘civilized mankind’. In the sound of the tone of the original proposal, the ‘word “nation” in Article 38(1)(c) should be understood not in its politico-legal sense, as it is used in “League of Nations”, “United Nations” or “International Law” but in its more general sense of a people, as for instance, the Scottish nation, the French nation, the Maori nation etc.’69 What can be concluded here is that general principles generally depend on the recognition by States. In addition, however, their recognition is based on an opinio juris communis, a general global consensus, about what is just and what is unjust. This common legal conscience is inferred from the ‘opinion universelle’ about justice. The universality thus applies not only horizontally – all States – but exhibits a vertical dimension as well – general opinion shared by a larger variety of actors. While the repercussions of this conclusion will be discussed below in the context of sustainable development, it can be concluded here that finding how and where to look for general principles is partly overlapping with finding how to detect opinio juris of States.70 The search will also have to cover a wider variety of texts, ideas and facts than those accepted by States. Statements of NGOs, indigenous peoples, local governments, for example, may be indicative of a general legal conscience, given it is widely enough expressed. 6.3.6 In Sum We can briefly summarize this chapter as follows: General principles of law play a significant role in resolving normative conflicts. For this reason, they are relevant to our investigation of the relationship between norms of the multilateral trading system and climate measures.

69 70

Cheng, 1953, 9, fn. 35. Whether these general principles then would also be binding on a sub-State level is a different question, see for a discussion: Hulsroj, 1999, 248.

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General principles as a source of international law gain legitimacy by recognition of the international community (opinio communis juris). The troublesome customary law element of universal State practice is not required. General principles are of such fundamental character that they are to be found in most of the major legal systems of the world, and can, thus, be induced from principles used in foro domestico. At the same time, they can equally be deduced from international general logic. General principles are normative statements of law applicable to both spheres at a time, but require no mere copying of domestic principles into international law. General principles are based on an opinio juris communis. The sources for such opinio extend further than States, embracing the general sources of opinio juris (declarations, statements etc.) along with a wider spectrum of expressions of a ‘legal animus’, such as declarations, soft-law and statements of NGOs and international organizations. General principles do not necessarily reflect natural law but have a ‘natural law component’ embedded in the notion of legal conscience or opinio juris communis. Principles are characterized by a certain degree of indeterminacy: principles are never ‘finished articles’, law is a continuing process, principles can evolve into conventional rules, but principles are always ‘unfinished’. As such, they allow international law to grow. 6.4 Sustainable Development as a General Principle Given its wide scope and abstract nature, the question arises whether sustainable development may be classified as an emerging legal principle. This is an important question because if sustainable development can be classified as a legal principle – whether general or customary – its legal relevance is independent of the specific treaty formulation. Treaty references, while adding a contextual shade to the principle, would leave its core meaning unaltered.71 71



One specific example can be found in the 2002 (Antigua) Convention for the Protection and Sustainable Development of the Marine and Coastal Environment of the North East Pacific. Art. 3(1)(a) reads: “For the purposes of this Convention, sustainable development means the progressive change in the quality of human beings, which places it as the central and primordial subject of development, by means of economic growth and social equity and the transformation of methods of production and consumption patterns, and which is sustained in the ecological balance and vital support of the region. The process implies respect for national, regional and local ethnic and cultural diversity, and full participation of people in peaceful coexistence and harmony with nature, without prejudice to and ensuring the quality of life of future generations.” This definition gives



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Further, if the principle of sustainable development is part of general public international law, it would as such not be contingent upon State consent or coherent practice in order to be relevant to courts and tribunals. Despite the burgeoning literature on sustainable development, scholarly debate still offers little insight into the legal nature of sustainable development.72 Perceptions vary widely among legal scholars, covering all levels of a normative hierarchy, from being a concept below the law73 to standing ‘above’ it.74 At one end of the spectrum, scholars consider sustainable development as pure aspiration.75 Others define it as a ‘legitimate expectation’.76 Some construe the concept of sustainable development as – at best – a soft law principle. A small, but growing community of scholars, however, contends that sustainable development does have normative value. Again, among them, the perception of what counts as the substantive issue varies. Some note that despite the principle’s normative content it is unlikely that sustainable development has become a (customary) norm of international law, in itself. The claim at the opposite extreme of the scale sees sustainable development as evolving into a binding principle of customary law expressed by Judge Weeramantry in his separate opinion in the Case Concerning the GabčikovoNagymaros Dam project.77 For reasons mentioned above, the claim of custom is neither challenged nor supported by this thesis. While it certainly does not seem accurate to describe sustainable development as void of normative value, none of these options, however, serve to precisely characterize sustainable development. Rather, as has been suggested by Cordonier Segger and Khalfan, sustainable development in international



72



73 74

77 75 76

specific shape to the principle of sustainable development in the context of the protection of the marine and coastal environment. However, it is too comprehensive to represent general international law. It is interesting to note that a number of human rights norms which form part of general international law are connected to the principle of sustainable development as seemingly constituting some of its parts. For the newer publications see B. Richardson, Environmental Law for Sustainability: A Critical Reader, 2005; L. M. Warren, Sustainability and Law (Aldershot: Ashgate, 2005); Cordonier-Segger and Khalfan, 2004; Cordonier-Segger and Weeramantry (eds.) 2004; Schrijver and Weiss (eds.) 2004. Birnie and Boyle, 2002, 81. V. Lowe, ‘The Politics of Law-Making: Are the Method and Character of Norm Creation Changing?’ in M. Byers (ed.) The Role of Law in International Politics: Essays in International Relations and International Law (Oxford: Oxford University Press, 2000) 217. Brownlie, 2003, 276–277; Cassese, 2001, 384. Marong, 2003, 45. Judge Weeramantry, Separate Opinion; Sands, 2003, 254.

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law can be understood as a combination of two complimentary approaches. First, they suggest, sustainable development can be seen as a substantive area of the law in a very real sense,78 approaching the concept as a ‘corpus of international legal principles and treaties which address areas of intersection between international economic law, international environmental law and international social law aiming toward development that can last’.79 Second, sustainable development may also serve as a different type of norm in its own right.80 This approach acknowledges the normative potential of sustainable development to facilitate and require a balance and reconciliation between conflicting legal norms relating to environmental protection, social justice and economic development. As a principle of reconciliation, sustainable development may be invoked by a court or tribunal to modify the application of other norms.81 If the argument can be supported that sustainable development is a legal principle, it becomes a tool with great power. In this respect, Lowe exemplifies the principle in the following way: [a] tribunal might one day assert, on the basis of the principle of sustainable development, a power to modify not only the application of primary norms of customary law but also treaty obligations. It might rewrite, rather than strike down, a bargain struck by the parties that is shown to lead to unsustainable development and serious environmental harm.82

If sustainable development as a legal principle can be shown to have independent status it could offer an appropriate framework in which to view issues of overlap and conflict between norms of economic, social, human rights and environmental law. 6.4.1 The Normative Force of Sustainable Development and the Critique of Indeterminacy Before we now set out to examine the extent to which sustainable development has become a part of the legal conscience of nations that transforms 78



81 82 79 80

So J.C. Weeramantry, ‘Foreword’ Cordonier-Segger and Khalfan, 2004, ix. Also Lowe, 1999, who sums sustainable development up as a “convenient umbrella term to label a group of congruent norms”, 32. Cordonier-Segger and Khalfan, 2004, 46. Lowe, 2000, 214–215. Lowe, 1999, 34. V. Lowe, ‘Sustainable Development and Unsustainable Arguments’ in Boyle and Freestone (eds.) 1999, 37.



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ideals83 and ‘collective hopes’84 into general principles and thus into binding international law, we shall briefly recollect our findings in chapter 2. We stated that the need to protect and enhance fundamental, natural lifesupporting systems is a core premise of sustainable development. Integration therefore means the simultaneous consideration of economic, environmental, and social factors in decision making by respecting the prerogative of these essential ecological needs. Thus, when ‘balancing’ the components of sustainable development, priority must be given to protecting fundamental, natural life-supporting systems in principle and in practice. This aspect of sustainable development is the most fundamental – the one without which the concept becomes indeterminate and meaningless. How might these findings be translated into a legal context? It becomes clear that sustainable development can only be expressed in a principled way, rather than as a fixed set of rules. The manifold and diverse approaches to legally defining sustainable development should, however, not be taken as indicating that the concept is plagued by semantic indeterminacy, rendering its normative core indecipherable. Rather than dismissing the principle because of its proclaimed vagueness, as some scholars are wont to do,85 the challenge and reward lies in ‘operationalizing’ it or ‘putting it in action’. The breadth of sustainable development – as of all principles – needs to be recognized as an advantage; indeed as a necessary requirement for fulfilling the task of a legal principle as we identified above. Rejecting (or ignoring) its ability to empower international law to meet the challenges facing contemporary and future societies represents a ‘safe track’, hardly a contribution to the development of international law in a changing global order. Embracing the concept, however, as a normative principle might still be considered a novel, innovative step. But faced with international law aiming at regulating qualitatively unprecedented challenges – global climate change being chief among them – legal thinking has already abandoned a number of ineffective and inadequate traditional perceptions.

85 83 84

See Verschuuren, 2003, 25. Pallemaerts, 2003, 275. See for example: M. McCloskey: ‘At best it is a concept and a hope. But its reach is so broad and its hope is so great that it disintegrates when examined closely.’, ‘The Emperor has no Clothes: The Conundrum of Sustainable Development’ (1999) 9:2 Duke Envtl. L. & Pol’y F 154; H. Shue, ‘Ethics, the Environment and the Changing International Order’ (1995) 71:3 International Affairs, 460: ‘The worst ‘fudge’ at the moment, I believe, is the notion of sustainable development. Everyone claims to be in favour of this supposed perfect harmony of environmental protection and economic development, but no one explains concretely how it works’.

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In this context, the conventional dichotomy of lex lata and lex ferenda might slow the development of new collective solutions to global challenges, as it proceeds to ‘safeguard’ the ‘rule of law’. As we explored above, legal principles are ‘correctives’ to the written law.86 They help bridge the gap between the ‘law as it is’ to the ‘law as it ought to be’ by introducing a communal sense of justice and dynamism where it is lacking in the respective norms. As we saw in chapter 2, we can divide sustainable development into a number of core parameters. It is important to show that these core parameters also establish an emerging ‘nucleus’ of a concise understanding of the principle in a legal sense.87 A precise legal definition, however, is neither possible nor desirable, nor is it necessary. It is exactly the remaining ‘penumbra of uncertainty’ around the nucleus of well-established meaning, to borrow once again Hart’s famous metaphor,88 that invites consideration of the concept as a legal principle. Nevertheless, despite its obvious importance, its understanding and integration is one of the ‘least developed topics in international law, legal jurisprudence and scholarship’.89 Rather than despondency and disillusion, however, the situation provides ground for hope and progress. In a judicial context the question is whether the concept of sustainable development has evolved into a principle, i.e. a norm, of international law which can be applied by courts and tribunals. 86



87



88 89



See in this context T. Franck, ‘Non-Treaty Law-Making: When, Where and How?’ in R. Wolfrum and V. Röben (eds.) Developments of International Law in Treaty Making (Berlin: Springer, 2005) 417–435, noting: “Where a matter is referred to an international tribunal with jurisdiction to decide cases in accordance not only with treaty law and custom but also with ‘general principles of law’ the option to enrich the law by ascertaining and employing general principles affords an opportunity for keeping the law from becoming unduly rigid. This is particularly important because the international law-making system as yet offers only a few, and usually cumbersome, processes for rectification’ (435). The WCED report made several early proposals for legal change with regard to sustainable development patterns. Legal changes were suggested to – recognize and respect the reciprocal rights and responsibilities of individuals and states regarding sustainable development; – establish and apply new norms for state and interstate behaviour to achieve sustainable development; – strengthen and extend the application of existing laws and international agreements in support of sustainable development; – to reinforce existing methods and develop new procedures for avoiding and resolving environmental disputes. WCED Report, infra, 330. The report took special pains to enumerate the responsibility of States towards their own citizens and other States to maintain ecosystems and related ecological processes essential for the functioning of the biosphere.’ (ibid). H.L.A Hart, The Concept of Law (Oxford: Clarendon Press, 1961) 120. Weeramantry, 2004, Foreword, ix.



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At this point, it is important to maintain the distinction between a legal rule and a principle. To classify sustainable development as a rule of law would require the definition of a complete and precise content. Classification as a principle, on the other hand, necessarily presupposes a certain degree of indeterminacy. In general, the semantic scope of principles is large, allowing considerable leeway for the discretion of the judge.90 Therefore one should not expect the principle of sustainable development to be defined in practical terms. Like justice or democracy, sustainable development may never be a ‘finished product’. The determination of its substance will likely be a ‘continuing process’, where a final definition is always beyond reach. What can be expected in due time, however, is a stronger normative content.91 The principle may take more tangible form through a series of gradual modifications. In both a horizontal and vertical context, the use and application of the principle implies a crystallization and practical consolidation of its content. As for horizontal determination, the use of the principle in various areas of law, e.g. environmental protection, international trade and competition law and social development agreements, would enable us to grasp its content from different angles. This is important for safeguarding the principle against exclusiveness, i.e. relating to one particular area of law only, and against bias, i.e. protecting one particular interest only. At the same time, it is of utmost importance to pronounce the principle’s fundamental ecoogical core, against which those different approaches can be calibrated. The vertical determination approach increases the principle’s specificity. Starting with its general manifestation in framework legislation (e.g. Articles 2 and 3.3 UNFCCC), specificity grows through its incorporation in successive instruments and decisions (e.g. in the context of the Kyoto Protocol or domestic climate measures). The generality of the principle of sustainable development implies that subsequent use determines its specific content, eventually to the point of generating precise legal rules. Again, it remains of the greatest



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A. Ross and O.S. Andresen, Lærebog i Folkeret: Introduktion til den Almindelige Folkeret i Fredstid, 5th revised ed. (Copenhagen: Nyt Nordisk Forlag, 1976) 107. See H.C. Bugge, Miljøforvaltningsrett (2006a), 65, noting that the status of sustainable development in international law gives it a relevance and weight to be a source of law in national [in this case Norwegian] legal systems even outside the written law. ‘It has direct effect in legal areas which are regulated by acts containing references to the principle but also further through the importance the principle is about to gain as a general principle of public international law.’ … But it remains to be seen which requirements courts are going to set up to set aside an environmentally damaging measure by mere reference to sustainable development as a legal principle. (translation by the author).

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importance to set this process of vertical determination against the principle’s basic meaning. The distinction between principles and rules primarily rests on the specificity and determinacy of the legal consequences of their application.92 While, according to Dworkin, the application of a rule to specific facts leads to a precise consequence, the application of a principle can be seen as a ‘legal proposal’ without necessarily leading to a definite outcome. Rather, a principle provides a general orientation and direction to which positive law must conform.93 De Sadeleer sees principles as ‘flexible instruments of action’, able to be ‘adapted and manipulated to suit the specific situations to which they are being applied, while rules are a great deal more rigid.’94 With regard to the task of determining the legal nature of sustainable development this classification needs to be kept in mind.95 The flexible and guiding character of sustainable development let suppose its principled character rather than a rule. Before a principle can be accepted as law, it must, however, be shown to have a ‘fundamentally norm creating character’.96 Does sustainable development exhibit such a character? Some believe it does not.97 ‘Normativity,’ Lowe says ‘by definition, must express itself in normative terms: it must be possible to phrase a norm in normative language. But it is by no means clear that the components of sustainable development can so be phrased’.98 According to his view, the principle’s indeterminacy therefore precludes an ‘adding up’ to a norm of international law.99 Although he recognises the normative status of the principle and attributes a normative function to it, he denies the principle’s 94 95 92 93

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99 97 98

See for a standard definition of a ’legal rule’: Hart, 1961, 8–12, 27–32, 97 et seq. See Dworkin, 1999, 24, 26 De Sadeleer, 2002, 307. The distinction is rather theoretical and has been subjected to strong criticism. Raz, for example, found it impossible to draw a sharp distinction between rules and principles. The differentiation between principle and rules depends on the degree of abstraction, Raz believes, making the distinction between rules and principles less sharp. See: J. Raz, ‘Legal Principle and the Limits of Law’ (1972) 81:5 Yale L.J. 823–854. See ICJ in North Sea Continental Shelf cases. The Court had in one of these cases to decide whether the equi-distance principle had evolved into a rule of customary law despite its original formulation in a treaty. The ICJ ruled that in order for a conventional rule to make the transition into customary law, ‘it would in the first place be necessary that the provision concerned should, at all events potentially be of a fundamentally norm-creating character such as could be regarded as forming the basis of a general rule of law’ (ICJ Reports1969, 74). Lowe, 1999, 24. Ibid., 26. According to Lowe, “‘sustainable development’ looks like a convenient umbrella term to label a group of congruent norms … Whatever the label might be, it is in itself not a norm;



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capability of generating a norm in its own right (customary norm for that matter).100 Such a view, respectable as it is, embraces too narrow a perception of international law. First, international law is exclusively envisaged from a traditional perspective where the ‘positive’ sources are confined to conventional and customary law rules. General principles of law are not considered. Yet, Lowe continues to attribute normative substance to sustainable development where it exercises a kind of interstitial normativity, ‘pushing and pulling the boundaries of true primary norms when they threaten to overlap or conflict with each other’.101 But such utilization as a ‘metaprinciple’, as Lowe refers to it, is an inherent part of the nature of general principles of law. There is no necessity to create a new ‘species of normativity’102 since such normative function can readily be attributed to the category of general principles of law. Second, general principles not only entertain traditional State actors but are open to a wider forum of norm creators. The narrow view on State conduct and State perception thus needs to be extended to ascertain an opinio juris communis necessary for the evolution of a general principle as elaborated earlier in this chapter. It is becoming a trite proposition that whereas States continue to be principal international actors, a multiplicity of international actors influence international governance in general and international legislation in particular.103 As mentioned in the previous section, the emergence of a general principle needs the support of the general conscience of the international community. One aspect here is the ‘conscious promotion’ of specific issues, like sustainable development, by non-State actors and epistemic communities.104 This broad support for sustainable development is neglected by too a narrow focus on State conduct. Third, in Lowe’s view, the concept’s vagueness and indeterminacy tell against its norm-creating function. Also in this regard it must be contended

102 103 104 100 101

it can be no more than a name for a set of norms. Indeed, it might not even be that” (ibid., 26). Ibid., 30. Ibid., 31. Ibid., 21. See Marong, 2003, 53. See for example: S.J. Toope, ‘Redefining Norms for the 21st Century’ in Y. Le Bouthillier, D. M. McRae and D. Pharand (eds.) Selected Papers in International Law: Contribution of the Canadian Council on International Law (The Hague: Kluwer International, 1999) 197. With regard to epistemic communities see: P. M. Haas, ‘Banning Chlorofluorocarbons: Epistemic Community Effort to Protect the Stratospheric Ozone’ (1992) 46:1 International Organizations, 187–224; P. M. Haas, ‘Do Regimes Matter? Epistemic Communities and Mediterranean Pollution Control’ (1989) 43:4 International Organizations, 377–403.

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that despite the ongoing evolution of the principle’s concise meaning in a variety of circumstances, there is a nucleus of determined scope that allows for sufficient, identifiable normativity, capable of being phrased in a normative language. As mentioned above, sustainable development demands the integration of its various components within the frame set by protecting the resilience of essential ecosystem functions. Lowe’s comments were aimed at Weeramantry for whom sustainable development has normative value. He agrees with Weeramantry on the normative role of the principle, albeit at a somewhat lower or different level. The difference, however, appears to be one of semantics more than anything else. If sustainable development has a normative value and exerts a normative force, it seems implausible to deny it a norm-creating character in this sense. What then is the normative value of the principle of sustainable development? A principle can exert normative force in different respects. It can direct State conduct or it can become relevant in the settlement of disputes, thus, in a judicial sense. In other words, the normative value could be viewed from a ‘legal producer’ or a ‘legal consumer’ perspective. The former would inquire into the principle’s role in national or international legislative processes. Here, the principle is mainly to provide a policy goal for legislative initiatives and changes. In this context sustainable development has been described as a ‘public legitimate expectation that inevitably influences state’s conduct’.105 The question whether it creates specific rights and duties in this regard (‘to develop sustainably’) could arguably answered in the affirmative, but will not be discussed here. The latter perspective of normativity regards the role the principle plays in the application and enforcement of international law that is in the solution of international legal disputes. General principles play a normative role not only with regard to determining State conduct or the design of a policy measure, guiding legislative or regulatory action. Principles also have a normative function if they are perceived as influencing directly or indirectly the outcome of judicial decisions.106 According to a number of scholars, including both Lowe and Weeramantry, the normative force of sustainable development can be exercised in a dis

105 106

Marong, 2003, 43–44. Koskenniemi recognizes a normative role of principles even in their indirect effect on the substance of the decisions through a Court’s background theory, i.e. “when they provide knowledge of the values and goals of the legal order. Hereby they set limiting conditions for the construction of the background theory. They characterize the legal order in a very general fashion allowing the Court to perceive it in a meaningful way.” Koskenniemi, 1985, 381.



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pute settlement context. In this respect there is agreement that in the hands of judges, the principle ‘could operate as some sort of ‘intervening principle’ mediating between the interstices of potentially legal principles’.107 In this sense sustainable development can be understood as ‘a metaprinciple, acting upon other legal rules and principles.’108 In a situation of conflicting primary norms, modifying norms, such as sustainable development, establish the relationship between these norms. Lowe describes it as ‘colouring the understanding of the norms that it modifies’.109 Such modifying norms do not seek to direct the conduct of legal persons – they do not even address these persons. But they can be employed by judges without having to determine their legal status beforehand. In this sense the principle of sustainable development has a normative force. It is a judicial principle, ‘created by judges and under their control’.110 As a modifying norm, sustainable development can be announced by judges in the course of exercising their inherent judicial powers and as part of the reasoning in their judgments’.111 Normative value lies thus in its potential to provide for reconciliation where the application of norms fails to solve a conflict between different priorities, for example the needs of development and the necessity to protect the environment. Weeramantry recognizes that both, the law of development and the law of the environment, are vital and developing areas of law. However, they require the existence of a principle which harmonizes both needs. Such a principle is the principle of sustainable development. 6.4.2 Substantial Function: Integration as Process or Result? The more specific question remains as to the utility and functionality of sustainable development as a judicial principle. In other words, does sustainable development provide a substantial methodology or a mere procedural framework for integration in the settlement of disputes involving conflicting norms? Few scholars have pondered this question, and some of those that have did so with some caution. Lowe, for example, argues that as a goal or policy it [sustainable development] is perfectly adequate to offer some guidance to judges in their approach to establishing priorities and accommodations 109 110 111 107 108

See Marong, 2003, 45. Lowe, 1999, 31. Ibid., 34. Ibid., 35. Ibid., 33.

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between conflicting primary norms … In Gabčikovo, the Court could have managed without it; but it chose instead to refer to the concept and, by doing so, to open the possibility of the development of the concept as a framework for the reconciliation of conflicts between development and environmental protection when they come before it.112

Yet, it remains somewhat obscure how a mere concept or policy goal could possibly determine priority of primary norms without, in his view, having normative force. Other scholars have therefore attempted to elucidate with greater precision the mandate of sustainable development as a judicial reasoning tool, where it can be defined as ‘the procedural and substantive requirements to accommodate, reconcile, or integrate economic growth, human rights and environmental protection, for participatory, equitable improvement in our collective quality of life that can last over the long term’.113 Sustainable development can be seen as introducing its normative elements in the process of judicial reasoning, both in a procedural and a substantive sense. The principle of sustainable development thus attempts a ‘holistic approach’ to the resolution of disputes, allowing parties to a dispute to address the issues at stake in a wider context and requiring tribunals before deciding the case to examine its reasoning in that broader context rather than isolating a narrow legal issue from the mass of other concerns. The normative force that Weeramantry refers to resides in the principle’s inherent substantive capacity to reconcile conflicting norms. This, as mentioned above, in fact is the same kind of normativity that also Lowe recognises: a concept such as sustainable development can be used by a tribunal to modify the application of other norms. It acquires a kind of normativity within the process of judicial decision-making. Here in the context of judicial dispute settlement, the concept can plainly affect the outcome of cases. And where the decisions of the tribunal are regarded as having persuasive authority as statements of law … the application of the concept will inevitably influence the further development of the law … It is in these senses that the concept of sustainable development has real normative force.114

The substantive component of Lowe’s ‘interstitial norm’ is the requirement of reconciliation. Thus, as supposed above, what separates these two prominent scholars is merely a matter of semantics. Despite their different approaches,

112 113 114



Lowe, 1999, 34–35. Cordonier-Segger, ’Governing and Reconciling Economic, Social and Environmental Regimes’ in Cordonier-Segger and Weeramantry (eds.) 2005, 590. Lowe, 1999, 34.



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their underlying ideas about legal normativity of sustainable development seem essentially the same.115 From a doctrinal perspective, it can be concluded that sustainable development does have a normative pull and that it is its integrative character which exerts this force. As elaborated above, the normative force aims at the integration of various norms and respective interests while ensuring the functioning of essential natural processes. These are the core parameters of the principle’s normative substance. 6.4.3 International Jurisprudential Practice The theoretical acknowledgement of the normative force as a principle of integration finds practical support by international courts and tribunals. Sustainable development as a principle of integration had been subject to international judicial consideration in cases involving apparently incompatible economic, social and environmental priorities. It has explicitly been invoked by the International Court of Justice116 and the Appellate Body of the World Trade Organization.117 It has been raised in cases dealt with by the International Tribunal for the Law of the Sea (ITLOS),118 in arbitrations at the Permanent Court of Justice (PCA)119 and may be on its way to inform the awards of the International Centre for Settlement of Investment Disputes (ICSID).120

115 116 117 118

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Marong, 2003, 44. Case Concerning the Gabčikovo-Ngymaros Project (Hungary v. Slovakia) 1997, ICJ Rep. 7. AB in US–Shrimp. See e.g. Southern Bluefin Tuna Cases (New Zealand v. Japan and Australia v. Japan), International Tribunal for the Law of the Sea, Order of August 27, 1999, Request for Provisional Measures, ; the MOX Plant Case (Ireland v. United Kingdom) Provisional Measures (2001), Case 10; and the Case Concerning the Conservation and Sustainable Exploitation of Swordfish Stocks in the South-Eastern Pacific Ocean (Chile v. European Community) The ITLOS Special Chamber in this case suspended proceedings until 1 January 2004, ITLOS, Case No. 7 – ITLOS Order 2001/1 of 15 March 2001, and Order 2003/2. See: . Arbitration Regarding the Iron Rhine (‘IJzeren Rijn’) Railway between the Kingdom of Belgium and the Kingdom of the Netherlands, Arbitral Tribunal of the PCA, The Hague, 24 May 2005. See International Centre for the Settlement of Investment Disputes, online: ICSID . See UNEP, FI and Freshfields, A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional Investment, 2005.

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I shall for reasons of space only review some of these references. It is, however, important to note that in a number of cases which required the reconciliation of competing social, economic, and environmental priorities by international courts or tribunals, a principle-based approach to integration was sought without explicit reference to sustainable development.121 The implicit references, however, are equally indicative of the long-standing acceptance by international courts and tribunals of the normative reconciliatory force now entailed in the principle of sustainable development. In those cases where reference to sustainable development was explicit, sustainable development as a principle of integration was used to substantively determine the outcome of the disputes. In addition to the examination of the US–Shrimp and the Brazil–Retreaded Tyres cases included in our assessment in chapter 5, two further cases shall now be examined in more detail. a) ICJ Case Concerning the Gabčikovo-Nagymaros Project (Hungary v. Slovakia) 1997 This case gave sustainable development for the first time explicit recognition in international judicial considerations. Much has been written on the impact



121

Examples include the ICJ Advisory Opinion on the Legality of the Threat or Use of Nuclear Weapons, July 8 1996, ICJ Rep. 1996, 226; the Case Concerning Nuclear Tests (New Zealand/Australia v. France) ICJ Rep. 1974, 457/253; the Case Concerning Certain Phosphate Lands on Nauru (Nauru v. Australia), ICJ Rep. 1989, 240; the Case Concerning Fisheries Jurisdiction (Spain v. Canada), ICJ Rep. 1998, 432; and still contentious is the Paper Mill on the River Uruguay Case, 2006, which will directly deal with reconciliation of protection of an ecological river system, human rights concerns and developmental interests. See for more information: . Other relevant cases include the following WTO disputes: US–Gasoline (AB Report 1996); EC–Biotech (Panel, Interim Report 2006); EC–Hormones (AB Report 1998); and EC–Asbestos (AB report 2001) which will be analyzed in more detail below in Part II of this thesis. Cases before the UN Human Rights Committee (UNHRC) relate to issues of cultural rights of indigenous peoples regarding the protection of the ‘ecology of the land’ (Ominayak and the Lubicon Lake Band v. Canada [1984], UNHRC, Communication No. 167, reported in 3 IRLR, 26–61); and ‘ecological balance’ (Länsman [Jouni] et al. v. Finland [1995], UNHRC, Communication No. 671, reported in 3 IELR, 115–133). The European Court of Human Rights (ECHR) in Hatton and Others v. United Kingdom (2003) 37 EHRR 28 (Application 36022/97) recognized the necessity of a balance between a human right to a healthy environment and other social and economic rights. For more examples and detailed discussion see A. Boyle, ‘Between Process and Substance: Sustainable Development in the Jurisprudence of International Courts and Tribunals’, in H.C. Bugge and C. Voigt (eds.), Sustainable Development in International and National Law, Europa Law Publishing (2008).



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of the Court’s finding.122 The focus of this brief analysis is therefore confined to the impact of sustainable development as a principle of international law. The case concerned a dispute on the construction of a number of dams on the Danube River. Hungary and Czechoslovakia had in 1977, by treaty, agreed to build and to jointly operate these dams. The project would involve diverting river waters, a matter on which both parties agreed. After an initial construction period, Hungary suspended work on the project in 1989, citing the likelihood of significant environmental harm to the ecological river system and its biological diversity and to the water supply of Budapest. Czechoslovakia, after 1993 Slovakia, proceeded unilaterally with constructing one of the dams (the Gabčikovo power plant) which required the diversion of c. 80 per cent of the shared water into a bypass canal on Slovak territory. In 1992 Hungary purported to terminate the 1977 treaty. When Slovakia disagreed the matter was referred to the ICJ in 1993. In its finding the Court invoked the concept of sustainable development in various ways. First, the Court left the 1977 treaty intact but made reference to sustainable development when deciding on the legal requirements of the 1997 treaty for the future conduct of the Parties. The factual situation had developed since the conclusion of the treaty and environmental protection had emerged as an important consideration. The Court recognized this: Throughout the ages, mankind has, for economic and other reasons, constantly interfered with nature. In the past, this was often done without consideration of the effects upon the environment. Owing to new scientific insights and to the growing awareness of the risk for mankind, – for present and future generations – of pursuit of such interventions at an unconsidered and unabated pace, new norms and standards have been developed, set forth in a great number of instruments during the last two decades. Such new norms have to be taken into consideration, and such new standards given proper weight, not only when States contemplate new activities but also when continuing with activities begun in the past. This need to reconcile economic development with protection of the environment is aptly expressed in the concept of sustainable development.123

The Court, attempting to integrate development and environmental protection, concluded that [f]or the purpose of the present case, this means that the Parties together should look afresh at the effects on the environment of the operation of the Gabčikovo power plant.



122 123

See, for an overview by Sands, 1999, 389. Para. 140.

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In particular they must find a satisfactory solution for the volume of water to be released into the old bed of the Danube and into the side-arms on both sides of the river.124

For the future, the legal effects of the 1977 Treaty would require steps to make the existing lock at Gabčikovo conform to environmental requirements, while abandoning the development of further dams. In its finding, the Court in effect suggested re-writing the initial treaty, which had envisaged a system of locks. Thus, the application of sustainable development not only allowed the consideration of the project’s environmental impact but the substantive impact of these considerations on the treaty-based rights and obligations of the Parties, which resulted in significantly limiting the treaty rights of Slovakia. The Court acknowledged the legal force and function of sustainable development not only in a procedural manner to ‘achieve an accommodation of views and values’ but also in a substantive way.125 Requiring a satisfactory volume of water be released from the channel into the main river clearly indicated the substantive impact of sustainable development. The Court itself did not elaborate on the legal status of sustainable development. It consequently referred to sustainable development as a concept. In effect, however, it applied and accepted the concept as having direct normative force, which could be indicative of the status as a principle. The only indication of what the Court might have had in mind could be read from the Separate Opinion of Judge Weeramantry, discussed above. According to Weeramantry, the principle of sustainable development is ‘a part of modern international law by reason not only of its inescapable logical necessity, but also by reason of its wide and general acceptance by the global community’.126 For him, it is obvious that the principle exerts a harmonising and reconciling function, requiring the balancing of development and environment in order to avoid ‘a state of normative anarchy’.127 Weeramantry recognized that the principle has ‘a significant role to play in the resolution of environmentally related disputes’. Sustainable development, he states, ‘offers an important principle for the resolution of tensions between two established rights’.128 In precisely this sense the principle has been applied in the Gabčikovo case. It demands the judicial function to balance competing interests and to bridge over conflicting rights. The outcome was a compromise that subordinated developmental plans to the ecological requirements of the river and riparian 126 127 128 124 125

Ibid. See, for example, Sands, 1999, 394. ICJ Reports 1997, 95. Ibid., 90. Ibid., 95.



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ecosystem. While the healthiest solution as far as the ecosystem was concerned would have been no dam at all, in the attempt to reconciling developmental considerations with reducing the ecological impact the Court suggested the preservation of the status quo – one dam, not two – and to significantly reduce the volume of deviated water as an appropriate solution in accordance with sustainable development. While at the time of the finding Weeramantry’s view might still have been somewhat novel and unconventional, he certainly contributed to the consolidation of sustainable development’s legal status and its rising in the normative hierarchy that has taken place in the decade after the decision. His separate opinion gave an important impetus not only to countless doctrinal elaborations but it also had repercussions in other judicial findings, both by domestic courts as well as by international tribunals, of which the next case gives an example. b) Arbitration regarding the Iron Rhine (‘IJzeren Rhine’) Railway (Belgium v. Netherlands) 2005 The dispute concerned the reactivation of the historical ‘Iron Rhine’ railway between Belgium and Germany, crossing the territory of the Netherlands. Transit rights were conferred to Belgium in Article XII of the 1839 Treaty of Separation. Since 1991 the line was basically out of use and during the 1990s the Netherlands designated a number of nature reserves in areas on either side of the railway route. Following an Environmental Impact Assessment in 2001, Belgium intended the temporary use of the line with prospect of full reactivation. The parties, however, disagreed on such use and the allocation of costs necessary for meeting environmental requirements set by the Netherlands. Belgium considered the environmental measures imposed by the Netherlands on the reactivation ‘highly expensive’, rendering the exercise of its rights ‘unreasonably difficult’. The Tribunal, recalling the various principles of treaty interpretation, acknowledged integration as promoted by sustainable development to be part of the relevant rules of international law applicable in the relations between the parties, premised on Article 31.3(c) of the Vienna Convention on the Law of Treaties. ‘Today,’ the Tribunal noted, both international and EC law require the integration of appropriate environmental measures in the design and implementation of economic development activities … Importantly, these emerging principles now integrate environmental protection into the development process. Environmental law and the law on development stand not as alternatives but as mutually reinforcing, integral concepts, which require that where

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development may cause significant harm to the environment, there is a duty to prevent, or at least mitigate, such harm.129

By referring to the findings of the ICJ in the Gabčikovo-Nagymaros case – ‘[this] need to reconcile economic development with the protection of the environment is aptly expressed in the concept of sustainable development’ – the Tribunal recognized that [t]his duty, in the opinion of the Tribunal has now become a principle of general international law. This principle applies not only in autonomous activities but also in activities undertaken in the implementation of specific treaties between the Parties.130

In this sense, the Tribunal applied the notions of reconciliation and integration as expressed in the principle of sustainable development to the allocation of costs. The principle demands ‘economic development … to be reconciled with the protection of the environment,’ and in doing so, ‘new norms have to be taken into consideration, including when activities begun in the past are now expanded and upgraded.’131 Accordingly, the Tribunal found that ‘Belgium’s right of transit and the Netherlands’ legitimate environmental concerns are to be, as far as possible, reconciled’.132 ‘Major adaptation and modernisation of an existing railway must today’ the Tribunal stressed, ‘include necessary environmental protection measures as an integral component of such project’.133 In applying the principle of sustainable development the Tribunal made environmental requirements part and parcel of the project. Integration in this context was seen as ‘internalizing’ the environmental costs in the overall costs (and financial risks) of the reactivation project. It made clear that [t]he exercise of Belgium’s right of transit … thus may well necessitate measures by the Netherlands to protect the environment to which Belgium will have to contribute as an integral element of its request. The reactivation of the Iron Rhine railway cannot be viewed in isolation from the environmental protection measures necessitated by the intended use of the railway line. These measures are to be fully integrated into the project and costs.134



129

132 133 134 130 131

Para. 59, with particular reference to Principle 4 of the Rio Declaration: environmental protection shall constitute an integral part of the development process and cannot be considered in isolation from it. Para. 59, emphasis added. Para. 221. Para. 221. Para. 220. Para. 223.



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Therefore, ‘[t]he Belgium obligation to fund the environmental element of the overall costs of the reactivation is integral to its exercise of its right of transit.’135 Although the Treaty of 1839 did not deal with environmental issues at all, the Tribunal, in applying the principle of sustainable development, ‘read into’ the initial treaty text the allocation of environmental costs of the project. The Tribunal recognized that environmental protection is now defining not only the scope of the project but also the treaty-based rights of the Parties and the sovereign rights of the Netherlands. To demand environmental protection was recognized as a sovereign right of the Netherlands and to bear the costs of environmental protection measures a treaty obligation of Belgium, or, in other words, an integral part of its treaty-based transit right. Sustainable development as a legal principle not only demanded therefore the reconciliation of environmental and developmental interests, it also – and most importantly – required the integration of necessary environmental protection, including its costs, into the development project. It thus set up a substantive requirement to carry out such integration. 6.4.4 In Sum These case examples show the use of sustainable development as a legal tool on a principled basis requiring different strands of international law – and different values – to be treated in an integrated manner. The normative force of sustainable development has led to rendering decisions that challenge previous judicial practice or rewrite written treaty provisions. In this context, these cases indicate that ‘sustainable development’ has gained substantive legal weight. 6.5 Legitimacy of Sustainable Development As indicated above, general principles can be legitimized in two ways: by being induced from national legal system or deduced from international legal conscience and logic. In the case of sustainable development as a general legal principle no clear distinction can be made between these two possibilities. It is rather their combination that provides the basis of the principle’s normative force and legitimacy.

135

Para. 226.

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6.5.1 Foro Domestico In chapter 1 we have already given numerous examples of the inclusion of sustainable development in domestic acts, regulations and even national constitutional provisions. Here we now attempt to show that sustainable development has also become a judicial tool applied in various national courts. Whether as a norm embodied in the domestic legislation or as an independent principle, sustainable development is invoked when deciding how best to reconcile conflicting interests. While space does not permit a wide-spread and detailed examination, I would like to review briefly a few representative cases from India, New Zealand and Sri Lanka. In 2000, the Supreme Court of India in Narmada Bachao Andolan v. Union of India when examining the socio-environmental impacts of the Sardar Sarovar Dam on the Narmada River, observed that Sustainable development means what type or extent of development can take place, which can be sustained by nature/ecology with or without mitigation.136

Here, development was associated mainly with material or economic progress. Indian courts have attempted to provide a balanced view of priorities in cases involving environmental matters. As India still is a developing country, certain (minor) ecological sacrifices were deemed necessary, while keeping in mind the common nature of the environment and its criticality to the community. It was recognized that also future generations may benefit from policies and laws that further environmental as well as developmental goals. This ethical mix was termed sustainable development and had also previously been recognized by the Supreme Court in the Taj Trapezium case.137 Previously, the Supreme Court had already recognized the principle of sustainable development in Vallore Citizens Welfare Forum v. Union of India &



136 137

2000 (10) SCC 664 at 727. M.C. Mehta v. Union of India (Taj Trapezium Case) AIR 1997 SC 734, 30.12.1996. The case concerned the preservation of the historical Taj Mahal against massive industrial pollution according to sustainable development. The Court stated: ‘The old concept that development and ecology cannot go together is no longer acceptable. Sustainable development is the answer. The development of industry is essential for the economy of the country, but at the same time the environment and the ecosystems have to be protected. The pollution created as a consequence of development must be commensurate with the carrying capacity of our ecosystems’.



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Others.138 In this case which concerned the environmental and health impacts of pollution caused by tannery effluents, the Court had ‘no hesitation in holding that ‘Sustainable Development’ as a balancing concept between ecology and development has been accepted as part of Customary International Law though its salient features have yet to be finalised by the International Law Jurists’.139 In State of Himachal Pradesh v. Ganesh Wood Products140 the Supreme Court held a government department’s approval to establish forest-based industry to be invalid because ‘it is contrary to public interest involved in preserving forest wealth, maintenance of environment and ecology and considerations of sustainable growth and inter-generational equity’. In Indian Council for Enviro-Legal Action v. Union of India (CRZ Notification case)141 the Court noted that the principle of sustainable development would be violated if the industrial activity had a substantial adverse ecological effect. In case of such effect, the Court saw remedying a damaged environment as part of the process of ‘Sustainable Development’ and as such [the] polluter is liable to pay the cost to the individual [who] suffers as well as the cost of reversing the damaged ecology. Another example is a growing body of jurisprudence on ‘sustainable management’ in New Zealand. New Zealand was one of the first countries to take steps to incorporate sustainability into an enforceable domestic environmental and resource management regime. The 1991 Resource Management Act sets out the promotion of sustainable management as its central purpose in Section 5. (1) The purpose of this Act is to promote the sustainable management of natural and physical resources. (2) In this Act, “sustainable management” means managing the use, development, and protection of natural and physical resources in a way, or at a rate, which enables people and communities to provide for their social, economic, and cultural well-being and for their health and safety while (a) Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations;





138



139



140 141

Vallore Citizens Welfare Forum v. Union of India & Others, Supreme Court of India, JT 1996(7) SC, 375–95. Ibid., para. 10. The Supreme Court saw ‘The Precautionary Principle’ and ‘The Polluter Pay Principle’ as essential features of sustainable development and used it to argue for the inclusion of these two principles into Indian law. AIR 1996 SC 149. AIR 1996, 5 SCC 281.

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(b) Safeguarding the life-supporting capacity of air, water, soil, and ecosystems; and (c) Avoiding, remedying or mitigating any adverse effects of activities on the environment.



‘Sustainable management’ instead of ‘development’ was deliberately adopted in order to narrow the issues to be integrated. In so doing, issues like social inequities and redistribution of wealth were excluded.142 The definition of sustainable management contemplates communities managing resources to provide their socio-economic and cultural well-being, health and safety, while preserving the ecological integrity of the environment.143 The management function is thus qualified by a strong ecological requirement, incorporating a responsibility to sustain the potential resources to meet the needs of future generations; to safeguard the present life-supporting capacity of the biosphere; and to avoid, remedy, or mitigate adverse effects on the environment.144 The qualification of an ‘ecological bottom line’ in s 5(2) that can override management matters within the process of integrated environmental management has been recognized in a number of decisions of the New Zealand Environment Court.145



142



143



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Report of the Review Group on the Resource Management Bill (1991), 6, para. 3.3, referring inter alia to the WCED. Cases include Aqua Marine Limited v. Southland Regional Council; C-126/97, recently endorsed in; North Shore City Council v. Auckland Regional Council (1997) NZRMA 59, 93; and the High Court in NZ Rail Limited v. Marlborough District Council (1994) NZRMA 70 HC. D. Grinlinton, ‘Contemporary Environmental Law in New Zealand’ in Bosselmann and Grinlinton (eds.) 2002, 27. NZ Rail Limited v. Marlborough District Council (1993) 2 NZRMA 470; Marlborough District Council v. Southern Ocean Seafood Ltd (1995) NZRMA 227; Independent News v. Manukau City Council, Environment Court Decision A103/2003 and Ngati Rangi Trust v. Manuwatu-Wanganui Regional Council, Environment Court Decision A67/2004; Genesis Power Limited v. Franklin District Council, Environment Court Decision No. A148/2005. In this case, the Court applied sustainable management as entailed in sec. 5 of the NZ RMA to balance the interests in supplying renewable energy (primarily based on climate change concerns) by developing a wind park against landscape and amenity values to the benefit of the former. The court noted ‘[S]ection 5 concerns are to ensure present people and communities do not, in pursuit of their wellbeing, destroy existing stock of natural and physical resources so as to improperly deprive future generations of the ability to meet their needs. Climate change is a silent but insidious threat that scientists tell us threatens to improperly deprive future generations of their ability to meet their needs.’, para. 227.



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A further example is provided by Sri Lankan jurisprudence. The Supreme Court in the Eppawala Phosphate Mining case146 made specific reference to the principle of sustainable development and Sri Lanka’s environmental obligations under international law. This case involved a proposal to contract out the phosphate mine in Eppawala to a foreign (US) company. The petitioners alleged that the terms of the agreement with the company were not conducive to Sri Lanka and that the project would cause significant environmental damage (no EIA had been prepared). In a scholarly judgment, Justice Amerasinghe held that the proposed agreement to exploit the Eppawala mine should be considered in light of the principles embodied in the Stockholm Declaration on the Human Environment of 1972 and the Rio Declaration on Environment and Development of 1992 (103). Justice Amerasinghe was of the view that authorities must pay due regard to the general principle encapsulated in the phrase sustainable development, and that human development and utilization of natural resources must take place in a sustainable manner. Referring to the definition of sustainable development put forward by the WCED, Justice Amerasinghe pointed out that some of the elements encompassed by the principle of sustainable development were of special significance to this case: [f]irst, the conservation of natural resources for the benefit of future generations – the principle of inter-generational equity; second, the exploration of natural resources in a manner which is ‘sustainable’, or ‘prudent’ – the principle of sustainable use; the integration of environmental considerations into economic and other development plans, programmes and projects – the principle of integration of environment and development needs.

Accordingly, the Court ordered that no contract could be entered into by the respondents to exploit the Eppawala deposit without a comprehensive exploration and study and the public disclosure of the results of such exploration and study. The project proponent was also directed to obtain approval from the Central Environmental Authority in accordance with domestic law. In an earlier case Justice Amerasinghe had stated accordingly, ‘[i]n my view, the human development paradigm needs to be placed within the context of our finite environment, so as to ensure the future sustainability of the mineral



146

Bulankulama v. Ministry of Indus. Dev., Sup. Ct. Application No 884/99 (FR) (Sri Lanka 2000), available at .

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resources and of the water and soil conservation ecosystems of the Eppawala region, and of the North Central Province and Sri Lanka in general.’147 Commenting on this case, Atapattu, a renowned legal scholar, describes the practical impact of the Court’s finding. Thus, at least as far as Sri Lanka is concerned, sustainable development has attained legal status as a result of its endorsement by the Supreme Court. As such, development projects and activities undertaken contrary to the principle of sustainable development will run the risk of being struck down by the Court as illegal.148

These few examples support Nanda and Prings’s statement that: ‘In the absence of clear cut legal standards to decide an international case, the trend is for national courts to step in and apply international “soft law”, provided it has sufficient state backing.’149 However, the case to be decided does not necessarily have to be an ‘international’ case. Domestic cases call for the application of international norms via certain general clausula as well. Moreover, if the use by national courts of a general principle like sustainable development that is transnational in scope is based on a deduction of this principle from international recognition, the same principle when applied by an international court or tribunal would not need to be induced again from those domestic systems. Thus, transnational general principles present us with a kind of ‘chicken or egg’150 dilemma. To either induce them from domestic law or deduce them from international legal standards would be unsatisfactory because it might be difficult for both systems to comprehend fully the nature of the principle.

147



148



149



150

M.M. Ariyaratna and five others v. M.K. Sashidaran, 1(4) S. Asian Envt’L L. Rep., 151 (1994). S. Atapattu, ‘Sustainable Development, Myth or Reality?: A Survey of Sustainable Development under International Law and Sri Lankan Law’ (2002) 14:2 Georgt. Int’l Environm. L. Rev., 296. P. Nanda and G. Pring, International Environmental Law & Policy for the 21st Century, (Ardsley, N.Y.: Transnational Publishers, 2003) 15 with further reference to G. Pring, J. Otto and K. Natio, ‘Trends in International Environmental Law Affecting the Minerals Industry (Part II)’ (1999) 17:2 J. Energy Nat. Resources L., 163. The dilemma of causality commonly posed as, “Which came first, the chicken or the egg?” is found earliest in Plutarch’s Moralia, in the book entitled “Table Talk,” a series of arguments based on questions posed to various people drinking around a table. Under the section entitled, “Whether the hen or the egg came first,” the discussion is introduced in such a way as to suggest that the origin of the dilemma was even older: “the problem about the egg and the hen, which of them came first, was dragged into our talk, a difficult problem which gives investigators much trouble. And Sulla my comrade said that with a small problem, as with a tool, we were rocking loose a great and heavy one, that of the creation of the world.”



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Nor would it be correct to require an order of succession. The development of transnational principles often happens in ascending and descending, but parallel, directions. Deriving arguments from both directions might be more accurate if less concordant with traditional methodology. The principle of sustainable development is neither fully international, nor is it based on domestic law only. It is both. 6.5.2 International Legal Conscience Further, the reflection of sustainable development in the legal conscience of the international community is an important indicator for its evolution into a general principle of law. It must suffice here to refer to chapter 1 where we observed that the objective of sustainable development is part and parcel, sometimes even purpose, of a large number of binding and non-binding international texts and documents. In uncountable ways, States, IGOs, NGOs, business associations, even multinational corporations have made reference to sustainable development. Global education programmes, e.g. the UN Decade, and the Earth Charter, national legislation, political declarations and administrative guidelines incorporate the objective of sustainable development. Global Summits have elaborated on sustainable development. Sustainable development as an integrationist principle has been endorsed by nearly all areas of society: politics, law, ethics, economics, corporate responsibility, communication, education, agriculture, architecture etc. From our observations in chapter 1 it can thus be concluded that the principle of sustainable development has become part of the ‘universal public opinion’, opinio juris communis. 6.6 The Role of the Judiciary in Promoting Sustainable Development After having provided arguments for the legal relevance of sustainable development as a general principle, it is timely to ask what role it plays in the settlement of a dispute. The rule of law is pre-eminent to the achievement of global sustainable development. Sustainable development needs to be promoted through a variety of media and channels, i.e. education, political decision making, ethics, research etc. – but also through law. In this context Weeramantry states that ‘judges

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being such an important part of the legal establishment must necessarily be involved in this – and sensitively involved.’151 The judiciary assumes a particular responsibility to ensure the balanced hearing of powerful and not so powerful or even voiceless interests, i.e. where the interests of generations unborn, ecological systems or the poor are involved. The principle of sustainable development will in these cases be a working tool for the judiciary. In this sense, sustainable development as a legal principle awaits the craftsmanship of concerned and serious judges to shape it into a practical means of balancing conflicting interests in a sustainable manner. The practical implications of the principle will depend on the case in question and develop on a case-by-case basis. But judges can elevate the standing of the principle ‘by moving it up the hierarchy of legal norms and principles, thus preventing it from being lightly brushed aside by political, commercial or other interests that seek to advance “development” whatever the cost.’152 Weeramantry notes in this context: Sustainable development is yet an infant concept, at least so far as modern law is concerned. As an infant concept it needs to be fostered and developed. Treaties and legislation cannot anticipate the nuances of the myriad practical problems that could arise. When cases involving sustainable development arise the judiciary will find itself called upon to apply a broad general principle, the detailed implications of which have not yet been considered … In short the judges are at the cutting edge of the development of this concept and both domestically and internationally will need to show imagination, initiative and vision in handling a matter so deeply fraught with implications for the global future.153

There is still much work to be done on questions of doctrinal construction. Sustainable development is the conceptual framework that can be applied by courts and tribunals in situations where various interests intersect. In applying the principle, the different interests (and respective norms) need to be seen as equal and integral parts. The reconciliation of interests then needs to be set against the absolute limit of non-interference with certain fundamental ecological functions (that need to be protected ‘at all costs’). In this sense, sustainable development as a legal principle of integration has been and will be applied by courts and tribunals. Good jurisprudence will be essential to its more frequent use. The judiciary is a key player in securing the construction of a mechanism that ensures the reconciliation of various interests under the framework of sustainability. 153 151 152

Weeramantry and Cordonier-Segger (eds.) 2005, 444. Ibid., 445. Ibid.



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The application of the principle might take a number of forms, from filling ‘white spots’ in the applicable law, enabling treaty interpretations that take account of this development in international, national and transnational law to, as Lowe suggested, ‘rewrit[ing], rather than strik[ing] down, a bargain struck by the parties that is shown to lead to unsustainable development’154 An overview over the potential use of the concept by judges is found by Frerichs: Dennoch sprechen einige Argumente für die rechtliche Verwendung des Konzepts nachhaltiger Entwicklung, nämlich als Metanorm für den gerichtlichen Gebrauch. Gemeint sind damit Normen zweiter Ordnung, die den Richtern Argumentations- und Entscheidungshilfen in solchen Fällen bieten, in denen (gewohnheitsrechtliche und/ oder vertragliche) Normen erster Ordnung konfligieren, also Abwägungsentscheidungen zu treffen sind. Auch wo das Leitbild nachhaltiger Entwicklung noch nicht kodifiziert ist, kann es über die Urteilsbegründungen in die Rechtsprechung einfließen und normative Kraft und institutionelle Wirkung entfalten.155

It is this function of the principle of sustainable development that makes it currently one of the most vibrant elements of both international and domestic law. A coherent, normative theory of sustainable development which combines arguments of sociological, governance, democratic, economic and moral theories could elicit the role of judges as key figures in the transformation process of international societies. Judges and arbitrators can – under certain circumstances – better defend long-term, common and global interests against the short-sighted sovereign (and often economic) interests often pursued by States in treaty negotiations. By developing the law the judiciary could carry out punctual legislative functions and replace ‘non-sustainable’ law.156 Judges thereby might become guarantors of sustainable development.157 It is therefore important to examine – as we shall endeavour in Part III – the role the principle can play in the practice of dispute settlement and adjudica

154 155



156



157

Lowe, 1999, 37. S. Frerichs, Nachhaltige Entwicklung als Forschungsziel – Fragen an die Soziologie der Wissenschaft (Trier: Zentrums für europäische Studien, Universität Trier, 2002). S. Frerichs, Die rechtliche Dimension einer nachhaltigen Entwicklung in der Europäischen Union (Bamberg: Otto-Friedrich-Universität Bamberg, 2003) 13–14. With regard to the responsibilities of the European Court of Justice she suggests that ‘[w]enn dem Gemeinschaftsgesetzgeber … keine generelle Untätigkeit vorgeworfen werden kann, jedoch eine manglende (sekundärrechtliche) Operationalisierung des Nachhaltigkeitsziels, könnte der EuGH somit zum regulativen Einschreiten legitimiert sein’ (ibid., 14). See also Decleris, 2000, 9–10, 38–48, 69–79. He notes: ‘But for public law to become sustainable, as it must, legal methods must become sustainable first. The process will begin with court decisions, which are a sensitive index of the changes taking place’ (ibid. 9).

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tion. In other words, how sustainable development as a legal principle would affect findings of, for example, those charged with interpreting and applying treaties on the liberalization of international trade. 6.7 Summary and Concluding Remarks The discussions of this chapter can be briefly summarized as follows: Sustainable development is a principle with normative content which is defined by the integration of present and future economic, social and environmental interests within the limits set by certain essential ecological functions. Sustainable development has been recognized both by international and national legislatures and jurisprudential practice. This general recognition can be understood as forming an opinio juris communis. The classification of sustainable development as a general principle of law is legitimized by its widespread use in many national legal systems and in international law, and the jurisprudence of international courts and tribunals. Sustainable development has become a truly transnational principle. Limiting the search for sustainable development as a general principle to domestic systems would therefore only retrieve fragments of its content. Domestic and international legal processes have become so intertwined that it is no longer possible to distinguish certain concepts or principles as local, domestic or global in nature and scope. ‘[I]s the objective of sustainable development fundamentally national or international?’ asks the distinguished international law scholar Harold Koh, and answers in the affirmative in both directions: the question is not really worth asking any more, the answer is so obviously ‘both’.158 What is sustainable development then? Is it an objective, a concept, a process, a principle, or all of those things?159 This chapter has argued for its classification as a general principle of law. Its normative force, broad scope and support in the international community are indicative of its principled character and make it difficult to argue otherwise. However, it can be expected that ‘[a]nswering the question – giving sustainability definition, content, and limits – will be a major preoccupation of international law, lawmakers, and institutions deep into the 21st century.’160

160 158 159

Ibid. Sands, 1994, 305. Nanda and Pring, 2003, 23.

Part II Conflicts Between Climate Measures and WTO Law

Introduction The entering into force of the Kyoto Protocol to the UN Framework Convention on Climate Change on February 16, 2005 is the most significant development so far since the Protocol was adopted in 1997. The Protocols commitment period started on 1 January 2008 and will run until 31 December 2012. From the point of novelty alone, it appears particularly opportune to explore the relationship between international law on climate change and other areas of international law, such as world trade law. Still, the specific case-example of the relationship between WTO rules and climate change law is chosen for two further reasons. First, both areas of law – as explored in Part I – are directly linked to sustainable development. An assessment of the interaction of the two regimes based on this ‘common denominator’ promises new insights into the principle’s content as well as into the relationship between two different bodies of international law. As a consequence, recourse to the principle of sustainable development might help to answer the contentious question concerning the relationship of WTO law to other international agreements, such as the UNFCCC and the Kyoto Protocol as multilateral environmental agreements (MEAs). Second, the potential for conflicts between climate measures and trade rules is considerable. The measures envisaged under the UNFCCC and the KP to mitigate climate change will go to the very heart of contemporary human activity and life styles by, for example, targeting industrial processes based on fossil fuel combustion, energy intensive production and consumption practices, deforestation and agricultural practices, and transport and travel modalities. The Parties included in Annex B of the Protocol have committed themselves to quantified emissions reduction and limitation targets. They are now poised to adopt national policies and measures (PAMs) that limit their anthropogenic emissions of greenhouse gases. The Kyoto Protocol envisages PAMs such as the enhancement of energy efficiency, development and increased use of new

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or renewable forms of energy, CO2 sequestration technologies and advancing innovative environmentally sound technologies and reforms in relevant market sectors. (Article 2.1(a) i, iv, vi). The socio-economic costs of these measures may be significant, compared to other multilateral environmental agreements. Indeed, ‘no other MEA … ha[s] the potential to impact so many sectors of the economy, so many economic interests and such high volumes of trade in products and services, as does the climate change regime’.1 In order to limit costs of implementation and compliance Parties can make use of economic instruments, ranging from market-based instruments such as taxes to the creation of artificial markets for tradable emission units. Not surprisingly, such economic measures might have a considerable impact on trade of both goods and services, presumably creating a complex and dynamic interaction with trade rules of the WTO and requiring extensive state intervention in economic decision making.2 They may also remove the apparent reluctance of WTO Members to challenge trade measures in MEAs, and increase the likelihood of climate measures based on the Kyoto Protocol being brought before a WTO dispute settlement panel. The two areas of concern are thoroughly interconnected. On the factual side, lowering barriers for trade in products and services and opening markets will stimulate global industrial activities and economic growth, requiring an ever expanding international network of traffic and transportation facilities and thus significantly boosting GHG emissions.3 On the economic side, climate policies are likely to affect economic competitiveness by raising costs of energy and energy-intensive goods, industrial production processes, transportation etc., with likely ramifications for competitiveness.4 In the legal realm, 3 1 2



4

Werksman, 1999, 252. See Werksman and Santoro, 1998, 59. See G. P. Peters and E.G. Hertwich, ‘CO2 Embodied in International Trade with Implications for Global Climate’, Vol. 42, No. 5, Environmental Science & Technology 9 (2008) 1401–1407. This study concludes that international trade embodies approximately twenty percent of global carbon dioxide emissions. See for more general issues of regime inter-linkages, both conflicting and synergic, between climate and trade law: H. van Asselt, J. Gupta and F. Biermann, ‘Advancing the Climate Agenda: Exploring Material and Institutional Linkages to Develop a Menu of Policy Options’ (2005) 14:3 RECIEL, 255–264; O. Schram Stokke, ‘Trade Measures, WTO and Climate Compliance: The Interplay of International Regimes’ in O. Schram Stokke, J. Hovi and G. Ulfstein, Implementing the Climate Regime. International Compliance (London, Sterling V.A., Earthscan, 2005) 147–164; M. Doelle, ‘Climate Change and the WTO: Opportunities to Motivate State Action on Climate Change through the World Trade Organization’ (2004) 13:1 RECIEL, 85–102; and A.C. Warnock, Can the WTO help to Achieve the Goals of the Climate Change Regime?, Master Thesis, University of Auckland, 2004 (on file with the author).



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rules adopted under the international climate regime and their implementation into national regulation may come into conflict with the rules governing international trade if they entail discriminatory bias and/or the capacity to distort free trade. Analysts suggest that climate measures could distort free trade by





5

6



(i) providing comparative advantages to national companies by, e.g., granting subsidies or border tax exemptions or making other kinds of adjustments to taxes or grant other kinds of financial contributions, that are generally prohibited under the Agreement on Subsidies and Countervailing Measures (SCM);5 (ii) favouring services or goods from specific countries, in particular those that have commitments under the Kyoto Protocol and are in compliance, thereby potentially violating the Most-Favoured-Nation rule of Article I GATT, Art II GATS;6 See on the issue of subsidies: M. Lodefalk and M. Storey, Climate Measures and WTO Rules on Subsidies (2005) 39:1 Journal of World Trade, 23–44. For concerns about taxation and border adjustments see: G. Goh, ‘The World Trade Organization, Kyoto and Energy Tax Adjustments at the Border’ (2004) 38:3 Journal of World Trade, 395–423; F Z.X. Zhang, ‘Open Trade with the United States Without Compromising Canada’s Ability to Comply with its Kyoto Target’ (2004) 38:1, Journal of World Trade, 155–182; F. Biermann and R. Blohm, Implementing the Kyoto Protocol Without the United States. The Strategic Role of Energy Tax Adjustments at the Border, Global Governance Working Paper Nr. 5, 2003; J.A. Hoerner and F. Muller, Carbon Taxes for Climate Protection in a Competitive World, 1996. On the relationship between taxes for environmental purposes and rules of GATT 1994, see: O.K. Fauchald, Environmental Taxes and Trade Discrimination, 1998. For an overview of normative interfaces between climate rules and the WTO see: R. G. Tarasofsky, The Kyoto Protocol and the WTO, Royal Institute of International Affairs, 2005; A. Green, ‘Climate Change, Regulatory Policy and the WTO: How Constraining are Trade Rules?’ (2005) 8:1, Journal of International Economic Law, 143–189; J. Frankel, ‘Climate and Trade: Links between the Kyoto Protocol and the WTO’ (2005) 47:7 Environment 7–20; Z.X. Zhang and L. Assunção, ‘Domestic Climate Policies and the WTO’ (2004) 27 The World Economy, 359–386; E. Denters, ‘Free Riders, Claims and Countermeasures in Combating Climate Change’ in F. Weiss and N. Schrijver (eds.), International Law and Sustainable Development, 2004, 231–250; National Board of Trade, Sweden, Climate and Trade Rules – Harmony or Conflict?, Stockholm, 2004; T. Brewer, The WTO and the Kyoto Protocol: Interaction Issues (2004) 4 Climate Policy, 3–12; D. Grimeaud, ‘To Design and Implement Climate Change Measures and the Need to Strike a Balance between Environmental Protection and International Trade Law’ in M. Faure, J. Gupta and A. Nantjes (eds.) Climate Change and the Kyoto Protocol, 2003; S. Charnovitz, Trade and Climate: Potential Conflicts and Synergies, in Beyond Kyoto: Advancing the International Effort against Climate Change, Pew Center on Global Climate Change, December 2003; O. Kuik, R.S. Tol and D.-E. Grimeaud, ‘Linkages between the Climate Change Regime and the International Trade Regime’ in: E.C. van Ierland, J. Gupta and M.T.J. Kok, Issues in International Climate Policy, Cheltenham, Northampton, Edward

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(iii) restricting access to markets by imposing regulations and standards with respect to the carbon content of a certain product, e.g. natural gas or oil, or the amount of greenhouse gases emitted during the production process, e.g. aluminium, cement or electricity generation based on burning of fossil fuels or based on renewable energy sources, to ensure and enhance the development and use of renewable forms of energy, according to Article 2 I (a) KP); (iv) imposing conditions and limitations on investment finance which intrude on international investment agreements, such as Bilateral Investment Treaties (BITs) or the investment-related agreements under the WTO, that is the Agreement on Trade-Related Investment Measures, (TRIM) and the General Agreement on Trade in Services (GATS);7 Elgar, 2003, 201–222; S. Shin, Kyoto-Protocol, Wettbewerb und WTO-Handelssystem, HWWA Discussion Paper 215, 2003; T. L. Brewer, International Trade, the WTO and International Climate Arrangements, Final Report of a Study prepared for Environmental Studies Group, Japan, International Forum for Environmental Issues, Tokyo, 2003; T. Brewer, ‘The Trade Regime and the Climate Regime: Institutional Evolution and Adaptation’ (2003) 3 Climate Policy, 329–341; S. Murase, WTO/GATT and MEAS: The Kyoto Protocol and Beyond, 2003, available at ; H. Loose, ‘Kyoto Protocol: Trade Versus the Environment’ (2001) 12:1 Energy and Environment, 23–28; M. Buck and R. Verheyen, International Trade Law and Climate Change – A Positive Way Forward, FES-Analyse Ökologische Marktwirtschaft, Friedrich-Ebert-Siftung, July 2001; W.B. Chambers, ‘International Trade Law and the Kyoto Protocol: Potential Incompatibilities’ in W.B. Chambers (ed.), InterLinkages. The Kyoto Protocol and the International Trade and Investment Regimes, UNU Policy Perspectives Nr. 5, Tokyo, New York, Paris, United Nations University Press, 2001, 87–118; G.P. Sampson, ‘WTO Rules and Climate Change: The Need for Policy Coherence?’ in W.B. Chambers (ed.) Inter-Linkages. The Kyoto Protocol and the International Trade and Investment Regimes, UNU Policy Perspectives Nr. 5, Tokyo, New York, Paris, United Nations University Press, 2001, 69–86; Brack 2000; T. Voon, ‘Sizing up the WTO: Trade-Environment Conflict and the Kyoto Protocol’ (2000) 10:1 J. Transnational Law & Policy, 10:1, 71–108; and G. Loibl, ‘Trade and Environment – A Difficult Relationship. New Approaches and Trends: The Kyoto Protocol and Beyond’ in G. Hafner et al., Liber Amicorum for Professor Ignaz Seidl-Hohenvelder in Honour of his 80th Birthday, Kluwer International, 1998. See L. Assunção and B. Garcia, Trade and Investment Implications of the Kyoto Protocol, 2003, UNCTAD; J. Werksman, K. Baumert and N. K. Dubash, ‘Will International Investment Rules Obstruct Climate Protection Policies?’ (2003) 3 International Environmental Agreements: Politics, Law and Economics, 59–85; M.A. Aslam et al., Greenhouse Gas Market Perspectives. Trade and Investment Implications of the Climate Change Regime, United Nations, New York, Geneva, 2001; and J. Werksman and C. Santoro, ‘Investing in Sustainable Development: The Potential Interaction between the Kyoto Protocol and the Multilateral Agreement on Investment’ in W.B. Chambers (ed.) Inter-Linkages. The Kyoto Protocol and the International Trade and Investment Regimes, UNU Policy Perspectives Nr. 5, Tokyo, New York, Paris, United Nations University Press, 2001, 191–214.



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(v) limiting access to the artificial market created by flexibility mechanisms (Emission Trading Article 17, Clean Development Mechanism Article 12 and Joint Implementation Article 6 KP), providing financial contributions under this market, or affecting the existing trade with goods, e.g. energy products, or services which might potentially be conflicting with provisions of the GATS, GATT, SCM Agreement.8

Despite these wide-ranging implications, it could be argued that no actual conflict exists because no trade dispute has arisen so far. Such a pragmatic view would, however, err on the side of short-sightedness. Member States to the Kyoto Protocol with reduction commitments are only just starting to implement their obligations. The short period since the Protocol entered into force could be one reason for a – so far – conflict-free relationship. This situation could change quickly. The first commitment period just started, discussions about stronger reduction obligations in the second



8

See, for example, J. Reinaud, Industrial Competitiveness under the European Union Emissions Trading Scheme, IEA Information Paper, February 2005; S. Jinnah, ‘Emissions Trading under the Kyoto Protocol: NAFTA and WTO Concerns’ (2003) 15 Georgetown International Environmental Law Review, 709–761; Z. X. Zhang, ‘Greenhouse-Gas Emissions Trading and the World Trading System’ in W.B. Chambers (ed.) Inter-Linkages. The Kyoto Protocol and the International Trade and Investment Regimes, UNU Policy Perspectives No. 5, Tokyo, New York, Paris, United Nations University Press, 2001, 119–152; J. Werksman, ‘Greenhouse-Gas Emissions Trading and the WTO’ in W.B. Chambers (ed.) Inter-Linkages. The Kyoto Protocol and the International Trade and Investment Regimes, UNU Policy Perspectives Nr. 5, Tokyo, New York, Paris, United Nations University Press, 2001, 153–190; A. Petsonk, ‘The Kyoto Protocol and the WTO: Integrating Greenhouse Gas Emission Allowances in the Global Marketplace’ (1999–2000) 10 Duke Environmental Law and Policy Forum, 185–220; J.A. Kim, Potential Limits Imposed by the Multilateral Trading System in Implementing Flexibility Mechanisms, CSERGE Working Paper GEC 2000–19, 2000, U. Springer, ‘GATS and the Kyoto Mechanism: Open Markets for Climate Change Mitigation Services?’ (2000) 55:1 Außenwirtschaft, 65–84; R. Nordhaus et al., ‘International Emissions Trading Rules as a Compliance Tool: What is Necessary, Effective, and Workable?’, 30 ELR 2000, 10837–10855; and A. Petsonk, D. Dudek and J. Goffman, Market Mechanisms and Global Climate Change. An Analysis of Policy Instruments, Pew Center on Global Climate Change, 1998. With special emphasis on the CDM: K.A. Baumert, N. Kete, Ch. Figueres, Designing the Clean Development Mechanism to Meet the Needs of a Broad Range of Interests, Climate Notes, World Resources Institute, 2000, available at ; G. Wiser, ‘Frontiers in Trade: The Clean Development Mechanism and the General Agreement on Trade in Services’ (2002) 2:3,4 International Journal for Global Environmental Issues, 288–309; J. Werksman and J. Levefere, ‘WTO Issues Raised by the Design of an EC Emissions Trading System’, Scoping paper Nr. 3, FIELD, 1999, and J. Werksman, ‘Greenhouse Gas Emissions Trading and the WTO’ (1999) 8:3 RECIEL, 251–64.

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commitment period have already commenced,9 and a few major-polluting countries are strongly resisting cooperation on climate protection based on quantified emission reduction goals. Given the significant economic implications of climate measures, the pressure on developed countries to ‘take the lead’ in climate mitigation and the vast development and density of both climate and trade law rules, the appearance of (normative) conflicts with trade law imperatives is likely to be only a matter of time. It is therefore timely and necessary to consider whether the architecture of the WTO is adequate to deal with conflicts of this nature. Concerns relate to how far unresolved issues between the two sets of rules are likely to affect international climate negotiations and the implementation of climate measures and produce a ‘political chill’ of WTO incompatibility. This situation unnecessarily exacerbates tensions between WTO Members that are also Parties to the Kyoto Protocol and those that are not. In this part of the book, I shall investigate some points of interaction between climate measures and trade rules. My objective is twofold. First, I want to demonstrate the existence of conflicting overlaps between climate measures and trade norms. Second, I want to establish a particular scenario of normative conflict which in part III will be used as a specific case-example of how the principle of sustainable development can be utilized as a jurisprudential technique to solve such conflict. My claim is that even where ‘traditional’ WTO law and existing jurisprudence indicate that a climate measure violates substantive WTO rules, this is not necessarily the end of the legal quest. Further legal arguments based on the application of general principles, such as the principle of sustainable development, are available that provide for an adequate solution where common interests are at stake. In the following, I will first introduce theoretical approaches to defining a conflict of substantive law (chapters 7 and 8), then examining some potential conflicts between WTO rules and regulation in pursuance of the international climate regime (chapter 9 – international emissions trading and chapter 10 – CDM), before pinning down some concluding remarks (chapter 11).



9

See Decision –/CMP1 Consideration of commitments for subsequent periods for Parties included in Annex I to the Convention under Article 3, paragraph 9, of the Kyoto Protocol, and Decision –/CP.11 Dialogue on long-term cooperative action to address climate change by enhancing implementation of the Convention, at COP11/MOP1, Montreal 2005.

Chapter 7

Fragmentation of International Law: the Origin of Normative Conflicts

7.1 Introduction Public international law starts in pieces, usually without the benefit of a final ‘plan’. It consists of numerous separate treaties, customary norms and general principles. It is ‘decentralized’ in that it is characterized by not having a central legislator or a single court. States are the creators of international law and at the same time the main subjects of international legislation. Generally, international law is primarily a law of cooperation, not subordination.1 States as creators of international law are considered to be equals, though de facto power imbalances exist. The creation of primary international law in the form of treaties depends basically on the consent of States, either explicit or implicit.2 In general, any treaty law created by any given number of States and concerning any given object has a priori the same legal value.3 The absence of any de jure hierarchy of treaty norms (with the exception of jus cogens4



1



2 3



4

C. Rousseau, ‘De la Compatibilité des normes juridiques contradictories dans l’ordre international’, 39 Revue Générale de Droit International Public 133, 150–151 (1932) (“Le droit des gens est un droit de coordination et non de subordination. L’accord des sujets de droit y est la seule source de droit et les norms qui résultent det cet accord de volontés sont d’égale valeur juridique.”). See Brownlie, 2003, 16. See e.g. M.E. Villiger, Customary International Law and Treaties, 1997, para. 85; A. McNair, The Law of Treaties; 1961, M. Akehurst, ‘The Hierarchy of the Sources of International Law’, 1974–75, Brit. Y.B. Int’l L. 273, 274. Pursuant to Arts. 53, 64 of the Vienna Convention on the Law of Treaties (1155 UNTS 331), rules of jus cogens, which are part of general international law (some fundamental principles of general international law), are non-derogatory and prevail over all past and future treaty norms, see Brownlie, 2003, 19, and 488 et seq. For a different opinion see: P. Weil, ‘Towards Relative Normativity in International Law’ (1983) 77 AJIL 413.

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and, arguably, some Human Rights norms5) means that in abstracto any bior multilateral treaty norm concluded to pursue, for example, environmental protection, has the same legal status as any norm created aiming at achieving other purposes and objectives. Different States or groups of States, sometimes gather in some interestspecific institution such as WTO or World Labour Organization or World Intellectual Property Organization to pursue particular interests. Treaties therefore cover an increasing variety of bi- and multilateral matters. As a result, a number of international regimes exist that claim to be defined only by their own, special legal norms, principles, rules, decision-making processes, and means of enforcement; so-called ‘self-contained regimes’.6 On the other hand, proliferation of normative rules and tribunals is a necessary development in international law, reflecting the diverse political agendas of the nation-states and the rapidly transforming international system. It is increasingly accepted that ‘political communities have become more heterogeneous, their boundaries much more porous, than assumed by the received images of sovereignty and the international order, and that the norms they express are fragmentary, [and] discontinuous’.7 The proliferation of tribunals and fragmented normative structures are recognized as the deliberate effects of politics and should not be mistaken as failures or side effects.8 Fragmentation is thus in itself not a negative phenomenon. It is to a certain extent a necessity if all of the different interests and areas dealt with in international law are to be given due attention; it might even be international law’s best justification.9 Still, fragmentation remains a contentious issue. The ongoing debate and results of an earlier feasibility study have led the International Law Commission (ILC) to include ‘Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law’ in its long-term programme.10

5 6

9 7 8



10

E. de Wet, ‘The International Constitutional Order’, 55 ICLQ 2006, 57. This definition of ‘regimes’ is based on the definitions by S. Krasner, International Regimes, Ithaca, London, Cornwell University Press, 1983, and O. Young, The Institutional Dimension of Environmental Change – Fir, Interplay and Scale, Cambridge and London, MIT Press, 2002. For the purpose of this thesis the terms regime and institution are used interchangeably. Koskenniemi and Leino, 2002, 557–558. Ibid. 561. Koskenniemi and Leino, 579. Report of the International Law Commission on the work of its fifty-fifth session, A/CN. 4/L. 644), chapter X, 2003. Feasibility Study: G. Hafner, Risks Ensuing from Fragmentation of International Law”, Official Records of the General Assembly, 55th session No 10 (A/55/10) annex.



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The ILC study group on fragmentation discovered that deviations in international law do not (always) emerge by accident or through legal-technical mistakes. Rather, they reflect the diversity of the social world which the law aims to regulate. Social complexity leads to legal complexity, making it pointless to insist on unity.11 What needs to be avoided is that fragmentation leads to self-contained islands of international law, de-linked from other branches of international law. As special social interests have to relate to the general interest of society as a whole, no legal regime, however special, exists in isolation from general international law. Problems arise when the different parts rather than fitting neatly together either converge on one or several areas or leave gaps unattended to. A crucial issue, therefore, is the relation of treaty norms in pursuit of conflicting objectives where no specific rules on interaction are at hand. Considerable debate exists as to whether and when recourse can be taken to general international law principles on the relation of treaties. This situation makes it necessary to envisage international law as a whole. It requires the development of a coherent framework of international law, one where the making and enforcement of specialized norms can somehow be conceptualized under a complicated but coordinated set of disciplines. The problem is how, and by what means, seemingly incoherent rules of international law can be melded into a coherent whole. Here, legal mechanisms within general international law do exist that remedy the negative consequences of fragmentation. For its part, the study group suggested reliance on the maxims of lex specialis, lex posterior and lex superior, addressing thereby the problems of fragmentation in a formal, open-ended way, as a matter of legal technique, rather than substantive, legal and/or political preferences. As it readily conceded, ‘the report has, in a way, bought its acceptability by its substantive emptiness’.12 Certainly, while these maxims are important legal means of addressing normative conflicts, they do not in all situations lead to workable results. In some cases the ‘substantive emptiness’ needs to be filled by some sort of meta-rationality which firstly informs and guides the international community and secondly shows where the individual pieces belong in the international legal system.



11



12

See ‘Study on the “Function and scope of the lex specialis rule and the question of selfcontained regime’’’, Preliminary report by M. Koskenniemi, Chairman of the Study Group, ILC(LVI)/SG/FIL/CRD.1, 7 May 2004, 9. ILC, Preliminary Report, 2006, 16.

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In other words, the diverse parts of special international law must – at least in theory – be inter-related, connected and considered ‘in unison through the prism of general international law.’13 The application of certain general principles of international law, in particular the principle of sustainable development, could help to create a coherent framework of international law, eventually leading to a differentiation between various, in principle, equal norms. According to this principle, such norms which seek to protect fundamental collective interests like the functioning of essential life-sustaining natural processes that are a prerequisite for human activity, inclusive economic activity, would take precedence over other norms. In a case of conflict, not all norms may or should have the same status. This recognition can offer new solutions to conflicting norms in international law and introduce a ‘certain normative order in the often chaotic world resulting from the contractual freedom of states’.14 7.2 Conflict of Norms As explained above, fragmentation creates the challenge of conflicting norms. When investigating ‘conflicts’ between legal norms of international law an important distinction has to be made between ‘apparent conflicts’ and ‘genuine’ conflicts’. An apparent conflict is a situation where a conflict of norms exists, but where the conflicting norms can be harmonized or ‘interpreted away’. A genuine conflict is what remains after a failure to harmonize treaty norms. A genuine normative conflict may therefore only be assumed in cases where an apparent conflict cannot be resolved by interpretation of treaty norms and exception or conflict clauses. 7.2.1 Definitions The definition of normative conflict is relevant to the discussion of the relationship between international climate regulation and WTO provisions. From a traditional perspective of international law, three conditions must be satisfied before a conflict can be said to exist. First, two States must be bound by the same agreement, while at least one of them is also bound by a different treaty. Second, the treaties must cover the same subject matter. Third, the provisions must conflict in the sense that they impose mutually 13 14



Ibid. 915. Pauwelyn, 2003, 22.



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exclusive obligations.15 Hence a conflict of norms arises where simultaneous compliance with the obligations contained in two (or more) different instruments is impossible.16 That is to say, one obligation cannot be fulfilled without necessarily violating another.17 Not every divergence of norms constitutes a conflict under these conditions. Collisions and overlaps that lead to the assumption of treaty congestion might exist without necessarily leading to absolute incompatibility. Consequently, there are instances of incompatibility of normative content that fall outside the scope of this narrow definition of conflict. We therefore apply a broader definition which embraces these wider ‘normative incompatibilities’. It would cover divergences and inconsistencies that do not amount to contradictions or absolute obligations, but derive from norms permitting certain types of conduct prohibited by other norms either completely or partially.18 Such a perspective accords with the findings of the ILC Study Group on fragmentation, which in its final report stated: [t]his report adopts a wide notion of conflict where two rules or principles suggest different ways of dealing with a problem. Focusing on a mere logical incompatibility mischaracterizes legal reasoning as logical subsumption. In fact, any decisions will involve interpretation and choice between alternative rule-formation and meanings that cannot be pressed within the model of logical reasoning.19

Although, arguably, conflicts in a broader sense could be solved without abolishing the substantive content of either of the regulations, they may have the same negative effects as the more narrowly defined conflicts. Normative inconsistencies and contradictions create uncertainties with regard to the application of the respective norm, diminishing the coherence and effectiveness of international law. For this reason, all divergences, that is, conflicts in the ‘narrower’ and ‘broader’ senses, are included in the following examination. In this sense, a conflict of norms in the wider sense arises if it is impossible for a subject bound by two or more norms, deriving from the same or different sources, to make use of its rights and ‘permissions’ granted under one treaty



15 16

19 17 18

See Marceau, 2001, 1084. See Encyclopaedia of Public International Law, 1994, 468. See also: W. Jenks, ‘The Conflict of Law-Making Treaties’ (1953) BYIL, 425. H. Kelsen, General Theory of Norms, 1991, 123. See Wolfrum and Matz, 2003, 6. ILC, 58th session (Geneva, 1 May – 9 June and 3 July – 11 August 2006), Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission, United Nations A/CN.4/L.682, 4 April 2006, 16.

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while complying with its obligations.20 Sadat-Akhavi recognizes this form of conflict when stating that there must be two definitions of conflict: one is concerning conflict between mandatory norms and another concerning conflict between a permissive and a mandatory norm. Accordingly we have the following definitions: (1) A conflict between two mandatory norms occurs when it is impossible to comply with all requirements of the norms; (2) A conflict between a permissive and a mandatory norm occurs, when it is impossible to make use of the permission and at the same time comply with all requirements of the other norm.21

In the same understanding Pauwelyn explains that to talk of conflict of obligations would obscure the fact that international law is composed of obligations and rights … [A] conflict may consequently arise not only as between two contradictory obligations, but also between an obligation and an explicit right.22

The same author warns that [c]arving out certain situations as not being conflicts ‘in the strict sense’ or ‘technically speaking’… is focusing on one type of conflict only, thereby ignoring the complexity of the potential forms of interplay between norms. Doing so, one essentially solves part of the problem by ignoring it.23

The term conflict in this study is used in a broader, non-dogmatic way, interchangeably with ‘inconsistent’ or incompatible’. A conflict between two norms thus exists when compliance with an obligation or making use of a

20 21

22 23





See S.A. Sadat-Akhavi, Methods of Resolving Conflicts between Treaties, 2003, 5. Sadat-Akhavi, 2003, 6, fn 3. For a similar approach see also Wolfrum and Matz, 2003, 6; G. H. von Wright, ‘Is there a Logic of Norms?’ (1991) Ratio Juris, 4, 270–272; W. Czaplinsky and G. Danilenko, ‘Conflict of Norms in International Law’ (1990) 21 NYIL, 3; P. Hilpinen, ‘Conflict and Change in Normative Systems’ in Å. Franberg and M. Van Hoecke (eds.) The Structure of Law, Proceedings of the 2nd Benelux-Scandinavian Symposium in Legal Theory, Uppsala, 1987, 38; C. E. Alcuourrón, ‘Conflicts of Norms and the Revision of Normative Systems’ (1991) 10 Law and Philosophy, 417–418; Th. Schilling, Rang und Geltung von Normen in gestuften Rechtsordnungen, 1994, 380; and J. Neumann, Die Koordination des WTO Rechts mit anderen völkerrechtlichen Ordnungen- Konflikte des materiellen Rechts und Konkurrenzen der Streitbeilegung, 2003, who states that “ein Widerspruch besteht nicht nur, wenn ein Gebot mit einem Verbot kollidiert … sondern auch, wenn eine Erlaubnis mit einem Verbot kollidiert, also das Verbot die Inanspruchnahme einer Möglichkeit in Frage stellt” (16). Pauwelyn, 2003, 9. Ibid. 171.



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permission has led or may lead to a breach of an obligation.24 No conflict arises, however, when one norm positively states that it derogates from, or is an exception to, the other norm. In general, States are presumed to have negotiated in good faith, and are obliged to implement their international obligations accordingly. However, in some cases of conflict a harmonious interpretation and simultaneous compliance is simply not possible (‘genuine conflicts’). In this situation, one of the norms must be suspended or abrogated. In order to decide which norm while ensuring the effectiveness and coherence of international law, certain principles exist that could inform the settlement of genuine conflicts. They are the well-known principles of lex posterior and lex specialis, though more might be found. Conflicts can further be conceived of in a wider sense, as including not only conflicts of substantial law but of institutional arrangements and jurisdictions of courts and tribunals. For the purpose of this assessment I shall concentrate, however, on legally binding substantive norms and their normative content. 7.2.2 Permissive Norms in the Climate Regime In the area of climate change, a narrow conflict definition would be likely to overlook a number of potentially conflicting situations. The UNFCCC and the Kyoto Protocol require Parties to implement policies and measures to achieve their quantified emission limits and reduction commitments and in order to promote sustainable development (Article 2 KP). In order to alleviate the costs of these measures, economic instruments may be employed.25 With regard to the reduction of GHG emissions, the Kyoto Protocol gives Parties the discretion to select whatever policies and measures they see fit to fulfil their obligations. The Kyoto Protocol thus provides for non-specific measures that can be taken individually by Parties in order to achieve the objective of the Kyoto Protocol/UNFCCC.26 With regard to Joint Implementation, Article 6 permits Annex I Parties to ‘transfer to, or acquire from, any other such Party emission reduction units’. Article 12.3(b) permits the use of certified emission reductions accruing from a project under the Clean Development Mechanism to contribute to compliance with part of the Annex I countries’ commitments. Under Article 17, the

24 25



26

Ibid. 176. See D. M. Driesen, ‘Choosing Environmental Instruments in a Transnational Context’ (2000) 27 Ecology Law Quarterly, 1, 8. See R. Tarasofsky, 2005, 4.

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Parties included in Annex B of the Kyoto Protocol may participate in emission trading for the purpose of fulfilling their commitments under Article 3. Since the use of these instruments is not mandatory but merely permitted or allowed, there is no obligation to comply with them in the strict sense. Compliance with permissive or non-specific norms (stricto sensu a norm that gives the freedom to act in a way that is neither obligatory not prohibited) is not possible; one can only make use of a permission. Having said that, the flexibility mechanisms have become a favoured means of complying with emission reduction commitments. The use of economic instruments in order to fulfil the object and purpose of a multilateral environmental agreement was not envisaged by the regulations of the WTO. If WTO rules turn out to be incompatible with the mechanisms adopted under the climate regime, a conflict cannot be said to not exist on the grounds that no obligations under the environmental agreements existed to implement the economic measure in question. If a treaty permits certain privileges or possibilities or rights in pursuance of its object and purpose, these possibilities have to be given normative weight. If a Party considers applying them it acts then in compliance with the object and purpose of the treaty. As said above, a definition of conflict includes not only the obligations of a treaty but the implementation and compliance modalities it provides for. In a situation where treaty provisions allow for a certain privilege in order to comply with its obligations, a Party cannot under the premise of acting in good faith be expected to refrain from exercising this privilege. This remains so even though making use of the implementation or compliance possibility brings the State’s action into conflict with another international instrument. For example, where the non-obligatory provisions of the Kyoto Protocol regulating these economic instruments are incompatible with WTO rules, while we may not have a conflict in the narrow sense, a normative discrepancy seems nevertheless undeniable. The permissive character of the norms of the Kyoto Protocol governing the use of economic mechanisms thus does not hinder the possibility of a conflict with WTO norms. In conclusion it can be said that permissive norms allow a choice of implementation measure at a domestic level from a range of alternatives. Such norms give a discretionary right to a Party on how to implement a certain obligation. In this study a wider definition of conflict is applied according to which permissive and commanding norms may come into conflict. It covers therefore also conflicts between permissive norms on one hand and obligations on the other.

Chapter 8

Climate Measures and WTO Law: General Comments

8.1 Introduction The relationship between the climate change regime as an environmental and developmental regime and the WTO shall serve in the following as a case example of normative interaction within a conflict scenario. From the outset, however, the legal interface between the climate regime, in particular possibilities under the Kyoto Protocol, and the WTO agreements appears extremely complex. It involves a large number of diverse legal issues, many of which are less than clear cut. In order to reduce this complexity, this part of the thesis will focus on some specific concerns regarding the interplay between the flexible mechanisms provided for by the climate regime and WTO norms. As noted, the considerable size of the artificial market created by the flexibility mechanisms is expected to have significant economic impact on many sectors of society as the mechanisms are implemented. Measures adopted to implement and enforce flexibility mechanisms are likely to distort trade by influencing the competitive balance between products and services that is governed by WTO rules. In addition, some discriminatory aspects of the mechanisms might prove to be in direct violation of WTO norms. The relationship between flexibility mechanisms and the international trading systems can be defined and analysed in various ways. For practical reasons, the approach adopted here will distinguish between direct and indirect relations. Direct relations refer to the question whether flexibility mechanisms themselves are subject to WTO rules, and if so, to what extent they could affect the rights and obligations of other WTO Members, in particular those that are not Members to the Kyoto Protocol. Indirect relations point to the wider effect flexibility mechanisms could have on existing trade in goods and services.

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8.2 Limitation of Scope We shall concentrate on the design and use of two of the flexibility mechanisms, Emissions Trading and CDM, envisaged under the Kyoto Protocol. Rather than looking exclusively at existing emissions trading schemes, my objective is also to assess how prospective developments in the scope and stringency of emissions trading would interface with WTO rules. The examination is limited to existing WTO rules entailed in two of the WTO covered agreements, the General Agreement on Tariffs and Trade (GATT) 1994 and the General Agreement on Trade in Services (GATS). Other points of interaction to be expected between the flexibility instruments and the Agreement on Trade-Related Investment Measures (TRIMS), the Agreement on Subsidies and Countervailing Measures (SCM), the Agricultural Agreement and the Agreement on Technical Barriers to Trade (TBT) are excluded. Not covered is the suspended Doha Development Agenda (DDA), though the outcome of the negotiations – if there ever is one – could have implications for climate measures. Particularly relevant are the negotiations on the relation between MEAs and the WTO.1 Even this limited assessment cannot be exhaustive. The design of the flexibility instruments is still ‘work in progress’ and national implementation in many countries is at an early stage. Therefore, changes, adjustments and further developments are expected. These self-imposed constraints should be seen in light of the purpose of this thesis, which is not to map out all and every current or future conflict between climate measures and WTO rules. Rather, I attempt to identify some specific issues that could indicate a normative conflict between measures provided for by the Kyoto Protocol and rules entailed in the WTO agreements. Since no dispute has arisen yet, the character of this assessment will remain largely assumptive. It has been warned that ‘[a]s with any exercise that is speculative, and that is aimed at comprehensive ‘issue spotting’, the analysis [of greenhouse gas emissions trading and the WTO] risks overplaying the potential for theoretical conflicts, and the potential that theoretical conflict might lead to actual disputes between states’.2 Aware of this warning, determining whether and where there may be serious cause for conflict and to facilitate the search for constructive solutions and conflict resolution processes is considered necessary. Not only would such solutions help to reduce worries about infringement of trade rules which, reportedly, have led to a ‘chilling effect’ in some climate negotiations, they

1 2

See, for example, the mandate in Art 31(i) of the Doha Ministerial Declaration. Werksman, 1999, 262.



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would also help us understand the parallel regimes and highlight some of the synergies that could be developed.3 8.3 General Compatibility of the Objectives The two regimes have formally stated objectives that reflect a mixture of compatible and conflictive interests. With regard to international trade Article 3.5 of the UNFCCC states that ‘Parties should cooperate to promote [an] … open international economic system’ and that ‘measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade’. Accordingly, Article 2.3 of the Kyoto Protocol notes that Parties should ‘strive to implement policies and measures … in such a way as to minimize adverse effects, including the adverse effects … on international trade’. The stated objectives generally converge with those of the international trade regime. The Preamble of the WTO Agreements states the commitment of its Parties to seeking both to protect and preserve the environment.4 In the 2001 Doha Ministerial Declaration the Parties expressed their conviction that ‘the aims of upholding and safeguarding an open and non-discriminatory multilateral trading system, and acting for the protection of the environment and the promotion of sustainable development can and must be mutually supportive’.5 Despite the apparently broad conceptual compatibility, the practical consistency of the above-mentioned objectives is less clear. The WTO is not an environmental protection agency. Nor is there any intention for it to become one. But as long as WTO’s role is exclusively focused on the regulation of liberalized international trade, as well as on ensuring that environmental policies do not act as obstacles to trade, chances are high that a conflict will most likely be settled in favour of trade law.6 Yet, within traditional, positivistic trade law, considerable ‘legal leeway’ exists that could give deference and flexibility to climate measures. In this context, the discussion in the next chapters analyses the possibility for such ‘leeway’. It will, in particular, examine whether trade-restraining climate mitigation measures under the flexibility mechanisms fall within the scope of 5 3 4



6

See Charnovitz, 2003, 141. Agreements Establishing the World Trade Organization, Marrakech 1994. Ministerial Conference – Fourth Session – Doha, 9 – 14 November 2001 – Ministerial Declaration – Adopted on 14 November 2001, WT/MIN(01)/DEC/1. Brack, 2002, 341.

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WTO agreements, whether they might violate substantive rules of the WTO agreements, and if so, whether they may be covered by exemption clauses.

Chapter 9

International Emissions Trading and WTO Rules

9.1 Introduction The Kyoto Protocol sets a ‘cap’ on emissions from Parties included in its Annex B. These States are allowed to sell or buy parts of the assigned amounts (assigned amount units). In addition, States can trade with tradable units derived from project mechanisms, such as Joint Implementation or the Clean Development Mechanism, i.e., Removal Units (RMUs), Emission Reduction Units (ERU), and Certified Emission Reductions (CERs). Emissions units can be traded at two different levels, at the level of sovereign States and at the level of private entities. Also a transaction from a State to a private entity or vice versa is possible. The participation of private companies and other private entities in the emissions trading system is clearly desired although not explicitly mentioned. Despite missing reference in Article 17 of the Kyoto Protocol it is generally accepted among Annex B Parties countries that private entities may participate in such trading with the approval of the relevant Party.1 In this study, the focus will remain on the responsibilities of States, that is, the effect transnational emission trading by private and public entities has on the responsibility of a State Party under both the international trade regime and the climate regime. An Annex B Party to the Kyoto Protocol might set up a domestic emission trading scheme and allocate allowances or tradable emission units to private domestic entities, who could use these rights for trading with other private entities within the same or foreign countries. The obligations under the Kyoto Protocol, however, remain sovereign obligations of the State Parties to the Protocol. States therefore would need to regulate private actors in a way that enables the State to comply with its international obligations.

1

C. Hepburn and C. Brown, ‘Privatising the Commons? A Global Greenhouse Emissions Trading Regime at COP-6’ (2000) 19 Austral. Mining & Petro.L.J., 169–170; Voon 2000, 94; Werksman 1999, 253.

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It is thus useful to distinguish between private entities and States engaging in emissions trading.2 9.2 WTO Concerns of Sovereign Exchanges in Emission Units The first question to consider is whether the exchange of AAUs and other emission units between Parties to the Kyoto Protocol as such is guided by WTO rules. With the agreed cap on GHG emission committed to by State Parties to the Kyoto Protocol in its Annex B, states have imposed sovereign obligations on themselves. Below this committed cap, they have the respective rights to emit greenhouse gases. Under an Emission Trading scheme, the State Parties may engage in the acquisition and transfer of these sovereign rights to emit within the agreed cap. Articles 3.10 and 3.11 in accordance with the rules agreed under Article 17 (Marrakech rules), allow parts of these assigned amounts (Assigned Amount Units – AAUs) to be traded among Annex I countries of the UNFCCC. At this level of ‘international emission trading’ no trading in the understanding of participation in a market place occurs. The exchange of AAUs between sovereign States does not create a market in the context of the WTO Agreements as economic activities between sovereign States is in principal not guided by WTO rules. The reasons for this argumentation lie within the WTO system itself. The WTO system is characterized by its overriding principle that barriers to trade imposed by governments need to be subjected to international discipline. Under WTO regular procedures were established looking to diminish or eliminate such barriers and to set up a regime of non-discrimination – i.e. a generally applicable regime of most-favoured-nation treatment, a prohibition of quantitative restrictions, and a commitment to reduction of trade barriers and opening markets. In short, the WTO system aims to delimit trade restrictions that nations impose on transboundary trade in goods and services, e.g., unilateral high tariff and discriminatory economic arrangements, import quotas and protection systems.3 The economic relations between States are in general not covered by the WTO Agreements. Nor does the WTO – despite its name – govern trade itself. Even under the WTO Agreements trade is not considered a value, but a means to the end of, inter alia, higher living standards, full employment and a large and stead

2



3

See also C. Voigt, ‘WTO Law and International Emissions Trading: Is there Potential for Conflict?’, 1 Carbon & Climate Law Review 2008, 52–64. A. Lowenfeld, International Economic Law (Oxford University Press, 2002) 21.



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ily growing volume of real income.4 Pauwelyn recognizes that trade and its liberalization ‘is not sought after for the achievement of some ‘global common’ that transcends the sum of individual state interests.’5 Trade is a mere instrument, he maintains, to ‘increase the economic welfare of states’.6 WTO rules are thus not framed in positive terms of ‘freedom to trade’, but in terms of governing trade restrictions that nations impose on transborder trade in goods and services and respective market access that is provided between States.7 Obligations are framed in terms of ‘negative integration’ goals, such as non-discrimination and least-trade restrictiveness and apply only to certain tradable units under WTO law, i.e., ‘products’ and ‘services’. International Emission Trading, despite its name, does not imply trade in actual GHG emissions. What it envisages is international trade in rights to emit. AAUs (as well as CERs, ERUs and RMUs) are government creations to facilitate the compliance with an international obligation. They are issued by sovereign governments for the purpose of domestic implementation of greenhouse gas emission limitation obligations. They exist only in consequence, of and through, the legally binding commitments of sovereign nations to limit GHG emissions.8 The trade in these rights in general (just for being some form of transnational trading activity) is not covered by WTO rules. It has therefore been generally recognized in legal literature that the acquisition and transfer of emission units between sovereigns does not create a ‘market’ in either goods or services.9 The GATT itself does not define ‘products’ although the term is widely used in the WTO agreements. The character of products is that they are ‘commodities’, produced by labour, intellectual effort or natural processes and that they can be transported from place to place.10 The idea of products however is not limited to tangible items only. The European Court of Justice in Municipality of Almelo v. NV Energiebedrif IJsselmij 11 ruled that electricity is a good. The requirement of tangibility has thus become less restrictive, which may have repercussions in other international judicial bodies, too. In order to distinguish between ‘products’ and transactionable components of sovereign obligations a 1985 GATT panel found that Maple Leaf (Cana 6 7 8 9 4 5



10 11

Preamble Marrakesh Agreement establishing the World Trade Organization. Pauwelyn, 2003, 73. Ibid. Charnovitz, 2003, 10. Petsonk, 1999–2000, 200. See Werksman 1999, 252; Buck and Verheyen, 2001, 24; Voon 2000, 96. Black’s Law Dictionary 624, 1088 (1979). Case C-393/92, Municipality of Almelo v. NV Energiebedrif IJsselmij [1994] ECR I–1477.

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dian) and Krugerrand (South African) gold coins, when traded as investment goods, were ‘like products’ to other investment assets.12 However, when these coins were utilized as a ‘legal tender’, they were regarded as a means of payment, rather than products. The distinction thus depends on the pecuniary value attached to the exchanged commodity. Emission units, such as AAUs, ERUs, and CERs, are basically government creations to facilitate compliance with international obligations deriving from the Kyoto Protocol. In this sense they differ from ‘products’ insofar as they are closer to ‘means of payment’ in satisfaction of international obligations, than to investment goods. A similar reasoning can be deduced from the US–Softwood Lumber decision of the WTO Panel.13 In the different context of evaluating what constitutes a financial contribution, the Panel ruled that the right to harvest public trees establishes a valuable transfer of resources amounting to a financial contribution (in this case constituting a subsidy). However, the value was attached to the actual physical attributes of the transferred resource, to which a right was given. Timber by itself is a tradable good, something emissions are not. If tradable emission units, however, were traded purely as investment goods, they might be deemed products, i.e., like investment assets in the sense of the Canada–Gold Coins report. Here again, the distinction is necessary between sovereign exchanges and private participation in an international emission trading market. As said above, on a sovereign trading level, the transfer of tradable units is unlikely to satisfy any investment interest. Some commentators point out that the sovereign interference in an emission trading market could nevertheless have WTO relevance.14 If, for example, a State acquires emission units from companies based in other countries in order to comply with its emission reduction commitment by the end of a commitment period, this activity could fall within the scope of the Agreement on Government Procurement (AGP). This requires that the marketing of emission units can be defined as services (Article 1 AGP) and needs to be listed in Annex 4 Appendix 1 to the AGP. Purchases of emission units or allowances are not listed there; hence AGP rules do not apply to emission trading. This is not to exclude the possibility that a respective alternation to include trade in emission units could take place.

12



13



14



GATT Panel in Canada–Measures Affecting the Sale of Gold Coins, Panel Report, L/5863, 1985 (not adopted). Panel in United States–Investigation of the International Trade Commission in Softwood Lumber from Canada, Recourse by Article 21.5 of the DSU by Canada, WT/DS277/RW, circulated on 15 November 2005. Buck and Verheyen, 2001, 24.



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It can in general be concluded that the State-to-State transfer of AAUs, CERs, RMUs and ERUs to date does not create a legal conflict with WTO rules. 9.3 WTO Concerns of Private Exchanges in Emission Units On a second – parallel – level private legal entities and non-State actors can exchange emission units in domestic and transborder trades. From a legal perspective three issues have to be distinguished: first, the initial allocation of emission units to emitting entities in the states territory and, second, the trading of emission units between these entities. A third issue is related to the many services – e.g. financial, legal, management, involved in operating the various national and the international emissions trading regime. By engaging in emissions trading three different kinds of markets are created, each posing different questions of WTO compatibility. A primary artificial market is created by the actual exchange of emission units themselves between entities. The primary market could be directly affected by WTO rules. From the primary market a secondary market derives in which buyers and sellers, in particular for investment purposes, hold and exchange derivative financial instruments based upon tradable emission units.15 Finally, a third market which is indirectly affected by emissions trading, and not created by it, is the existing market in goods and services. The market segments particularly prone to such an influence are the energy market, especially when based on non-renewable energy sources, the trade in highly energy-intensive products (e.g. cars, electronic devices), and the trade in products with a high carbon content (e.g. crude oil and gas, coal). For the direct and indirect effects of emissions trading different analyses are necessary in the context of WTO rules. In what remains of this chapter we shall assess governmental regulation related to private exchanges of emission units with regard to how it directly or indirectly affect rights and obligations of States under WTO law.



15

Werksman 1999, 255.

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9.3.1 Private Trading with Emission Units and GATT Rules In terms of private trading investment interests can play a stronger role in transaction decisions. Private entity emissions trading occurs alongside sovereign exchanges. The traded rights do not have the same legal nature as the rights traded among sovereign states. While the latter carry the decisive element of a sovereign obligation, allocated rights – derived from the sovereign – entail no sovereign element. Emission allowances or permits will be traded internationally among private entities because they represent an economic value. In economic terms, they could arguably be regarded intangible products. If tradable emission units, be they credits, units, or allowances, are considered ‘products’ – a possibility that could not entirely eliminated – according to GATT, regulations for their trading would need to be measured against GATT requirements. A challenge could arise where Member States to both the Kyoto Protocol and the WTO restrict freedom to participate in the emissions trading system according to the Protocol. Participation in emissions trading can be restricted on the basis of ‘country of origin’ by excluding trade with non-Annex B Parties and non-complying Parties to the KP and private entities located in these countries. These participation restrictions may be found inconsistent with the rules of Most-Favoured-Nation Treatment (Article I GATT) and the National Treatment (Article III).16 From a climate law perspective, the reason for restricting participation in emissions trading follows directly from the international provisions. Explicit in the Kyoto Protocol is a restriction on participation in international emissions trading to ‘Parties included in Annex B’. As a requirement these Parties also have to fulfil the eligibility requirements set out by the Marrakech Accords.17 16



17





The argument has been made that another restriction inherent in the regulation of emissions trading is the imposition of a ‘cap’. According to Art. 17 KP Parties included in Annex B may participate in emissions trading for the purpose of fulfilling their commitments under Art. 3. The assigned amounts ultimately limit the quantity of emissions and any such trading shall be supplemental to domestic actions to fulfil the emissions reductions obligations. The supplementarity requirement means an additional limitation to the already restricted volume of tradable emissions in a domestic emissions trading market. Such quantitative restrictions on the import of emission units or the prohibition of market access might be inconsistent with Art. XI GATT (General Elimination of Quantitative Restrictions). See Kim, 2000, 6; Petsonk, 1999; Werksman 1999, 255. To participate in the mechanisms, Annex I Parties must meet, among others, the following eligibility requirements: – They must have ratified the Kyoto Protocol. – They must have calculated their assigned amount, as referred to in Articles 3.7 and 3.8 and Annex B of the Protocol in terms of tonnes of CO2-equivalent emissions.



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Participation by non-Parties is not envisaged under the Kyoto Protocol rules (Article 17) and the modalities set out in the Marrakech Accords. The same holds generally true for private entities with respect to their home country’s ‘Kyoto-status’. Most Annex B countries, having established or are contemplating national emission trading schemes, will allocate Kyoto units to private entities who are then free to trade in them, either within the national trading system or recognized systems of other Kyoto Parties.18 To issue or transfer Kyoto units, however, an entity (company or installation) or individual must have access to an electronic account under a registry established under the Marrakech Accords. Currently only Annex I Parties to the Protocol can create such accounts.19 Private companies from non-Kyoto Parties are therefore generally excluded from participating in the emissions trading market. Foreign companies from non-Kyoto Parties could theoretically register subsidiaries within the territory or jurisdiction of a Protocol Party in order to buy, hold and sell Kyoto Protocol credits on behalf of the non-Party parent company.20 Where a subsidiary has the same access to the emissions trading market as domestic companies, no WTO challenge exists. However, foreign companies could be excluded. If, for example, the subsidiary only acts as a ‘straw company’ simply for the purpose of speculating on the emissions trading market, it could be excluded from participation. Participation of such companies in the international emissions trading market would not support the ultimate objective of the Convention as it allows non-Party companies to profit from emissions trading without incurring any of the costs of emissions reductions. In order to prevent circumvention of the Kyoto Protocol and Marrakech requirements, domestic regulation regarding registration may limit the ability of foreign companies to participate.21 The restriction, for example, to only cre



18 19



20 21

– They must have in place a national system for estimating emissions and removals of greenhouse gases within their territory. – They must have in place a national registry to record and track the creation and movement of ERUs, CERs, AAUs and RMUs and must€annually report such information to the secretariat. – They must annually report information on emissions and removals to the secretariat. Wilder, 2005, 231–232. 3/CMP.1(for CDM); 9CMP.1(for JI), and 11/CMP.1 (for emissions trading under Art. 17 of the Kyoto Protocol). See Wilder, 2005a, 258. Kyoto Parties can, however, decide to open their emissions trading market to participants from non-Kyoto Parties. The current consideration of linking the EU-ETS with some US State-based emissions trading schemes is one example of such an exception. See Britain, California to Work Together on Global Warming, (1 August

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ate registry accounts for domestic companies or companies with a substantial business in the domestic jurisdiction, could be a possible response to prevent non-Party companies from participating in emissions trading. Another challenge could arise by the inclusion of mobile sources, such as air and marine traffic. The inclusion of aviation is being contemplated under the EU-ETS22 and discussions on ship traffic have started.23 If these flexible emission sources are included, cross-border issues are likely to occur. If, for example, all air traffic with a destination or stop-over in a Kyoto Member State were required to be covered by an emissions trading scheme and hold the necessary allowances, then aircraft operators registered in non-Kyoto countries may not be able to fly in the respective State unless they had been allocated emission allowances or bought them. The country of registration might claim this to be a violation of the WTO most-favoured nation and national treatment obligation as well as market access obligations. The expansion of the EU ETS aims at avoiding such discrimination by including foreign aircraft operators in the scheme.24 The practicability of such inclusion is, however, still an unresolved matter. Changing flight routes, including stop-overs in EU territory, the entrance of new carriers in the aviation market, large number of covered vessels, lobbying etc. might eventually reduce the scope of air traffic included in the emissions trading scheme to airlines of EU Member States.

22



23



24



2006); Bodansky, 2001; Blyth and Bosi, Linking Non-EU Domestic Emissions Trading Schemes with the EU Emissions Trading Scheme, OECD and IEA Secretariat, COM/ ENV/EPOC/IEA/SLT(2004)6. On 20 December 2006, the Commission adopted a proposal for legislation to include aviation in the EU Emissions Trading Scheme. The proposal provides for aviation to be brought into the EU ETS in two steps. From the start of 2011, emissions from all domestic and international flights between EU airports will be covered. One year later, at the start of 2012, the scope will be expanded to cover emissions from all international flights – from or to anywhere in the world – that arrive at or depart from an EU airport. On 13 November 2007, the European Parliament adopted its first reading position on the Commission’s proposal and on 20 December 2007 Environment Ministers reached unanimous political agreement on the Council’s first reading position on the Commission’s proposal. (information available at: ). The Environmental Council of 3 March 2008 agreed that European action is needed to tackle shipping emissions in climate change strategy. See: . The European Commission proposed to apply the emissions trading scheme to all carriers without regard to nationality. The 1944 Chicago Convention on Civil Aviation provides that laws and regulations relating to international flights shall be applied to aircraft without distinction as to nationality. The EU emissions trading regulation needs to be consistent with this Convention. To the extent that air carriers operate from airports in the EU, foreign airlines would thus be affected in the same way as EU airlines.



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Similarly, the recognition of foreign emission units might also be restricted to those rights deriving from a Kyoto Party. Such a limitation is an important environmental safeguard of the climate regime as it prevents the undue inflation of the emission cap imposed on those Kyoto Members with reduction obligations. The acquisition of additional units from non-Parties could entail the danger that ‘hot air’ rights, which neither reflect emission reductions nor respective obligations, could enter the otherwise capped trading scheme. 9.3.2 Are All Emission Units ‘Like Products’? These limitations could come into conflict with the Most-Favoured-Nation Treatment principle if emission units from non-Parties and from Kyoto Parties are considered ‘like products’ according to Article I. In the Asbestos case the Appellate Body accepted an earlier GATT panel’s ‘construction’ of ‘like products’ according to the following criteria: (1) physical properties of the products; (2) the end uses of the product; (3) consumer tastes and habits; (4) tariff classification; and (5) the risk associated with the product.25 While criteria number 1 and 4 seem irrelevant in this context, the remainder could give some indication. The end uses of emission units created outside the Kyoto Parties arguably differ from those created by Parties. While the latter can be used by Kyoto Parties to meet their obligations under the Protocol, permits created outside the Kyoto scope are not permitted for this purpose.26 Also consumer tastes and habits could give support to the argument that the permits are not ‘like’. If the consumers are private enterprises or brokers there is likely to be a preference to acquire allowances which will be recognized for regulatory compliance. Such recognition is unlikely of non-Party credits in the absence of a specific bi- or multilateral recognition agreement. Furthermore, if States want to acquire rights that can be used to meet their sovereign obligations under the Kyoto Protocol, they are required to buy units from other Kyoto Parties. Therefore, consumer preference may indicate that the two types of units are not alike. Finally, if consumers were to buy non-Party units which subsequently were not recognized for the purpose of domestic or international compliance they would be risking economic loss through the necessity to purchase valid permits.27

27 25 26

AP in EC–Asbestos, paras. 32–39, with reference to Japan–Alcoholic Beverages. Jinnah, 2003, 749. Ibid. 750.

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In any case, the argument can be made that even if emission units are considered products, those that derive from Kyoto Annex B Parties and those that were created by non-Members are not ‘like’ products. Therefore, they are not subject to equal treatment under Articles I and III GATT. Accordingly, differences in treatment can be made (i) between domestic units of a Kyoto Annex B Party and foreign units from non-Members and (ii) between foreign units from Kyoto Annex B Party and from non-Members when entering the domestic emissions trading market. If, however, the arguments presented here should not suffice, the restrictions might still be justifiable under Article XX GATT. Article XX is examined in greater detail below. 9.4 Emissions Trading Affecting Existing Markets Emissions trading can indirectly affect other market segments that are not created by tradable emission units but covered by emissions trading. The market segments particularly prone to such an influence include the energy-product market (e.g. electrical energy), especially when based on non-renewable energy sources, the trade in highly energy-intensive products (e.g. cars, electronic devices), and the trade in products with high carbon content. The points of trade disturbance can differ. In the following assessment, we focus on the energy market and explore its interaction with the distribution of emission units and the requirements for trade with these units. 9.4.1 Import and Sale of Energy Products One issue raising the question of WTO compatibility under – inter alia – the national treatment rule are constraints on imports of energy or energy-related products, i.e. electricity, oil or gas, as an effect of an emissions trading scheme. Under Article III:4 GATT 1994 an imported product would have to be treated no less favourably than ‘like’ domestic products. Any system of emissions allowance trading would be required to provide for the ‘effective equality of opportunities for imported products in respect of law, regulations, and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products.’28 An upstream emissions trading system, however, could for example demand the import and sale of fossil fuels or 28



Panel in US–Gasoline, para. 6.10, modified by the AB in US–Gasoline, citing United States–Section 337, para. 5.11.



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energy products generated by combustion of fossil fuels to be accompanied by emission allowances.29 The same system might for reasons of environmental integrity demand different amounts of emission allowances for the import of fuels or energy products depending on the amount of CO2 emitted during their production process or on the carbon content of the product.30 Differential treatment of products due to climate considerations can apply to a large variety of apparently ‘competitive’ products in the same marketplace. The following non-exhaustive list of examples shows some of the product groups that could be affected by climate regulations, such as an upstream emissions trading system. The treatment of products could be based on the following criteria:

(i) the carbon content of the products, e.g. fuel products with high carbon content (crude oil, crude petroleum, coal, propane) vs. fuels with a lower carbon content (natural gas) vs. certain bio fuels (wood), products with lower carbon content or wood substitutes (carbon free), (ii) the quantity of emissions in the production process, e.g. aluminium, steel, cement, paper or energy products (i.e. electricity) based on fossil fuel and energy products based on the use of carbon-free renewable energy sources (emissions vs. emission-free) or electricity based on the use of fossil fuels with different carbon contents (i.e. oil and natural gas) (high v. low amount of emissions), (iii) the quantity of emissions expected in the consumption process, e.g. fuel with high carbon content (crude oil, crude petroleum, propane) vs. fuels with a lower carbon content (natural gas), or cars, planes, motor boats, scooters, motors etc. with high consumption of fossil fuels (diesel, gasoline) vs. ‘same’ products with better fuel efficiency or electro-cars, hydrogen cars (fossil fuel alternatives), (iv) energy consumption in the production process, e.g. traditionally highly energy-intensive products (aluminium, steel, glass) vs. ‘same’ products based on modern production technologies,









29



30

See Werksman, 2001, 177–179. A different scenario raising, however, the same kind of questions would be the combination of an emissions trading scheme with a Border Tax Adjustment. In this case, the measure would not consist in obliging importers to purchase allowances but a tax equalling the price of the allowance could be imposed. J. de Cendra, Emissions Trading and Equal Competition, METRO Research Paper, 9 November 2005. Furthermore, as already mentioned, the system might not recognize emission units or allowances originating in countries that are not Parties to the Kyoto Protocol or not in compliance with the Protocol thereby violating the Most-Favoured Nation Treatment rule, Art. 1:1 GATT 1994 and the prohibition of quantitative import restrictions, Art. XI GATT 1994. See examples given by Charnovitz, 2003, draft, 10.

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(v) expected energy consumption in the consumption process/usage, e.g. electronic or electric devices (TV-sets, electric heaters, household devises) with different levels of energy efficiency, or (vi) other climate considerations; e.g. products with different GHG emission levels as waste (i.e. methane), or, e.g., different treatment of wood products depending on the ‘ecological function’ of the area where the products originate from (rain forest wood products (destruction of natural sinks) vs. products from plantations or produced from ‘wood waste’.



The variety can be extensive and the final determination rests on the facts of the specific case. For reasons of scope, we shall only examine the quantity of greenhouse gas emissions in the production process of energy products (electricity) in the following assessment. 9.4.2 Electricity as an Energy Product An important starting point is the definition of electrical energy as a good or service. The international debate regarding the definition and coverage of energy tends toward the general recognition that within the existing WTO framework, the generation of electricity falls under the scope of the GATT, while the transmission, distribution and related services fall under the scope of the GATS.31 Electricity (electrical energy) is intangible, a quality that has traditionally been used as an argument against the classification of items as goods. As indicated above, this view is subject to change. Also the Harmonized Commodity Description and Coding System (HS) classifies electricity as a commodity – a good – though unlike other goods under an optional heading. Evidence that the GATT covers electricity and that many WTO Members as such consider electricity a good can be found in the fact that it is included in the Schedule of Commitments to the GATT 1994 of most of the major trading partners (e.g., the US, the EU and Canada). Those schedules contain WTO Members’ tariff commitments for specific listed goods. The GATS currently

31



Horlik/Schuchhardt/Mann, “NAFTA Provisions and the Electricity Sector”, Background Paper Nr. 4, Environmental Challenges and Opportunities of the Evolving North American Electricity Market, Secretariat Report to Council under Article 13 of the North American Agreement on Environmental Cooperation, June 2002, p. 4.



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has some bearing for services related to electricity, this application remains, however, rather limited.32 9.4.3 Energy Imports and National Treatment Rule The differential treatment of energy imports based on the quantity of greenhouse gas emissions in the production process could raise questions of WTO compatibility. If, for example, the domestic production of energy were based on renewable energy sources or natural gas, while energy to be imported is based on fossil fuels, then differing requirements as to the amount of allowances accompanying the import and sale of these products (oil having a higher carbon content than natural gas and generally emitting larger quantities of CO2 in the process of producing electricity) would mean favouring domestic climatefriendly energy sources against imported products.33 This kind of system may lead to discrimination against or between imported energy products if they are produced by more carbon-intensive methods making it difficult to import certain products based on the use of fossil fuels. Such a favourable treatment of ‘green electricity’ could potentially violate Article III GATT 1994. 9.4.4 Like or Directly Competitive or Substitutable Products The question concerning the import of electricity that derives from different energy sources, i.e. renewable energy and fossil fuels or fossil fuels with varying carbon content, is therefore whether they ought to be classified as ‘like products’. Products are not like when their physical properties differ. Yet, the product ‘electricity’ itself generated by burning of fossil fuels is not physically distinguishable from electricity based on alternative energy sources. Process and production methods could make a difference. It remains uncertain whether in analyzing the ‘properties’ of a product focus could be extended to the product’s production and processing methods (PPMs). It is essentially

32

33



The clarification of how energy and electricity services are classified, as goods and/or services is part of the Doha round of GATS negotiations, which was suspended in July 2006. Similarly, if energy imports from country A are based on renewable energy sources, while country B produces energy based on fossil fuels, the products from both countries, given that they are like products, would be subject to different requirements as to the amount of emission allowances accompanying the import and sale, thereby violating the MostFavoured Nation Treatment rule, Art. I:1 GATT 1994.

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the market that decides whether products are like or directly competitive or substitutable. If the market differentiates between electricity based on fossil (non-renewable) fuels and renewable (‘green’) sources, it could and should provide a legitimate basis for laws or regulations to do the same. The conditions of competition are in the first place set by consumers’ choices and merely ‘codified’ by respective regulation. Consumers increasingly base the choice of products on the manner of their production. This is evident in preferences for ‘organic food or ‘GMO-free food’, ‘turtle-safe shrimp’ or ‘dolphin-safe tuna’. Similar preferences start to apply to electricity providers where consumers show an increasing awareness and sensitivity to the source of electrical energy. There are clear indications that such consumption behaviour is likely to become more attuned to the effects of climate change as they become more palpable.34 Consumer choices would undoubtedly affect providers’ position in the market place. One could moreover ask whether different production processes pose different risks to human life and the environment and thus (indirectly) define the characteristics of the end product. Energy produced by fossil fuel combustion emits a significantly higher amount of CO2 than generation based on natural gas, while both fossil fuel energy sources have a higher climate impact than renewable energy sources. There is international scientific consensus regarding the causation of a globally changing climate by anthropogenic emission of CO2 and other greenhouse gases as there is consensus that a changing climate poses a threat to human life, health and the environment.35 It can be argued that processes that emit more greenhouse gases bear greater responsibility for the accumulation of greenhouse gases in the atmosphere, increasing the likeliness of a more violent global climate and the risk to human life, health and the environment. Since electricity can be linked to its generation process (i.e. by describing it in terms of ‘green power’), the health risks of the respective processes can be ‘associated’ with the end-product electricity and thus determine the non-likeness of ‘green’, ’not-so-green’, and ‘dirty power’. However, given the contentiousness of process-based discrimination, it remains yet to be seen whether different levels of risk or consumer perceptions of climate impacts associated with the production process will be recognized by panels or the Appellate Body as decisive criteria for the determination of likeness of products. Although the interpretation of the ‘like products’ clause seems to increasingly include environmental aspects, the interpretative ap34



35



See IEA Report, Energy Technology Perspectives: Scenarios and Strategies to 2050, June 2006. For an overview see Intergovernmental Panel on Climate Change, Fourth Assessment Report, Climate Change 2007: Synthesis Report, Summary for Policymakers, 2007.



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proach of the WTO panels and the Appellate Body remains subject to change. Some note of caution in this respect has been warranted in legal literature. Depending on the scope of market barriers and market distortions that could arise as a consequence of governments implementing comprehensive climate change programmes, panels and the Appellate Body may resort to a more conservative interpretation of the ‘like-product’ clause.36 Despite strong indications it cannot be concluded with certainty that electricity from different sources (renewable vs. fossil fuel-based) would be considered products that are not alike. 9.4.5 No less-favourable Treatment or Effective Equality of Competitive Conditions For a violation of Article III:4 GATT to have occurred it must further be shown that the regulation is not applied consistently to domestic and to imported products, thus hurting competitive opportunities of imports. In the example of imported non-green (or less-green) electricity and predominantly green domestic electricity – as is the case in Norway or New Zealand where domestic energy supply is almost exclusively based on hydropower – a different requirement of electricity importers and domestic providers in terms of emission allowances would have a stronger impact on imported electricity. The non-recognition of ‘non-Kyoto allowances’ could also amount to a barrier to market access for electricity based on fossil fuels and/or produced in nonKyoto Member states. This applies in particular to energy products entering the energy market after the initial allocation of allowances. In order to enable entrance to the domestic market of new domestic and foreign energy products, a certain amount of allowances can be set aside to build a reserve to be provided to new entrants. Out of such reserve, foreign and domestic ‘new entrants’ would receive the allowances necessary according to their emission projections in order to establish themselves on the market. The national treatment rule of Art III:4 GATT requires that imports from any other Member state must be treated in a manner equivalent to the best treatment afforded (‘no less favourable’) to a domestic product. This does not merely imply that imports from a foreign new entrant to the energy market have to be treated no less favourably than a domestic new entrant who wishes to enter the market after the initial allocation of allowances. It is suggested that an imported product must be able to compete on a level playing field with an established domestic like product,

36

See Buck/Verheyen, 2001, 9.

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rather than a ‘similarly situated’ domestic new product.37 Given the necessarily limited availability of allowances in such a reserve if allowances become scarce, according to the non-discrimination rule the importing government may be required to favour foreign ‘new entrants’ over domestic ‘new entrants’. However, such an outcome may cause some political controversy.38 It is not guaranteed that states set aside a reserve. In fact, the Norwegian system – a downstream system – does not entail such a reserve at all. Domestic and new foreign entrants need to ‘buy themselves into’ the existing emissions trading market depending on the availability of allowances, while installations that already have established themselves at the time of initial allocation receive allowances free of charge. The differentiation in treatment between domestic products and ‘new foreign products’ lies in the different operational costs of ‘establishing market presence’ and the access to allowances. The availability of allowances at the time of entering the new market can be reduced to zero when no reserves are in place and all available allowances have been allocated to domestic products, thus precluding market access entirely. While the availability of allowances will determine the ‘if’ of market access, the price of allowances generally determines the ‘how’ of such access. Both, non-available allowances or high allowance prices could result in de facto market entrance barriers. Whether trade rules would conflict with an emissions trading scheme also depends on evidence of the protectionist application of the climate rule. A country that logically can explain why a difference in treatment occurs might be able to show that protectionism did not prompt the measure. Unfortunately, logic alone might not necessarily suffice to convince a panel of the environmental objective of a measure that otherwise discriminates between like products. In Chile–Alcoholic Beverages, Chile offered four justifications for the imposed measure (revenue collection, eliminating type distinctions, discouraging alcohol consumption, minimizing regressive taxes), all of which seemed logical – but none of them was found to be convincing.39 When it comes to climate measures that bear heavily on the differential treatment of like or directly competitive or substitutable products, a logical explanation of non-protectionist motives of the measure appears to be a tenable justification, yet its convincing force has to be seen. One key problem is while climate measures that treat foreign products less favourably may not be motivated by protectionism, however, they might not 39 37 38

See Werksman, 1999, 258. Ibid., 258. Appellate Body in Chile–Alcoholic Beverages, WT/DS87/AB/R, 13. December 1999, 62.



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be entirely free of it either. In order to implement the commitments a country has made under the Kyoto Protocol it might be necessary to prevent or restrict high GHG emitting products (or products with high carbon content or with low energy efficiency) from entering its domestic market. Setting more restrictive requirements for such products and their producers for participation in an emissions trading market, i.e. via requiring emissions allowances according to GHG emissions in the production process (or the carbon content), might imply protectionist notions, in particular if domestic industry is based on renewable energy, low carbon products or products with high energy efficiency. It might even be necessary to protect a domestic ‘green’ industry in order to set up effective climate measures and to avoid ‘carbon leakage’, i.e. the relocation of polluting industries to countries with less stringent climate laws. It seems that the less concerns for the competitiveness of domestic industries play into the design of the measure the less likely it is that a panel would find the measure unjustifiably protectionist. But this is a fine line and determining whether it is breached must depend on the facts of the case and the willingness of the deciding panel to accept the competitive side effects that follow from the climate measure. 9.4.6 Conclusion Our brief analysis shows, that the possibility of conflict between the design of an emissions trading conflicting with rules of international trade cannot be ruled out. Given the increasing demand for energy and the central role the energy market plays in the global economy, it can be assumed that it is a mere matter of time before a government’s implementation of a comprehensive climate mitigation measure will be challenged. It can only be recommended here that WTO Member states be granted a margin of appreciation in implementing climate measures (or other measures protecting collective public interests) that also aim at protecting the effectiveness of a ‘climate-friendly’ industry. 9.5 GATT Exception Clauses If a climate mitigation measure taken in order to comply with the commitments under the Kyoto Protocol violates a substantive GATT obligation, it may nevertheless be found to be in compliance with GATT if it falls within one of the general exception provisions of Article XX (a)-(j). One needs to remember, however, that exception clauses provide a limited and conditional

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exception.40 They are ‘windows’ in the general structure of WTO law that allow outside, non-trade interests to be assessed and balanced against trade imperatives. 9.5.1 GATT Article XX(g): Relating to the Conservation of Exhaustible Natural Resources One requirement is that climate measures relate to an exhaustible natural resource. It is suggested here that the capacity of the Earth’s atmosphere to accumulate GHGs at a level that does not lead to changes in the average surface temperature has to be regarded as a natural resource. This notion of capacity embodies an element of limitation and finity. It is clear however that dealing with global climate change is an issue far more complex than any of the issues previously dealt with in WTO disputes. There are many and varying causes, the many mitigation measures vary widely too and their effects are difficult to predict. In addition, the UNFCCC allows for a certain degree of climate change. Article 2 focuses on stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. This article implies that to a certain extent climate change is supposed to be unavoidable.41 Another question is whether this capacity can be regarded an exhaustible resource. The Appellate Body made clear that the ability of a resource to renew itself does not exclude its exhaustibility.42 The processes responsible for maintaining a stable and safe global climate are being affected by human activity to the point of mal- or even dysfunction, by excessive emission of GHG and clearing of forested lands. Yet, it is the sum of human interferences and their accumulative effect that threaten the natural capacity of the Earth 40



41



42



See for a critique on the limitations of exception clauses: O. Perez, ‘Ecological Sensitivity and Global Legal Pluralism: Rethinking the Trade and Environment Conflict’, Oxford 2004, pp. 88–93 (focusing on ‘cognitive dilemmas’) and G. Winter, ‘The GATT and Environmental Protection: Problems of Construction’ 15:2 Journal of Environmental Law 2003, p. 115, claiming the need for a doctrinal construction of putting trade law into an environmental protection framework. Recent studies indicate that a temperature rise of 2°C above pre-industrial levels will have dangerous implications for human health and ecological system. See: Intergovernmental Panel on Climate Change, Fourth Assessment Report, Working Group II Report, Impacts, Adaptation and Vulnerability, chapter 19: Assessing key vulnerabilities and the risk from climate change, 2007. Also: European Union, Winning the Battle Against Global Climate Change, COM[2005] 35 final, 12–13. See Appellate Body in United States–Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, 12. October 1998, adopted 6 November 1998.



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to maintain a stable and safe global climate. Such a complex situation might resist definition by the conventional meaning of the term ‘exhaustible natural resource’. The Appellate Body in US–Shrimp observed in 1998 that the words ‘exhaustible natural resource’ crafted more than 50 years ago, had extended their meaning and must ‘be read by a treaty interpreter in the light of contemporary concerns of the community of nations about the protection and conservation of the environment’.43 Thus, it adopted an evolutionary interpretation. An extension of meaning by interpretation is also provided for by Article 31.3(c) of the Vienna Convention on the Law of Treaties according to which any relevant rules of international law applicable in the relations between the Parties shall – together with the context – be taken into account. Thus, an international instrument has to be interpreted and applied within the framework of the entire legal system prevailing at the time of interpretation.44 This terminology provides a mandate to examine other and general public international law in the course of interpretation.45 Such an interpretation would allow non-WTO international law to be taken into account when interpreting WTO provisions. Furthermore, by recognizing the objective of sustainable development as set out in the Preamble of the WTO Agreement, the Appellate Body in the US– Shrimp also acknowledged the legitimacy and importance of environmental protection as a policy worthy of promotion by the WTO. The consequence was to provide considerable ‘policy space’ to WTO Members so that actions taken in other fora can – to a certain extent – be seen coherent with trade law. In this light, the considerations underlying the UNFCCC and the Kyoto Protocol would also need to inform the meaning of the terms of the WTO covered agreements. Climate change certainly represents a contemporary concern of humanity. Considering the expected detrimental effects of climate change on, inter alia, the health, stability and resilience of ecosystems, on single species and biological diversity, on food production and fresh water access, on the spread of tropical diseases and the expansion of the North–South gap in general, climate change is recognized as one of the most urgent and important international concerns. Yet another requirement of Art. XX (g) GATT is a sufficient link, between the effects of a changing climate and the territory where a state exercises its jurisdiction. The dangers associated with an unstable global climate will affect

45 43 44

Appellate Body in US–Shrimp, para. 129. See Namibia (Legal Consequences) Advisory Opinion, ICJ Rep. 1971, 31. See G. Marceau, ‘Conflicts of Norms and Conflicts of Jurisdictions, The Relationship between the WTO Agreement and MEAs and other Treaties’, 35:6 JWT 2001, 1087.

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the community of states; every State will therefore, in effect, be justified in claiming such link. Moreover, the means need to be reasonably related to the ends and the relation between them a close and real one. The requirement of holding emission allowances for import and sale of energy products whose production was accompanied by high GHG emission rates (or a higher carbon content or higher energy intensity) need to stand in a ‘substantial relationship’ to the objective of climate protection. As previously asserted, the resource at stake is the capacity of the Earth to maintain equilibrium between GHG input and output, resulting in atmospheric concentrations that do not jeopardize the stability of the global climate. The relationship between the general structure and design of the measure and the policy of stabilizing greenhouse gas concentrations must be examined, something that may only be carried out on a case-by-case basis, by careful scrutiny of the factual and legal context of a given dispute.46 That said, some general requirements can be assessed here and now as evidence of the existence of such relationship. International emissions trading as set out in Article 17 Kyoto Protocol is explicitly defined as an instrument for the purpose of fulfilling the commitments under Article 3 of the Kyoto Protocol. It is, in other words, designed to encourage countries to comply with their GHG reduction commitments. Requiring emission units for emission intensive products aims at integrating their negative climate impact into the emissions trading scheme. The negative impact may derive from the production process, e.g. electricity based on the combustion of fossil fuels, or their use and consumption, e.g. electrical devices with low energy efficiency or ‘petrol-guzzling’ vehicles. It can be argued that this requirement is intimately connected with the policy of stabilizing GHG emission levels in the atmosphere and is not disproportionately wide in its scope and reach in relation to this policy. In sum, a climate measure, such as emissions trading, which requires differential treatment of products associated with high GHG emitting production technology and those produced with low or no emissions, is likely to be provisionally justifiable by GATT Article XX(g). 9.5.2 GATT Article XX(b): Necessary to Protect Human, Animal or Plant Life or Health In order to provisionally justify a climate measure under GATT Article XX(b) the measure must be necessary for the protection of human, animal or plant 46



See Appellate Body in US–Gasoline, 19.



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life or health. The policy objective to protect a stable global climate surely falls within this range. According to the Appellate Body, there needs to be a sufficient evidence of risk to human, animal or plant life or health associated with the policy goal of the environmental measure. With regard to climate measures, there is scientific evidence that unrestricted emissions of greenhouse gases endanger the global climate system, constituting in turn a risk to humans and the environment. The 2007 Fourth Assessment Report of the IPCC enumerates on the basis of credible evidence the risks associated with a changing global climate.47 Although the exact timing and local distribution of climate effects are still under scientific investigation, current knowledge and scientific consensus see changing climate patterns as a risk to humans, animals and plants. Thus, a climate measure aiming at reducing the emission of greenhouse gases also aims at protecting a stable global climate and preventing dangerous interference with the climate system, thereby reducing the risk of adverse impacts on human, animal and plant life or health. The importing country might not profit directly from the climate measure as it is impossible to establish a direct causal relationship between a special measure to reduce GHG emission and local effects. Yet, any reduction reduces the probability and magnitude of harm to human, animal or plant life or health. The second condition of Article XX(b), the necessity requirement, is more controversial. According to WTO jurisprudence, for a measure to be ‘necessary’, no ‘GATT consistent’ or ‘less GATT inconsistent’ measure should be reasonably available.48 This approach is considered to show deference and give flexibility and policy space to national governments. Important here is the availability of alternative measures that are GATT consistent or less inconsistent. Taking into consideration the effort put into negotiating the Kyoto Protocol, it becomes evident that the availability of alternative collective measures is hard to imagine. The negotiations resulted in a quantified reduction commitment of Annex B Parties primarily because certain leverages were built in. The use of flexibility mechanisms, in particular international emissions trading, was essential to an agreement on reduction commitments. Thus, inclusion of an economic means such as emissions trading seemed the only alternative to get states ‘on board’. The question is therefore whether, in the design of emissions trading, a GATT-consistent or less GATT-inconsistent measure could be envisaged. A

47



48

For an overview see Intergovernmental Panel on Climate Change, Fourth Assessment Report, Climate Change 2007: Synthesis Report, Summary for Policymakers, 2007. GATT Panel in Thailand–Restrictions on Importation of and Internal Taxes on Cigarettes, 7 November 1990, DS10/R, para. 75.

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straight downstream emissions trading system covering point sources of GHG emissions, for example, might pose fewer GATT challenges. The rationale of an upstream system, however, is to ensure the inclusion of negative climate impacts of highly emitting products into the trading system and to require respective processes to internalize environmental costs. In other words, the inclusion of these sources renders an emission trading system more effective. The question is therefore whether the necessity test requires a less restrictive measure to be chosen even if it is less effective. The Appellate Body indicated that ‘the more vital or important [the] common interest or values’ pursued, the easier it would be to accept as “necessary” measures designed to achieve those ends’.49 The objective pursued by emissions trading is the reduction of greenhouse gases in a cost-effective manner. This aim represents the value the international community attaches to a stable global climate system. Thus, if trade restrictive measures are chosen as a means of complying with these commitments, the vital and important common interest in the end pursued by these measures has to be taken into account. A provisional justification of trade restrictive climate measures seems therefore possible. 9.5.3 Chapeau of GATT Article XX At this stage, the manner of application seeks justification. Even if the policy objective of a climate measure falls within the terms of Article XX (b) or (g), it is not justified under Article XX if the operational provisions or application constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. To what extent a climate measure would be found rigid and unbending by not taking into account the conditions in the states affected by the imposition depends on the facts of a case. The panel in US–Shrimp seemed to favour implementations based on the application of certain standards.50 However, no international standards on emissions of GHG from industrial processes exist. Moreover, the intended or de facto coercive effect of a climate measure on the climate policy of other governments would need to be accompanied by a degree of discretion or flexibility in how to compare foreign climate policies and domestic ones. However, if a state decides to require emission units on the import of energy products based on fossil fuels (or electricity49 50



Appellate Body in US–Shrimp para. 162. Panel in US–Shrimp II, 5.124.



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intensive products), the state will be imposing its own regulatory programme on other states. Such imposition might, however, be a necessary corollary of the multilateral commitment to the purpose and objective of the climate regime. If a state sets up national policies and measures, including a system of tradable emission units, then expectations are harboured that other states have implemented comparable or identical programmes. Thus, it is not the state’s own policy that is imposed on other states, but a reflection of the collective interest and expectation of all states committed to the overall objective of the UNFCCC. Flexibility should not require different regulatory programmes to be implemented by a state in order to differentiate between Kyoto Members and those that are not. However, if in the country of export, the product already paid a carbon tax or was subject to an emissions offset requirement, this must be “deducted” from any climate regulation in the importing country. To treat those imports in the same way as imports from a country without any climate change policy would arguably be treating different situations the same, hence, discriminatory. Under the prohibition of ‘arbitrary discrimination’, the importing state imposing the trade restrictive measure would need to allow each WTO Member potentially affected by the measure to show how its climate change policy tackles emissions from the sources covered by the emissions trading scheme. While Kyoto Members included in Annex B in most cases could prove to have a programme comparable in effectiveness in place, nonKyoto Members might have difficulties establishing evidence of an effective climate change programme.51 In these cases, it remains unclear how differences in prevailing conditions could or even should be taken into account when applying the trade restrictive measure. In addition, the states involved in a trade dispute over climate measures need to have engaged in serious, across-the-board negotiations with the objective of concluding bi- or multilateral agreements on the protection of the global climate system. Here it can safely be said that the international negotiations on the UNFCCC and the Kyoto Protocol represent profound and substantial efforts to reach a global agreement on the issue. The protection of the climate system as an issue of global concern is expressed and acknowledged in multilateral environmental agreements, policy declarations and national and international scientific expert reports. There is to date no other environmental challenge that has received as much political attention and been the object of

51

It has been suggested to use as a starting point the National Reports submitted by the Parties to the UNFCCC and to the Kyoto Protocol encapsulating all national policies and measures on climate change in accordance with Arts. 4.1 and 12 UNFCCC and Arts. 5, 6 and 8 of the Kyoto Protocol.

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such long-term and wide-ranging diplomatic efforts. Thus, no argument based on missing concerted or cooperative efforts and resulting unilateralism would appear to be plausible. Furthermore, a measure will constitute an abuse if it is a disguise to conceal the pursuit of trade-restrictive objectives. Whether a measure is applied for protectionist purposes can often be discerned from its design, architecture and revealing structure.52 The effect of favouring domestic products alone does not render a trade restrictive measure protectionist. The panel in EC– Asbestos admitted that there is always a possibility that measures might have a protectionist effect. ‘[T]his is a natural consequence of prohibiting a given product and itself cannot justify the conclusion that the measure has a protectionist aim, as long as it remains within certain limits’.53 However, these limits or the extent to which domestic products or industry may benefit to the detriment of third country producers have not been quantified and their determinations remain basically within the judicial discretion of the DSU. This, arguably, constitutes an obstacle to the predictability of the justifiability of trade-restrictive climate measures. Some of the criteria introduced to ascertain the existence of such disguise are the ‘publicity’,54 transparency,55 and ‘the design, architecture and revealing structure’56 of the measure. With regard to an emissions trading scheme, a clear public announcement of the sources, products and processes covered will likely be made. As for the second criterion, even if there were protectionist concerns as regards domestic energy production, they would need to be discerned from the design of the emissions trading scheme. Here, the inclusion of other sources of greenhouse gas emissions as well as the equal application of the trading system to all imported products would make it difficult, if not impossible, to discern such motives. Although some conclusions can be drawn, considerable uncertainty remains as to the precise meaning of the terms of the chapeau.57 The examination is 52



53



54

55



56



57

Panel in European Communities–Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/R, para. 8.236. Ibid., para. 8.238. See Panel in US–Canadian Tuna, which noted that “the United States’ action should not be considered to be a disguised restriction on international trade, noting that the United States’ prohibition of imports of tuna … had been taken as a trade measure and publicly announced as such.”, para. 4.8. See discussion by Fauchald, Ole Kristian, Environmental Taxes and Trade Discrimination, London 1998, 451–453. Panel in EC–Asbestos, para. 8.236; also in US–Shrimp (Art. 21.5), para. 5.142. See, for example, the most recent Appellate Body report on the Brazilian import ban of retreated tyres from the EC: Brazil–Measures affecting Imports of Retreaded Tyres, WT/ DS332/AB/R (3 December 2007).



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contingent on the facts of the case and GATT and WTO practice so far has failed to come up with a clear and consistent test of what is to be considered ‘arbitrary’, ‘unjustifiable’ or ‘disguising’. This situation is unsatisfactory not only because it leaves so much to the discretion of the panels and the Appellate Body, but also because recent practice shows that when discrimination is considered unjustified under Article XX, the legal argumentation is essentially based on the chapeau. It remains unclear how panels or the Appellate Body will decide in the face of a significant potential for trade distortion, the degree of prevailing scientific uncertainty as to the concrete effects of the measure, and the timing and locality of climate change impacts and the absence of international standards on greenhouse gas emissions in production processes of energy products. The legal uncertainty and lack of clarity in this respect may not only enhance the ‘regulatory chill’, they also impact the timeliness and effectiveness of climate change response measures. 9.6 Conclusion In conclusion, a number of uncertainties can be said to exist as to how a panel or the Appellate Body would view a trade restrictive emissions trading scheme. This applies in particular where the design of an emissions trading system affects non-Kyoto Members’ sovereign interests. While currently existing emissions trading systems appear unlikely to come into conflict with WTO rules, one would expect future designs to include more stringent emission caps, more gases, sources and emitting products and processes. Such design of an emissions trading system is within the general mandate given by the Kyoto Protocol. Given the fact that significant reductions down to a fragment of current emissions are required to stabilize atmospheric GHG concentration levels to prevent dangerous climatic change and that emissions trading has been identified as a cost-effective way to reach a given reduction target, the evolution of much more stringent emissions trading schemes appears likely. A restrictive emissions trading system may indeed be necessary for reasons of effectiveness of the multilateral climate regime. However, discriminatory treatment or general exclusion of participants from non-Kyoto countries as well as a design which requires emission allowances to accompany the import and sale of fossil fuels, energy products or energy-related services with high levels of GHG emissions in their production process, may infringe substantive non-discrimination rules contained in GATT. While exception clauses appear applicable to this situation, WTO jurisprudence suggests they might

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not remedy all infringements of WTO law. Where climate measures cannot be justified under Article XX GATT a normative conflict exists.

Chapter 10

The Clean Development Mechanism and WTO Rules

10.1 Introduction The implementation of the Clean Development Mechanism interacts with the economic relations between States, prompting yet another series of complex questions regarding the relationship to WTO rules. Because the CDM is the only instrument of the Kyoto Protocol to include non-Annex I countries in efforts to reduce greenhouse gas emissions, it is considered an important catalyst for starting and spreading climate-friendly initiatives, technology, capacity and financial resources in these countries. In particular, its likely function as a role-model for post 2012 strategies, which combine mitigation efforts in Annex I Parties with climate projects in the developing world, not only make it necessary but opportune to ponder upon the trade relation of this instrument. Because the rules guiding CDM projects have only recently been finalized, the manner in which they interact with international trade provisions remains to be seen. The assessments in this paragraph can only be hypothetical as none of the so far 950 registered CDM projects have given rise to claims of WTO law incompatibility. The CDM field is rapidly evolving and the demand for clarification of the relationship between the two sets of rules is increasingly urgent. Although the question of compliance with trade rules can only be determined by the dispute settlement body of the WTO, the analysis is nevertheless of importance from the perspective of attracting investments for CDM projects. Concerns about infringement of trade rules would tend to exert a ‘cooling effect’ on future negotiations on CDM or climate protection measures after 2012 in general, and may diminish willingness of potential project participants, both on the side of investors and the hosts, to engage in CDM projects. CDM projects can entail diverse types of international business and trade transactions. In most cases a CDM project will be based on a bilateral

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partnership between a developed country and a developing country. Project developers in most cases will be private investors from Annex I States who set up State contracts with developing States, where the private Party on the one side enters a contractual relationship with a sovereign Party on the other. CDM project creation will not necessarily be limited to individual private investors. Project developers and investors can be distinct entities from the same or from different countries. The project developer could also be a local company, a consortium or joint venture, a multinational corporation or local, regional or national government.1 Further, an international organization, e.g. the World Bank Prototype Carbon Fund, could be involved that pools financial resources, manages projects or channels funds to eligible project developers. Brokers could also be involved to mediate contact between private investors and projects. Depending on the scale and type of a project, the project developer might carry out the entire project on his own or arrange for local and/or foreign companies to provide services required by the project. Some developing countries may even want to develop unilateral CDM projects, and develop and finance them without entering into partnerships with Annex I countries with the prospect of selling CERs on the international emissions trading market.2 Depending on WTO membership of the involved countries in a CDM project, WTO norms could govern all or parts of these economic relations. Not only international trade in goods and international trade in services but also technology transfer under a CDM can be related to WTO covered agreements. The operation of the CDM will involve substantial investment decisions and attract significant financial flows to and from Kyoto Parties that might not otherwise occur. Although WTO rules are not directly applicable to investments per se, they may nonetheless be relevant to the trade-related aspects of investment activities.3 We would need not only to examine financial and other kinds of services and their relation to GATS, but their interface with the SCM Agreement and the TRIMS Agreement as well. Due to limitations of scope, we will focus on GATS in the following elaborations. As an initial step, the first paragraph seeks to scope the types of services involved in CDM projects. In the second step we examine the relationship to rules of GATS.



1 2



3

Wiser, 2002, 296. See M. Jahn, A. Michaelowa, S. Raubenheimer, H. Liptow, Measuring the Potential of Unilateral CDM – A Pilot Study, HWWA Discussion Paper, 2004, 263. See Murase, 2003, 13.



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10.2 CDM Activities as Services under GATS The CDM project activity cycle has seven distinct steps: (1) Project design, (2) National Approval, (3) Validation and Registration, (4) Project Financing, (5) Monitoring, (6) Verification and Certification, and (7) Issuance of units for Certified Emission Reductions – CERs. At a minimum, steps 1, 4 and 5 will involve different services. The designing stage, for instance, requires technological, accounting and legal services. While the project design originates with the host country, it can be modified in cooperation with other entities, presumably from Annex I countries. A CDM project involves numerous activities which collectively could be described as ‘CDM project activity services”.4 Skills and capacity of a high order are needed to successfully complete a project. At times they can be in scarce supply in host countries. Project success rests on the successful completion of many subordinate tasks, including, e.g., (i) feasibility studies based on the potential of the project and local conditions; (ii) gaining the approval of the host government; (iii) defining the project boundaries; (iv) designing baseline methodology; calculating baseline emission amounts and reduction achieved by the project; (v) carrying out adjustments to compensate leakages; (vi) accessing proof of additionality; (vii) structuring monitoring methodologies and ditto plan; (viii) preparing environmental impact assessments, and (ix) ensuring reliable stakeholder consultation.5 Designing a CDM project will also, inter alia, require construction and related engineering services, architectural and planning services, transport and distribution services, as well as legal and accounting services. If they are not already attached to the project, these services will need to be drafted in the pre-project period. Apart from the services employed in the development of a CDM project, other responsibilities fall within the purview of CDM projects such as project implementation, management and monitoring, the subsequent trade in CERs and ‘secondary” financial services related to trade in CERs.6 Whether these ‘CDM services’ are covered by the General Agreement on Trade in Services depends on the service categories of the Agreement. In the absence of a generally agreed definition of ‘service’ under the Agreement, the WTO secretariat has published a Services Sectoral Classification list, which

4 5



6

Wilder, 2002, 290. For a project design checklist see Appendix B of the Marrakech Accords and the Project design Development Document Form (PDD CDM) developed by the Executive Board available at . For an overview over service categories see also Springer, 2000, 65–84.

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divides all services into 12 categories and a large number of sub-categories (see Table 1).7 Table 1: GATS Service Sectoral Classification List – Overview No.

Category name

No.

Category name

1

Business Services

7

Financial Services

2

Communication Services

8

Health Related and Social Services

3

Construction and Related Engineering Services

9

Tourism and Travel Related Services

4

Distribution Services

10

Recreational, Cultural and Sporting Services

5

Educational Services

11

Transport Services

6

Environmental Services

12

Other Services not Included Elsewhere

Source: WTO

Most WTO Members have provisionally or by mandate adopted this Services Sectoral Classification list to describe and categorize their GATS commitments. A list of specific agreements sets out the sectors in which the corresponding countries have to apply the substantive provisions of GATS. The commitments on this list can either apply to all sectors or to single sectors and sub-sectors. The listed general categories and sub-categories will also cover the various aspects of CDM development and implementation (see Table 2). The core services of a CDM project are likely to fall under category 6, ‘Environmental Services’, most likely under category: ‘D. Other’, although the inclusion in one of the other three subcategories is not excluded. United Nations Central Product Classification (CPC), which replicates the GATS subcategories, includes the following services in the sub-category ‘other’: cleaning services of exhaust gases; noise abatement; nature and landscape



7

See WTO, MTN.GNS/W/120, (98–0000), 10 July 1991 (available at ).



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Table 2: GATS Services Sectoral Classification List – Relevant Sectors for JI/CDM No. Category 1

Business Services

Subcategory A.

C. F.

6

Environmental Services

Professional Services

Research and Development Services

Other Business Services

A.

Sewage

C.

Sanitation and Similar Services

B.

D.

Activities b) e) f)

a) c)

Accounting, auditing and book keeping services Engineering services Integrated engineering services

R&D services on natural sciences Interdisciplinary R&D services

c) d)

Management consulting services Services relating to management consulting f) Services relating to agriculture, hunting and forestry i) Services incidental to manufacturing j) Services incidental to energy distribution m) Related scientific and technical consulting services

Refuse Disposal Services

Other

Source: WTO

protection services; and other environmental protection services.8 Cleaning services of exhaust gases include emission monitoring and control services of pollutants in the air; whether from mobile or stationary sources; concentration monitoring; and control and reduction services of pollutants in ambient air.9

8



9

Although there is no direct applicability of this list to GATS, the WTO Secretariat has made use of the CPC for structuring and enumerating the lists of specific commitments to the GATS. CPC Nr. 9404.

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Some CDM services tend, it seems, to cluster under this category or under ‘other environmental protection services’.10 CDM services include also numerous categories, in particular business services (Category 1) and sub-categories such as ‘A. professional services’, e.g. auditing, integrated engineering services, ‘C. research and development services’ and ‘F. other business services’.11 All four modes of service supply are possible under the CDM. Cross border supply (mode 1) of some environmental services, although previously considered lacking technological feasibility, could now be feasible, e.g. satellite-based monitoring, cost estimations, feasibility studies. The other three modes – consumption abroad, commercial presence and the presence of natural persons seem to be involved by the majority of services covered by a CDM project. Given that a host country is a Member to the WTO, services, such as business and engineering services are thus in general covered by the obligation to accord the same treatment to services and like services from all Member States and not to discriminate services from different Members.12 In addition, States that have made specific commitments in service sectors covered by CDM (e.g. environmental or business service sectors) have to give market access and treat all like services from Member States no less favourably than national service providers (National Treatment rule in Article XVII). Under GATS, service categories are generally mutually exclusive. A service falls within a category or it does not. The complexity of interlinked and interdependent CDM services, however, means that a CDM investment could cover several service categories – making it difficult to assess whether a CDM project as such would be covered by the categories of GATS, and if so, to which of the services the non-discrimination clauses would apply. The situation is likely to arise it seems when some of the services employed in one CDM 10





11

12

Springer gives a further argument by comparing the GATS/CPC list with a list provided by the OECD and Eurostat, the statistical office of the EC, which more explicitly defines this category as ‘any systematic and creative activity which is concerned with the generation, advancement, dissemination and application of scientific and technological knowledge to reduce or eliminate emissions in all environmental media and to improve environmental quality. Included creative scientific and technological activities for the development of cleaner products, processes and technologies’. See COM/TD/ENV(98)37/ FINAL. Springer, 2000, 75–76. See Springer, 2000, 74. The US has proposed in the GATS committee an inclusion of service activities in support of the protection of ambient air and climate, i.e. services which reduce exhaust emissions and other emissions to improve air quality, as an environmental service. See Brack and Gray, 2003, 22, fn. 46.



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project are covered by liberalized categories of a host State while others fall within restricted categories or do not fall within any service sector of GATS at all. This situation challenges a coherent approach to WTO compatibility. This ambivalent situation has positive and negative consequences. If CDM services do not fall within a liberalized service sectors, the national treatment and market access rules of GATS do not apply. At the same time, a closed market may discourage potential participants from joining a CDM project. Springer notes that the small number of commitments in the environmental service sector is unfortunate for three reasons. First, specialization is less profitable in a smaller market; second, cost differentials are reduced leading to a narrower possible range of projects and respective range of reduction costs; and third, open market access enhances the number of participants and helps ‘closing deals’ between industrial and developed countries.13 In order to support an open service market, the suggestion has been made to ‘cluster’ CDM services. This issue links to the discussion of including what are known as service-clusters in the Schedule of Commitments. Such an approach is based on the idea that GATS-specific commitments could be negotiated for ‘clusters’ of interdependent services classified in different parts of the GATS Services Sectoral Classification List.14 As mentioned above, CDM activities cross multiple service sectors and it might be in the interest of host countries and investor countries alike to liberalize markets when accommodating CDM projects. Clustering the various respective services could lead to the set-up of a specific ‘CDM cluster’. Table 3 maps, in broad terms, a possible cluster approach to CDM activities. Table 3 Transport Services Environmental Services



13 14

Financial Services

CDM Business Services

Construction Services Educational Services

Springer, 2000, 80. OECD, Trade Directorate/ Trade Committee, TD/TC/WP(2000)9/FINAL, Assessing Barriers to Trade in Services using ‘Cluster’ Approaches to Specific Commitments for Interdependent Services, 07 November 2000, 4.

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The shaded areas represent those parts of service sectors that could form part of a CDM project cluster (the ‘cluster services’, e.g. transport services related to the activity). It is important to recall at the outset that these related services would not actually move their position in Services Sectoral Classification List and that all commitments would still be scheduled under their existing heading. However, particular issues for scheduling commitments may arise for clusters in terms of identifying specific parts of infrastructure services which are related to the core service (the shaded parts). If Members wanted to make commitments in these services, including on an autonomous basis, it would need to be clear exactly which activities were covered by the commitment. While it is possible to refer to cluster services in general terms (e.g. construction services related to CDM), it is unclear how useful this would be when it came to making commitments.15 However, the discussion shows clustering might be a move to get around the rather stringent categorization of services while providing a more flexible approach to market liberalization. This is also indicated by the work of the OECD Secretariat, where the role played by environmental services alone, comprising – inter alia – services in the design, engineering, construction, installation, maintenance and upgrading of environmental facilities and systems, has been stressed.16 The Secretariat has compiled a chart comparing the integrated classification for environmental services used in the OECD Environmental Goods and Services Industry Manual17 with the ‘vertical’ sectoral classification used in the GATS.18 It suggests that a broader definition/ classification of environmental services could be used for trade negotiation purposes that would not necessarily require an overhaul of the GATS classification system. The Secretariat has explored several options in this regard,

15 16



17



18



Ibid., 14, for a similar approach to tourism. Environmental Goods and Services: an assessment of the environmental, economic and development benefits of further global trade liberalisation, OECD, COM/TD/ ENV(2000)86. OECD/Eurostat, The Environmental Goods and Services Industry, Manual for Data collection and Analysis, 1999. The OECD/Eurostat definition includes services provided to “measure, prevent, limit, minimise or correct environmental damage to water, air, soil, as well as problems related to waste, noise and eco-systems. The classification system encompasses services relating: (i) to pollution management, including those related to the construction and installation of facilities for such purposes; as well as services related to the installation and utilisation of (ii) cleaner technologies and products, and (iii) technologies and products which reduce environmental risk and minimise pollution and resource use”. See Table 4 in COM/TD/ ENV(2000)86.



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including a core and cluster approach based on an updated classification of core environmental services.19 This notion of going outside of the GATS classification in the context of environmental services liberalisation has also been considered by APEC, which has compiled a consolidated list of services related to the environment, many of which are classified in other chapters of the GATS. This recognition across various fora of the limited nature of the GATS classification is indicative of potential benefits attached to a cluster approach to the environmental sector. However, if such a cluster approach is going to be implemented, markets will be open to competition, and restrictions on the basis of Kyoto Membership could constitute an infringement of GATS market access and nondiscrimination rules. The higher the level of market access, the higher the likelihood of hosting foreign investments. However, once the market has been liberalized, the same access needs to be given to all services and service suppliers from WTO Member States and to domestic and foreign suppliers alike. 10.3 Participation in CDM Activities and Discrimination The Most-Favoured Nation clause of Article II GATS is applicable to all services that fall within the scope of the agreement irrespective of whether specific commitments are undertaken or not.20 Given that a potential host country is a Member of the WTO, services, such as business and engineering services, are thus in general covered by the obligation to accord the same treatment to like services and service suppliers from all Member States and not to discriminate among services from different Members. A central aspect of CDM activities relevant to this rule is the choice and treatment of service providers in the development and implementation of a CDM project. Here, the question arises whether a host country, according to WTO rules, could differentiate between CDM project providers based on the provider’s home country status of an Annex I or non-Annex I country or upon the ratification of the Kyoto Protocol or the compliance status. In other words, could project developers from countries that have not acceded to the Kyoto

19 20

COM/TD/ENV(2000)86. As mentioned above, this is conditioned on the Member not having sought an exemption at the time of the acceptance of the Agreement (for acceding countries: date of accession). These exemptions are contained in country-specific lists, and their duration must in principle not exceed ten years. The provision in Art. II:2 GATS provides justification for giving the country or countries specified in the exemption more favourable treatment. See GATS Art II:2 and GATS Annex on Art II exemptions.

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Protocol or have not complied with their binding commitments be excluded from carrying out a CDM project to the point of receiving emission credits? Such exclusion, if imposed by the local, regional or central government of the host State and of general application, i.e. by law, regulation, rule, procedure, decision, administrative action, may come into conflict with the Most Favoured Nation clause of Art II GATS. Legal analysts have frequently referred to this possibility as one example of direct conflict between WTO and climate rules.21 While it is somewhat difficult to see why developing countries wanting foreign investment would focus particularly on CDM, it appears necessary for those who want to host CDM projects to exclude services from non-Kyoto Parties. Recent analyses of the CDM show the significant efforts undertaken by developing countries to attract CDM investments.22 However, as a result of entry barriers into the CDM, the number of recipient countries of large CDM investments is small.23 Hosts countries which have attracted the development of large-scale CDM projects include India, China, Costa Rica and Brazil.24 Apparently, States heavily reliant on coal for their energy needs or which host major energy users that are relatively inefficient tend to have the greatest potential for larger, cheaper CDM projects.25 On the other hand, primarily due to missing infrastructures and investment uncertainty, African countries are supposed to benefit the least.26 Potential host States might compete for CDM funding. In fact, nurturing CDM investment opportunities is seen as a task to be carried out by host States.27 Unsurprisingly, an evolving market of capturing CDM investments has been observed. Many analysts now accept that only countries with the 21



22



23 24



25



26



27



Wiser 2002, 297–298; Murase, 13; Buck and Verheyen 2001, 28 and 41; Charnovitz 2003, 156; Voon, 2000, 106; Werksman, Baumert, Dubash, 2001, 9–10; and 2003, 71 et seq. (with regard to discrimination between investors). IETA Position, 2004, Lessons Learned in the CDM. S. Foot, ‘An Evaluation of the Present Clean Development Mechanism’, 16:3 ELM, 2004, 128. Energy for Sustainable Development LTD (2003) CDM Susac Background ESD, ). One analyst goes so far as to calculate prospective project distribution. He suggests the credits are accounted for by China will cover 47 per cent, those by India 11 per cent. Z.X. Zhang Meeting the Kyoto Targets: the Importance of Developing Country Participation, FEEM Working Paper No. 30, 2001, Honolulu Fondazione Eni Enrico Mattei (FEEM) 1–13. S. Foot, 2004, 128; F. Jotzo and A. Michaelowa, ‘Estimating the CDM Market under the Marrakech Accords’ (2002) 2:(2–3) Climate Policy, 179–96. EcoSecurities (2002). Moving Towards Emissions Neutral Development (MEND) Oxford, EcoSecurities, 8. A. Michaelowa, ‘Interest groups and efficient design Development Mechanism under the Kyoto Protocol’ Discussion Paper No 58 (Hamburg HWWA). Foot, 2004, 128.



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best-prepared, most dynamic infrastructure will attract CDM investment, despite the fact that the UNFCCC requires a geographically equitable distribution of investments across non-Annex I Parties – a requirement that cannot currently be enforced.28 There is a potentially high demand for CERs that needs to be linked to the demand for CDM investments in host countries.29 The initial imbalance between demand for CERs and what CDM is producing, which was primarily due to insufficient quality of project designs, uncertainties attached to the requirement of additionality and the complexity of the entire CDM process that made it difficult to integrate CDM projects into the normal course of business processes, seems to be rapidly improving.30 Thus, the existing obstacles in design, requirements and process are likely to be overcome soon, enabling a functioning linkup between CDM demand and CER supply. In an increasing CDM market, host countries may indeed be interested in attracting investment only from Kyoto Parties that results in CERs. The question is therefore whether there is a legal requirement to exclude participants from non-Annex I Parties or Annex I Parties that have not ratified the Kyoto Protocol. The restriction of State participation follows from the Kyoto Protocol in combination with the Marrakech Accords (MA). The Marrakech Accords specifically provide that State participants in the CDM, whether or not included in Annex I, need to meet certain eligibility requirements. First and foremost, the non-Annex I Party needs to be a Party to the Kyoto Protocol: 30. A Party not included in Annex I may participate in a CDM project activity if it is a Party to the Kyoto Protocol.31

In order to use CERs for complying with their commitments, Annex I-Parties have to meet further requirements. The Marrakech Accords state: 31. Subject to the provisions of paragraph 32 below, a Party included in Annex I with a commitment inscribed in Annex B is eligible to use CERs, issued in accordance with the relevant provisions, to contribute to compliance with part of its commitment under Article 3, paragraph 1, if it is in compliance with the following eligibility requirements: (a) It is a Party to the Kyoto Protocol;





28

31 29 30

EcoSecurities, Moving Towards Emissions Neutral Development (MEND) (Oxford, 2002) 8. Energy for Sustainable Development. IETA GHG Market Position 2007, CDM, 3. Ibid. FCCC/CP/2001/13/Add.2, Decision 17/CP.7.

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(b) Its assigned amount pursuant to Article 3, paragraphs 7 and 8, has been calculated and recorded in accordance with decision –/CMP.1 (Modalities for the accounting of assigned amounts); (c) It has in place a national system for the estimation of anthropogenic emissions by sources and anthropogenic removals by sinks of all greenhouse gases not controlled by the Montreal Protocol, in accordance with Article 5, paragraph 1, and the requirements in the guidelines decided thereunder; (d) It has in place a national registry in accordance with Article 7, paragraph 4, and the requirements in the guidelines decided thereunder; (e) It has submitted annually the most recent required inventory, in accordance with Article 5, paragraph 2, and Article 7, paragraph 1, and the requirements in the guidelines decided thereunder, including the national inventory report and the common reporting format. For the first commitment period, the quality assessment needed for the purpose of determining eligibility to use the mechanisms shall be limited to the parts of the inventory pertaining to emissions of greenhouse gases from sources/sector categories from Annex A to the Kyoto Protocol and the submission of the annual inventory on sinks; (f) It submits the supplementary information on assigned amount in accordance with Article 7, paragraph 1, and the requirements in the guidelines decided thereunder and makes any additions to, and subtractions from, assigned amount pursuant to Article 3, paragraphs 7 and 8, including for the activities under Article 3, paragraphs 3 and 4, in accordance with Article 7, paragraph 4, and the requirements in the guidelines decided thereunder.32







However, the Marrakech Accords do not explicitly deal with participation of Parties that are Annex I Parties but are not Parties to the Kyoto Protocol. While it is redundant to say that these States do not need to use CERs to further compliance with their commitments under Article 12, they might however have an interest in acquiring CERs via CDM projects. Such an interest in CERs could be revenue motivated by the prospect of selling them on the international emissions trading market. CERs are considered to have an inherent value as an investment that could be sold to countries where CERs have value in the legal system.33 CERs can also be used to achieve compliance with national reduction commitments if the national system recognizes these credits.34

32 33

34





FCCC/CP/2001/13/Add.2. Werksman and Santoro, 2001, 200. They also note in this context that ‘if CERs are designed as a tradable commodity, it is entirely possible that an investor without commitments of its own would see the investment potential in buying and holding CERs to sell to the highest bidder should supplies become scarce.’ 2001, 199. For example, it may be possible that the US state-based emissions trading systems recognize CERs for compliance with ‘state caps’.



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It is generally accepted that nothing in the Marrakech Accords prevents non-Annex I Parties from carrying out unilateral CDM projects.35 Another, related question, however, is whether a formal restriction exists on Annex I Parties that have not ratified the Kyoto Protocol to engage in CDM projects. The roles of these Parties as well as Annex I Parties with no commitments inscribed under Annex B of the Protocol are not clear. As set out by MA provisions, until the Protocol entered into force, all Parties to the Convention could participate in CDM projects.36 After that, non-Annex I Parties may participate only if they are Party to the Protocol and fulfil the requirements of eligibility at the time at which they want to use CERs for compliance, i.e. at the end of the compliance period. Thus, the CDM modalities do not explicitly exclude the possibility of non-Parties to the Protocol participating in CDM projects in other ways than using CERs for compliance purposes. Some scholars suggest therefore that non-Parties to the Kyoto Protocol could engage in CDM activities and sell CERs on the emissions trading market since they are not subject to the restrictions on the ‘use’ of CERs.37 They might however find it difficult to sell CERs since the rules of Article 17 of the KP preclude these States from participating in emissions trading. Only Annex I Parties with commitments inscribed in Annex B of the KP that have ratified and or acceded to the Protocol may acquire and transfer credits.38 Even if it is accepted that non-Kyoto Parties can participate in CDM activities, it is assumed that in most cases it will be private entities that actually get involved in these kinds of projects. CDM project participants could be the project developer, the purchaser of CERs and the investor or financier of the project. As part of the registration, all participants must sign a statement for the Executive Board lining out the way in which they will communicate with the Secretariat and the Executive Body with regard to instructions on CER allocation.39 A non-Kyoto entity wishing to participate in the CDM needs to become a ‘project participant’. With regard to private entity participation, the Marrakech

35

38 39 36 37

See Jahn et al. Unilateral CDM – Chances and Pitfalls, GTZ, Division 44 – Environment and Infrastructure, November 2003, 5; UNFCCC (2001); Jahn et al., Measuring the Potential of Unilateral CDM – A Pilot Study, HWWA Discussion Paper, 263, 2004, 13. See also: Work Programme on mechanisms (Decisions 7/CP.4 and 14/CP.5), Report by the Co-Chairmen of the negotiating group, FCCC/CP/2001/CRP.2, Bonn; Yamin and Depledge, 2004, 149. See Yamin and Depledge, 2004, 149. H. Wilkins, ‘What’s New in the CDM?’ (2002) 11:2 RECIEL, 145. FCCC/2001/CP 13/Add.2, para. 6, 8, 9. See Wilkins, 2002, 145–146. See Executive Board: .

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Accords clearly set out the requirements of eligibility. Only a country that is a Party to the Kyoto Protocol may authorize private entities to participate in the CDM: 33. A Party that authorizes private and/or public entities to participate in Article 12 project activities shall remain responsible for the fulfilment of its obligations under the Kyoto Protocol and shall ensure that such participation is consistent with the present annex. Private and/or public entities may only transfer and acquire CERs if the authorizing Party is eligible to do so at that time.40

Private entity participation includes authorized domestic and foreign entities from Annex I States that are Parties to the Kyoto Protocol (Article 12.9). Entities from non-Kyoto Parties can participate only if they have been authorized by a Party or the non-Party gives its consent to be bound by the Kyoto Protocol.41 If domestic policies of Kyoto Parties exclude the authorization of nonParty entities, they would be excluded from CDM participation in general. However, any Kyoto Party that authorizes the participation of private or public entities in the CDM will remain responsible for fulfilling its sovereign obligations under the Kyoto Protocol. Private project participants may only receive or transfer CERs if the authorizing country is a Party to the Kyoto Protocol and in compliance with its obligations.42 Transfer and acquisition by private entities are thus contingent on the continued compliance of the Party which has authorized them.43 The Kyoto status of the State authorizing private participants is thereby an eligibility criterion for the participation of a private entity, and host countries will need to respect this requirement in their CDM investment decisions. In conclusion it can be stated that CDM promotes investments in climatefriendly projects in Parties not included in Annex I of the UNFCCC. Eligibility to host a CDM project will be granted to developing countries only, while eligibility of a country to use Certified Emission Reductions (CERs) as a result of a successful CDM project requires the ratification of and compliance with the Kyoto Protocol. In other words, three types of service providers will be ineligible for transfer and acquisition of CERs: (1) non-authorized entities from non-Annex I countries that are not Parties to the Kyoto Protocol, (2) non-authorized entities from Annex I countries that are not Parties to the Kyoto Protocol, and (3) authorized project participants where the authorizing

42 43 40 41

FCCC/CP/2001/13/Add.2. Vienna Convention on the Law of Treaties, Arts. 34 and 35. UNEP, Legal Issues Guidebook to the Clean Development Mechanism, June 2004, 41. See also Wilder, 2005a, 253.



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country is not in compliance with its eligibility requirements for participation in the flexibility mechanisms. The participation requirements in the CDM therefore establish absolute restrictions on services and service suppliers from these countries, which affect trade in services and thus could constitute less-favourable treatment than accorded to service suppliers authorized by complying Kyoto Parties.44 Such discrimination is likely to violate the general obligation of the National Treatment and Most Favoured Nation rules of GATS. 10.4 GATS Exception Clauses In the case that such restriction is found to constitute an infringement of Article II GATS, justification of the measure is still possible under Article XIV (b) GATS insofar as the interpretation of Article XIV (b) GATS can be expected to be nearly identical to the environmental exception clause in Article XX (b) GATT, as discussed above. Whether or not the exclusion of non-Kyoto participants in the CDM is necessary to protect human, animal or plant life or health needs to be assessed with regard to the objective and purpose of the mechanism. As noted above, the requirements set up in US–Gasoline are likely to also determine the justification of trade in services restrictive measures that violate the most-favoured nation rule. The State violating this provision is required to prove that

a) the policy in respect of the measure falls within the range of policies designed to protect human, animal or plant life or health, b) the GATS inconsistent measure is necessary to fulfil the policy objective and that





44

This discriminatory potential was recognized by the OECD Secretariat in a similar investigation of relation of the CDM to investment law. The Secretariat notes: “If quotas or permits are earned by enterprises as a return on participation (investment) in a pollution reducing project in a developing country, the question would arise as to whether the ineligibility for such a quota or permit (return) of enterprises of countries not Party to the system constituted a discriminatory measure of the project host.” Reference in Werksman and Santoro, 2001, 200. The whole range of issues arising in the relation to investment law outside the WTO will for reason of scope not be discussed in this study. See for further information: Werksman, Baumert, Dubash, Navroz 2001, Will International Investment Rules Obstruct Climate Protection Policies?, World Resources Institute, Climate Notes, April 2001; Werksman and Santoro, ‘Investing in Sustainable Development: The Potential Interaction between the Kyoto Protocol and a Multilateral Agreement on Investment’ in: C. Bradnee (ed.) Global Climate Governance: Inter-linkages between the Kyoto Protocol and other Multilateral Regimes, Tokyo: UNU, 1998, 59–74.

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c) the measure is applied in conformity with the requirements of the headnote (chapeau) of Article XIV.

10.4.1 Policy in Respect of the Measure The policy behind the Clean Development Mechanism has to be seen in the light of the Kyoto Protocol and the Climate Convention. The rationale behind the CDM is that greenhouse gases mix and accumulate in the atmosphere, making it possible to reduce emissions at any point on the planet with the same effect. Due to the principles of cost-effectiveness and flexibility that are enshrined in the Kyoto Protocol, Annex I Parties with reduction commitments are via the CDM allowed to implement reduction projects where the costs are lower/ lowest. With regard to the link between CDM and climate change mitigation, the projected consequences of a more violent global climate are important. Changes in weather patterns and rising sea levels are predicted to detrimentally bear on health and food conditions, housing, access to freshwater and security conditions. These consequences may include the deterioration of living conditions for humans, flora and fauna alike. CDM projects aim at real, measurable, long-term benefits related to the mitigation of climate change; they therefore constitute a means to protect human, animal or plant life or health. It can therefore be concluded that the policy in respect of the measure falls within the range of policies in Article XIV GATS. 10.4.2 Necessity The first question is whether the exclusion of non-Kyoto Parties and private entities originating in the countries is indispensable for the policy pursued by the measure. As already mentioned, the policy in respect of the measure is threefold and the design of the measure has to be seen in respect of all three goals. The CDM is designed in a way to accommodate promotion of a sustainable development path in developing countries, offer a climate mitigation tool by reducing greenhouse gas emissions in developing countries while being a cost-effective compliance instrument for Annex I Parties with reduction commitments. While arguably all three policies could be achieved separately and in alternative ways, it is exactly the integration of the three goals within one measure that makes the CDM stand apart. The integration of these three goals is mani-



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fested as the will of all Parties to the Kyoto Protocol. The Parties of the Kyoto Protocol, by agreeing on the availability of market mechanisms, considered them to present the least impairment to global market competitiveness.45 The main purpose for the exclusion of non-Kyoto Parties is to secure the functioning of this system by providing for a predictable and credible framework. Kyoto Parties are subject to strict requirements, and need to have in place national monitoring systems of anthropogenic emissions by sources and reductions by sinks, systems for calculating and recording assigned amounts pursuant to Article 3 KP and national registries and inventories to corroborate that GHG reductions are real and measurable. The possibility of the compliance committee’s enforcement branch to intervene if compliance with these requirements is found lacking is another credibility component. The enforcement branch is essential to ensure the environmental integrity of the climate regime by overseeing and assessing compliance with the above-mentioned requirements. But while these requirements need to be ‘oversee-able’ by the enforcement branch, it lacks the competence to assess compliance by non-Kyoto Parties. If Annex I Parties that have not ratified and implemented the Kyoto Protocol were allowed to participate in CDM and sell CERs on the international emissions trading market, a number of requirements of the Kyoto Protocol could thus be circumvented. The bypassing of the Protocol’s requirements, such as the establishment of a national authority and methodological and reporting requirements,46 harms the credibility of the entire system and puts its environmental integrity at risk. Although Parties that do not want to use CERs for compliance are not obliged to meet all of these requirements, they nevertheless have to have a designated national authority and fulfil the monitoring and reporting requirements. Determining the level of fulfilment of these criteria in entities that are not from Parties to the Kyoto Protocol will be practically and administratively difficult to carry out. Not only is it unlikely that non-Kyoto Parties would be willing to set up the institutional infrastructure to facilitate participation in the CDM, the reporting requirements would require access to information

45



46

See Foot, 2004, 126, fn 7 with reference to the European Commission proposal for a Directive of the European Parliament and of the Council Establishing a Framework for Greenhouse Gas Emissions Trading Within the European Community and Amending Council Directive 96/61/EC, 2001. See FCCC/2001/CP 13/Add.3, Decisionx/ CP 7 (Principles, nature and scope of the mechanisms pursuant to Art. 6, 12 and 17 of the Kyoto Protocol): “5. Decides that the eligibility to participate in the mechanisms by a Party included in Annex I shall be dependent on its compliance with methodological and reporting requirements under Art. 5, paragraphs 1 and 2, and Art 7, paragraphs 1 and 4, of the Kyoto Protocol”, see also Wilkins, 2002, 145.

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that might be considered confidential by non-Parties. Finally, there will be no non-compliance procedure if those Parties are not in compliance with their requirements. Much would therefore depend on how far these non-Parties are trusted to provide adequate and sufficient information. For these reasons, the exclusion of non-Kyoto States and their private entities could be considered indispensable, thus necessary in the sense of Article XIV GATS. According to the Appellate Body’s approach in Korea–Various Measures on Beef, even if the ‘indispensability’ requirement were not fulfilled, the measure could be justified by applying a ‘process of weighing and balancing a series of factors which prominently include the contribution made by the compliance measure to the enforcement of the law or regulation at issue, the importance of common interest or values protected by that law or regulation and the accompanying impact of the law or regulation on imports or exports.’47 Here, the importance of the common interest and values that are protected by the particular design of the CDM would need to be balanced against the commercial interest in inclusion of non-Parties and respective private entities. As already mentioned, this procedure will depend on the facts of the case, and one can only speculate as to the result. However, three general observations can be made. First, Annex I Kyoto Parties suffer a comparative disadvantage that derives from the internalization of costs of climate mitigation. A balance will need to be struck therefore between their interest in protecting their economic sectors covered by reduction obligations and the economic interest of non-Parties in having free (ride) access to a new market and perhaps profit from flexible mechanisms’ market – a market which was created for other purposes and participants – without incurring the costs of binding obligations to reduce their emissions. Given the reason that costs for Annex I Parties occur out of implementation of and compliance with their climate obligations in the first place, exclusion of entities from those States that are not willing to commit to a binding emissions reduction target, appears proportionate. ‘In fact,’ as Wilder notes in this context, there is a possibility that businesses in Kyoto Protocol Parties (such as those of the European Union) may feel at a competitive disadvantage in comparison with business based in non-Party countries, which are not internalizing the costs of meeting Protocol targets. Such businesses may pressure their governments, not only to prohibit the participation of non-Parties in the Kyoto Protocol flexible mechanism, but also take

47



AB in Korea–Beef, para. 164.



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affirmative action to pressure those non-Parties to ratify [the Kyoto Protocol] such as through trade measures.48

Second, for participation in emissions trading, Annex I Parties need to establish national emissions trading registries, where national companies are able to hold their accounts for buying and selling CERs.49 If entities from nonParties were authorized to participate in the CDM, this could actually amount to giving these companies a ‘free ride’, while domestic companies face compliance costs of reducing emissions on a domestic level.50 Accordingly, Annex I Parties may therefore have an interest in excluding non-Party companies from CDM participation.51 Another author noted in this context that allowing tradable credits from non-Kyoto Parties in the international scheme would provide profit to those States from servicing the abatement needs of Parties committed to making GHG reductions.52 Third, the exclusion of non-Kyoto Parties is further based on the argument of environmental integrity of the scheme which seeks to prevent tradable credits that do not meet the stringent (formal and substantial, such as additionality and prevention of ‘leakage’) requirements to enter the trading scheme. However, even if CERs generated by non-Annex Parties were to be verified CERs, selling these credits could have a disproportionate inflationary effect on the total quantity of available credits on the international emissions trading market. The market price of tradable allowances would fall, and ‘capped’ entities and States would find it easier to comply with their emission reduction and limitation obligations by buying ‘themselves out’. The availability of large quantities of additional CERs might also diminish the interest and willingness of Annex I Parties with reduction commitments to engage in CDM projects. Although strong arguments in favour of exclusion of non-Kyoto participation can be marshalled, whether such exclusion is balanced and proportionate to the purpose of the CDM is difficult to ascertain in abstract at this early stage of the CDM. What is clear, however, is that non-Party participation in 50 48 49



51



52

M. Wilder, 2005a, 255. FCCC/CP/2001/13/Add.2, Modalities and Procedures for a CDM. See, for example, New Economic Foundation, Free Riding on Climate, 2003, ; also D. Bodansky, Implications of Kyoto’s Entry into Force without the United States, Pew Centre for Climate Change, available at . See, for example, European Union, cited in D. Bodansky, Implications of Kyoto’s Entry into Force without the United States, Pew Centre for Climate Change; also: New Zealand Government, National Interest Analysis: Kyoto Protocol to the UN Framework Convention on Climate Change, available at: . Foot, 2004, 130.

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the CDM will become an issue which the Member States to Kyoto Protocol will need to address. 10.4.3 Chapeau The chapeau requires that in order to be justified a measure that has satisfied the conditions set out by the paragraphs of Article XIV must no be ‘applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services’. The general scope of the Article XIV chapeau has not been defined, but also here the identical wording to the chapeau of Article XX GATT suggests that a similar approach would be taken by a panel or the Appellate Body if they were to decide on the application of Article XIV.53 Again, according to the findings of the Appellate Body in US–Gasoline and US–Shrimp, the application of the exceptions must not frustrate or defeat the legal obligations of the rights’ holder under the substantive rules of the GATS and must maintain a balance of rights and obligations between the right of a Member to invoke an exception and the substantive right of another.54 By determining arbitrary or unjustifiable discrimination, the manner in which the measure is applied would be considered. An unjustifiable discrimination would be one that could have been foreseen and that was not merely inadvertent or unavoidable.55 Efforts undertaken to negotiate and the flexibility of the measure come into play here. With regard to the requirement of negotiation it can be concluded with reference to the more than ten-year-long negotiation history of the Kyoto Protocol, that serious efforts have been undertaken to include all States that are Parties to the UNFCCC in the scheme and commitment of the Protocol. The fact that some States prefer to remain outside the Kyoto Protocol cannot be explained by a lack of serious negotiation efforts. Indeed, the consent of the 176 States that have ratified the Kyoto Protocol56 is evidence for the seriousness – and success – of the efforts to conclude a multilateral agreement for the mitigation of climate change. 53



56 54 55

See WTO Secretariat, An Introduction to the GATS, Trade in Services Division, October 1999, 4. AB in US–Gasoline, 21; AB in US–Shrimp, 156. AB in US–Gasoline, 27. .



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The measure would also need to show a certain degree of flexibility. The question here is whether the inclusion of participation rules in the Marrakech Accords makes it redundant to further inquire into the requirement of flexibility. Apparently, the Kyoto Parties multilaterally agreed on the design of the CDM and a degree of flexibility that would be both negotiable and reasonable. In fact, the current modalities are considered to present the least impairment to global market imperatives.57 The fact that the exceptions listed in Article XX GATT and Article XIV GATS do not include reference to Multilateral Environmental Agreements (MEAs) does not mean that multilaterally agreed provisions with trade restrictions need not be considered differently from unilateral trade measures. The Appellate Body in US–Shrimp made it clear that the application of the introductory note of Article XX GATT to measures based on multilateralism would take into account the concerted and cooperative efforts of the respective States.58 Environmental measures, addressing transboundary or global environmental problems that are as far as possible based on international consensus, are arguably more likely to be recognized as appropriate by the WTO. The WTO Members in the report of the CTE on the occasion of the Singapore Ministerial Conference noted in this regard the support for multilateral solutions based on international cooperation and consensus as the best and most effective way for governments to tackle environmental problems of a transboundary or global nature. WTO Agreements and multilateral environmental agreements (MEAs) are representatives of efforts of the international community to pursue shared goals, and in the development of a mutually supportive relationship between them, due respect must be offered to both.59

With reference to these policy declarations of the WTO it has been argued that [t]he near universal acceptance of the climate change instruments, by WTO and nonWTO Members alike, coupled with the Appellate Body’s expressed interest in environmental issues, greatly reduces the likelihood that the Appellate Body will ignore,



57



58 59

See European Commission Proposal COM(2001) 581 final, 2: “Emissions trading is, first, an instrument for environmental protection, and, second, one of the policy instruments that will impair competitiveness the least.” Also: Foot, 2004, 126. AB in US–Shrimp, 168. Report (1996) of the CTE, WT/CTE/1, 12 November 1996, para. 171, section VII of the report of the general Council to the 1996 Ministerial Conference, WT/MIN(96)/2, 26 November 1996.

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or that WTO Members will seek to challenge as WTO-inconsistent, the eventual UN Framework Convention on Climate Change implementation program.60

This does not mean tensions will not arise, however, nor that situations cannot be imagined where conflicts will arise. In particular, disputes based on concerns of competitiveness are likely to arise because those choosing to stay outside of the Kyoto Protocol and any future climate instruments may benefit from lower production costs.61 Under these circumstances, Appleton concludes, WTO panels and the Appellate Body would only be willing to countenance the application of trade measures against Kyoto non-participants when climate change remedies satisfy the non-discrimination principle, when those obligations are close to universal acceptance (which they are), when climate change remedies require a very serious trade measure for their resolution, and reasonable cooperative measures to address climate change problems fail.62

Thus, despite the proclamation of recognition of MEA-based environmental measures and mutual supportiveness of the WTO and MEAs, ‘passing’ the introduction clause of Article XIV GATS remains a task of some stature. The CDM rules depend on rather stringent methodological requirements and standards with regard to monitoring and reporting. Agreed upon by the COP (and/or the Executive Board) and as such representing multilateral consensus on this issue, the exclusion of non-Kyoto Parties to ensure the integrity of the international emissions trading scheme cannot be found to comprise any of the arbitrariness criteria. Here, it is not one State’s regulatory programme that is required to be in place in another State, it is the institutional and technical framework of the CDM and the integrity of the entire emissions trading system that requires the measurability and reality of emissions reductions. It also requires emission caps not to be inflated and that prices represent the value of the tradable commodity. Projects carried out for revenue reasons alone, and that are not restricted by the national supplementarity constraint, are likely to take focus away from abatement needs within countries with a commitment by simply servicing the need for emission units. Whether such exclusion also corresponds to prohibition of ‘disguised restrictions on international trade’ might be less clear, however. The Panel in EC–Asbestos noted that

60



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A. E. Appleton, The World Trade Organization’s View: Emissions Reduction in a Free Trade World, Swiss Re Centre for Global Dialogue, Rüschlikon, Switzerland, October 11, 2001, 13. See Appleton, 2001, 13. See Appleton, 2001, 13.



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a restriction which formally meets the requirements of Art XX(b) will constitute an abuse if such compliance is in fact only a disguise to conceal the pursuit of traderestrictive objectives.63

With regard to the exclusion of non-Parties, the publicity of the CDM rules would certainly be a non-concealed form of trade restriction. Such a publicity test cannot be the sole requirement. Another was taken into account by the panels in EC–Asbestos and US–Shrimp, where the ‘design, architecture and revealing structure’ of the measure was examined in addition in order to discern its protective application.64 What a Panel would make of the design and architecture of the CDM will need to be seen. Final determinations cannot be made at this place and point of time. However, the critical role of governments in creating and influencing the CDM market is exemplary for this new instrument and the reason for possible confrontation with WTO provisions. 10.5 National Development Priorities under the CDM Another point of concern relates to unilateral CDMs and preferential treatment of domestic industries. The host country that has made specific commitments in the service sectors covered by a CDM project and has listed the sectors in its Schedule of Commitments has to give market access (Article XVI) and accord no less-favourable treatment (Article XVII) to all service suppliers from WTO Member States than that given to its own like services and service suppliers. A host State may, however, attempt to design its regulations and compliance cost structure in a way that favours domestic industries engaging in a project over foreign firms.65 Host States could also decide to carry out CDM projects unilaterally, denying in effect access to a certain service market by a potential foreign investor.66 The reasons for such a policy might be a country’s national sustainable development priorities. A host State that defines its sustainable development path in a way that seeks to employ as many domestic services as possible might risk WTO constraints on protectionism. Host country development priorities, however, need to be recognized in the application of the

65 66 63 64

Panel in EC–Asbestos, para. 8.236. Panel in EC–Asbestos, para. 8.237; Panel in US–Shrimp II, para. 5.142. Kim, 2000, 14. See Werksman, Baumert, Dubash, 2003, 74; Baumert, Kete, Figueres, Designing the Clean Development Mechanism to Meet the Needs of a Broad Range of Interests, World Resource Institute, 2000.

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flexibility mechanisms.67 In particular, a CDM project needs to be consistent with the host State’s development policies.68 A host country may consider protecting its domestic services and service providers in emerging domestic industries, such as environmental services, through the sale of CERs or employment opportunities in CDM projects. These environmental services could include manufacture and installation of solar panels or wind power stations, plantations and agro-forestry, solar water heaters or biomass cooking stoves essential for meeting sustainable development goals, not only by reducing dependency on fossil fuels and extending the availability of electricity,69 but promoting poverty alleviation by acquiring additional capital.70 WTO rules provide for access to services in developing and implementing CDM projects. If, for example, a host State enters into commitments under GATS and opens its service markets, then the national treatment rule and the MFN rule apply, requiring not only the non discriminatory treatment of all foreign service providers, but also of the foreign service provider that enters the market equal to that of domestic service providers. CDM rules, on the other hand, respect the prioritization a host country takes. Article 12 states that CDM projects should be certified on the basis of ‘voluntary participation approved by each Party involved.’ Thus, any investor or developer trying to coerce a project would not be able to obtain CERs.71 So even if a foothold in the host country market is achieved by application of the market access rule, foreign service providers would not be treated as favourably as domestic service providers since their project would not result in CERs. A host country could also provide for domestic regulations which put domestic firms at commercial advantage. As mentioned above, a developing country is free to design and implement its own CDM projects for the purpose 67



70 68 69

71



Hanafi, G.A., ‘Joint Implementation: Legal and Institutional Issues for an Effective International Program to Combat Climate Change’ (1998) Harvard Environmental Law Review, 480. Kim, 2000, 14. See Wiser, 2002, 299. For project examples see UNCTAD, An Implementation Guide to the Clean Development Mechanism, Putting the Marrakech Accords into Practice, New York and Geneva, 203, 11, with references to Aukland et al., Laying the Foundations for Clean Development: Preparing The Land Use Sector, March 2002; Seroa da Motta et al., ‘Brazil: CDM Opportunities and Benefits’ in Austin D. and Feath, P., Financing Sustainable Development with the Clean Development Mechanism, World Resource Institute, 2000; and D. Austin and P. Feath, How much Sustainable Development can we expect from the Clean Development Mechanism?, World Resource Institute, 1999. Wiser, 2002, 298.



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of exporting CERs, given that these projects satisfy the CDM requirements. In such a case, the host country that allows foreign service suppliers to develop projects, but subjects those suppliers to more stringent regulation than domestic project developers would also be violating the national treatment provision.72 The validity of such a claim would, of course, depend on the facts of the case. The potential for conflict, however, exists. In such a case, justification under Article XIV (b) GATS may prove difficult. Here it is not (so much) the environmental integrity and functioning of the climate regime that is at stake than the objective of sustainable development at the domestic level of the host country. How this situation can be solved with regard to WTO norms will be subject of the discussion in the next and final part of this thesis. Here, suffice it to say that this question relates to the applicable law in the context of normative conflicts between climate and trade rules. In my view, trying to solve this situation on the basis of interpretation of WTO norms alone would arguably not capture or not adequately address the importance of the underlying considerations. The application of general public international law, in particular the principle of sustainable development, to normative conflicts of this kind would doubtlessly allow a solution to emerge that was not reflected in or contrary to the positive WTO law. General international law could and has required certain positive norms to be corrected or, where correction is not feasible, to be disapplied. 10.6 In Sum In sum, existing WTO jurisprudence indicates that the restrictive participation requirement in CDM which excludes countries that are not Party to the Kyoto Protocol and private entities from these countries which – under certain conditions – fall within the ambit of the WTO General Agreement on Trade in Services. While such climate measures may provisionally be covered by the exception of Article XIV(b) GATS, the requirements of the chapeau of Article XIV could prove an obstacle to their justification. Uncertainty remains in particular with regard to the view of a panel or the Appellate Body on the necessity of such a measure under WTO law where alternatives not only include considerably higher administrative input but constitute a threat to the environmental integrity of the climate regime in general. In addition, it remains unclear how the importance of common interests or values protected by the CDM and the accompanying impact on imports or exports would be balanced in the settlement of a dispute, in particular where concerns of competitiveness

72

Art. XVII:1 GATS

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of Members to the Kyoto Protocol are at stake. After all, while a panel or the Appellate Body could decide in favour of a trade-restrictive climate measure, there is no certainty as to whether they indeed would.

Chapter 11

Concluding Remarks on Part II

It has to be acknowledged that the panels and the Appellate Body have progressively developed jurisprudence that seeks to address the compatibility of national measures aimed at the protection of the environment or other concerns with world trading rules. Yet, these developments remain insufficient for, at least, three reasons. First, despite the positive signals given by the jurisprudence of the Appellate Body, no certainty exists as to whether a panel or the Appellate Body will follow its own line of argumentation in future decisions. In fact, in the absence of stare decisis the jurisprudence of the panels and Appellate Body is marked by constant change and more restrictive interpretations cannot be excluded. Depending on the scope of trade distortions that could arise as a consequence of governments implementing comprehensive climate change programmes, WTO Panels and the Appellate Body may resort to a more conservative and less flexible interpretation of WTO clauses. Second, the political character of interpretation enhances legal uncertainty and unpredictability.1 Interpretation is a highly political act and the changing political preferences of the changing membership of the panels and the Appellate Body may be directly reflected in their legal findings. Third, also newer developments largely rest within the narrow constraints of a ‘trade-lens’ and do not always accord sufficient weight to the overall objective of sustainable development, which is beginning to be officially and jurisprudentially recognized as the main objective of the WTO. ‘We must remember’ says WTO Director General, Pascal Lamy, ‘that sustainable development is itself the end-goal of this institution [the WTO]. It is



1

See J. Klabbers, ‘On Rationalism in Politics’, 74 Nordic Journal of International Law, 2005, pp. 426–427.

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enshrined in page 1, paragraph 1, of the Agreement that establishes the WTO.’2 If these words are taken seriously, it means that the purpose of the WTO is the regulation of sustainable international trade or of international trade based on the common policy of sustainable development. If such common policy is seen as underlying (or arching above) the WTO legal framework, it will determine the substantive content of WTO norms as well as the outcome of dispute settlement.3 As a consequence, measures that otherwise violate WTO norms could be justified as ‘necessary to ensure sustainable development’. Even in the absence of the acceptance of a common WTO objective of sustainable development, this legal argumentation remains viable. As we will see in the final part, sustainable development remains directly applicable as a general principle – part and parcel of general international law – to the settlement of disputes concerning claims of WTO incompatibility. The application of the principle, consisting of a necessity test and a proportionality test, would provide for a consistent and uniform method to deal with the conflicting interests at stake. The argument rehearsed in part III is that the principle of sustainable development as a general principle in international law provides for a more explicit balancing. The difference from the present approach by the Appellate Body is that the end of sustainability is included in the jurisprudential technique. Necessity and proportionality would then need be determined against the objective of sustainable development, giving stronger and more predictable indications of the result of such balancing.



2



3

Pascal Lamy, Director-General of the WTO, “Trade can be a Friend, not a Foe, of Conservation”, Speech at WTO Symposium on Trade and Sustainable Development within the Framework of Paragraph 51 of the Doha Ministerial Declaration, Geneva 10 October 2005. See Sindico, “Unravelling the Trade and Environment Debate through Sustainable Development Law Principles”, paper presented at the ESIL inaugural conference, Florence, June 2004, also: Voigt, “Conflicts and Convergence in Climate Change and Trade Law: The Role of the Principle of Sustainable Development”, paper presented at the ESIL inaugural conference, Florence, June 2004. Both papers are available at: .

Part III Sustainable Development as a Principle of Integration of Climate and Trade Law

Introduction In a situation where there is potential for normative conflicts, recourse to interpretation is a necessary step to clarify whether the apparently conflicting norms can be harmonized or ‘interpreted away’. However, interpretation remains one step – the first of a number of legal mechanisms that aim at solving a normative conflict. Despite the usefulness of interpretation with regard to clarifying the terms of a treaty, several inherent limitations make it a tool that not always provides a solution to a conflict. In situations where normative conflicts cannot be solved by interpretation alone, principles of conflict resolution come into play. These principles deal with the law applicable to the respective conflict. Here, general principles play an important role. However, what exactly this role comprises, in particular in the relationship between WTO law and other areas of law, remains a contentious issue. In this book it is suggested that among the principles that provide for reconciliation of conflicting norms, the principle of sustainable development holds most potential for dealing with normative conflicts between international trade law and other multilateral agreements, in particular those with an environmental or developmental objective. This part attempts to show that the principle of sustainable development as a principle of integration has both procedural and substantive elements that allow for reconciling diverse interests, given that the inherent hierarchy of values embedded in the principle is taken into account. In turn, the following matters will be examined: first, whether and why there is a need for the principle of sustainable development to be employed (chapters 12 and 13), second, why the principle could or even must be applied to disputes arising under the WTO law that involve measures that aim at protecting collective non-trade interests (chapters 14 and 15), and, third, which specific requirements the principle would pose to the solution of a trade dispute (chapters 16 and 17).

Chapter 12

Is there a Need for the Principle of Sustainable Development in WTO Dispute Settlement?

12.1 Introduction The question why sustainable development as a principle of integration is to be employed by WTO dispute settlement can be approached by inquiring whether there is a need for such a principle. This need, if it exists, is closely linked to limitations of interpretative processes and conflict-resolution principles that aim at creating coherence of international legal norms. Once these limitations of treaty interpretation are identified, it can be considered whether reliance on treaty interpretation alone is an adequate means to determine the settlement of a dispute or whether alternative or additional tools and legal mechanisms ought to be applied in the quest for fairness and legitimacy of the finding. This part is thus meant as a constructive critique of the WTO approach to interpretation and dispute settlement involving nontrade interests. This is not purely a theoretical exercise. First and foremost, it is part of the argument for the application of the principle of sustainable development in the settlement of disputes. The reason for this exercise is that the argument for sustainable development can only be made if the scope for improvement in the approach to WTO dispute settlement is sufficiently ample. Particular potential for improvement lies in the fact that, so far, the proclaimed and authoritatively recognized commitment of the WTO to sustainable development has not been sufficiently and consistently reflected in existing jurisprudential practice. In part II the assessment of a conflict between climate measures and WTO norms was based on the general approach adopted by WTO panels and the Appellate Body. As a result, a number of ambiguities remain as to the relationship between climate measures and trade rules. In this part, it will be shown that some of the ambiguities can be linked to inherent systemic limitations of the interpretative process. In course, we shall first focus on some general aspects

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of treaty interpretation before turning to the specific context of interpreting WTO agreements. 12.2 Interpretation in International Adjudication Treaty interpretation is often regarded as an instrument of conflict resolution. However, rather than solving conflicts, the process of interpretation seeks to avoid a conflicting reading of treaty texts. In this sense it has been characterized as a ‘conflict-avoidance technique’.1 Who interprets treaty texts and how the process of interpretation is carried out – which interpretative arguments are applied – are crucial to the determination of a normative conflict. However, despite its important function, treaty interpretation, it has been claimed, remains a ‘deeply obscure and subjective’ process marked by inconsistencies and other shortcomings.2 Given the importance of treaty interpretation it is surprising to observe that lawyers in general have been reluctant about formulating specific rules of interpretation. The major argument against formulating comprehensive interpretative rules is that these ‘rules’ may become static instruments instead of the flexible aids.3 It is thus ‘interpretative arguments’ rather than ‘rules’ that guide the process of treaty interpretation. Grotius was one of the first scholars to deal with the issue of treaty interpretation. From the doctrine of plain meaning he widened his purview to include other circumstances.4 His starting point is that ‘words are to be understood in their ordinary sense’ but only if, he adds, ‘other implications are lacking’.5 Vattel offers a wider variety of interpretative principles.6 His suggestions are however considered to lack decisive practical importance by being followed by other, sometimes contrary, principles, and presumptions.7 As Lauterpacht notes observantly, ‘it is doubtful whether any Party to a dispute can fail to derive some advantage from the rich choice of weapons in Vattel’s armoury of rules of interpretation.’8 While, arguably, the majority of academic writ

1 2



3

6 7 8 4 5

Pauwelyn, 2003, 244. See D. French, ‘Treaty Interpretation and the Incorporation of Extraneous Legal Rules’, 55 ICLQ, 2006, 281. H. Lauterpacht, ‘Restrictive Interpretation and the Principle of Effectiveness in the Interpretation of Treaties’ (1949) 26 Y.B. Int’l L., 48. H. Grotius, On Interpretation, Book IIm ch. xvi, De Jure Belli ac Pacis. Ibid. Vol. I, ch. xvii of Le Droit des Gens. Lauterpacht, 1949, 48. Ibid.



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ers on the subject of interpretation have followed in the footsteps of Grotius and Vattel, others have expressed scepticism as to the usefulness of rules of interpretation in general.9 Despite the cautiousness of international lawyers to the development of interpretation rules for treaties, several relevant interpretative arguments have emerged.10 Among these arguments, however, no clear hierarchy is established. In general terms, the main purpose of any interpretation is to identify the intention of the negotiators of the treaty (‘subjective approach’).11 Treaties are also to be interpreted in good faith in such a way as to avoid inconsistencies if ‘fairly possible”.12 The intention of the Parties can be seen as a basis of interpretation as expressed in the text. An alternative approach is to regard the intention of the parties as an independent basis of interpretation and to consider the text itself as the most important source of interpretation. The ‘textual approach’ looks to determine the intent of the negotiators through analysing what they said in the text, which is presumed to be the final, authentic and most reliable expression of their intent.13 A third approach focuses on the objective and purpose of a treaty, and interprets the text in a way considered best adapted to fulfilling that objective and purpose. This teleological approach tends to result in more dynamic interpretation of a treaty as an instrument that is changing over time. The various approaches to interpretation often yield similar conclusions, but are also capable of leading to radically different results. The 1969 Vienna Convention on the Law of Treaties sets out certain basic rules of interpretation in Articles 31 and 32, endorsed as reflecting customary

9



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11

12



13

See Anzilotti, Corso, I (Parte Generale), Roma Athenaeum, 1912, 102–104, where he states that there are no binding rules on interpretation. See also K. Llewellyn, ‘Remarks on the Theory of Appellate Decisions and the Rules or Canons About How Statutes Are to be Construed’, 3 Vand L. Rev. 395, 1950; Frankfurter, ‘Some Reflections on the Reading of Statutes’ (1947) 47 Colum. L. Rev. 527; E.W. Hall, A Treatise on International Law, 8th ed. (Oxford-Clarendon Press, 1924) 44–45, admits that “there are rules of interpretation which are unsafe in their application and of doubtful applicability”. The International Law Commission in its work on interpretation confined itself to isolating the comparatively few general principles, which appear to constitute general rules for the interpretation of treaties. See Brownlie, 1998, 632. Brownlie, 2003, 624. D. Goldberg, ‘Legal Principles in Resolving Conflicts’ in Goldberg (ed.), The Use of Trade Measures in Select Multilateral Environmental Agreements, 1995, 301. I. Sinclair, The Vienna Convention and the Law of Treaties, 2nd ed. 1984. See also: International Law Commission Commentary on the Draft Vienna Convention, 1966, Vol. II (ILC Commentary) 220.

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law on the subject.14 These articles tend to support an approach where the text is given primacy as ‘the basic lens through which the ‘intention’ of negotiators is discerned’.15 The Vienna Convention rules emphasize that what is being sought is essentially the objectively ascertained intention of the parties as manifested in the text of the agreement; the expressed intent, rather than the subjective intent, of the Parties.16 Other elements may be included in this analysis in order to clarify the intent. While interpretation in the sense of Article 31.1 is about giving meaning to or defining the terms of the treaty, Article 31.2 offers a contextual approach in the sense that in addition to the original treaty text and its preamble, additional agreements and instruments related to the treaty shall be considered. Article 31.3 extends the spectrum of aspects to be taken into account to some later actions of the parties and relevant rules of international law.17 14



15



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17





The ICJ applied customary rules of interpretation as reflected in Articles 31 and 32 of the VCLT in: Territorial Dispute (Libyan Arab Jamahiriyal v. Chad), ICJ Reports 1994, 6, 21–22, para. 41; Kasikili/Sedudu Island (Botswana v. Namibia), ICJ Reports 1999 (II), 1045, 1059, para. 18; and Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia v. Malaysia), ICJ Reports 2002, 625, paras. 37–38. M. Lennard, ‘Navigating by the Starts: Interpreting the WTO Agreements’ (2002) 5 JIEL, 21. See ILC Commentary, ibid., 220. See also The Arbitral Tribunal in the Arbitration regarding the Iron Rhine Railway noting: ‘Although the clauses contained within Article 31 are not hierarchical, there is no doubt that the starting point for interpretation is the ordinary meaning to be given to the terms, taking them into account, and having regard also to the object and purpose of the treaty’; para. 47. In addition to the treaty to be interpreted, Articles 31 and 32 VCLT offer six possibilities for treaty interpreters to refer to other material than the treaty itself. These six possibilities include: (i) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty (forming part of the context, Article 31 (2) (a)); (ii) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty (forming part of the context, Article 31(2)(b)); (iii) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions (to be taken into account together with the context, Article 31 (3) (a)); (iv) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation (to be taken into account together with the context, Article 31(3)(b)); (v) any relevant rules of international law applicable in the relations between the parties (to be taken into account together with the context, Article 31.3(c)); and (vi) supplementary means of interpretation including, for example, preparatory work of the treaty or a legal instrument forming the ‘circumstances of the conclusion of the treaty under interpretation (Art 32).



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That said, recourse to additional means of treaty interpretation remains open. Supplemental means, such as recourse to preparatory work of the treaty and circumstances of its conclusion may play a role in situation where the provisions of an agreement are ambiguous or obscure, or lead to absurd results.18 While the interpretative arguments provided in Articles 31 and 32 open for a wide margin of interpretation, as we shall see, they also are marked by significant inherent limitations. 12.3 Interpretation of WTO Norms: Principles and their Limitations In the context of disputes brought before the dispute settlement system of the WTO, competence to interpret the provisions of the covered agreements lies with the panels and the Appellate Body. Interpretations of the WTO agreements by panels and the Appellate Body are not definite. Only the Ministerial Conference and the general Council have the authority to adopt definite interpretations by a three-fourths majority of the Members.19 Article 3.2 of the Dispute Settlement Understanding (DSU) requires the WTO agreements to be interpreted in accordance with customary rules of interpretation of public international law. The WTO dispute settlement system has acknowledged that customary international law in the interpretation of treaties is expressed in Articles 31 and 32 of the VCLT.20 These rules apply even when a WTO Member is not a Party to the Vienna Convention.21 The Appellate Body in Japan–Taxes implicitly resolved any uncertainty about the VCLT’s application to non-parties by declaring that the Vienna Convention represents a codification of customary international law and is therefore binding on all States.22 As a matter of predictability of adjudication, interpretation according to the Vienna Convention has emerged into a ‘legal test’ from which the panels cannot deviate when reviewing provisions in the covered



18 19



20



21



22

Art. 32 VCLT. See also Brownlie, 2003, 625. WTO Agreement Article IX:2. The contentious issue of the scope of application and jurisdiction of the panels and the Appellate Body is elaborated in more detail below in chapter 7.1. J. Cameron and D. Gray, ‘Principles of International Law in the WTO Dispute Settlement System’ (2001) 50 International and Comparative Law Quarterly, 254. P.J. Kuijper, ‘The Law of GATT as a Special Field of International Law’ (1994) 35 Netherlands Yearbook of International Law, 227 232. AB in Japan–Taxes at section D., para. 10. Reaffirmed in US–Gasoline. For further discussion see Cameron and Gray, 2001, 254; Nichols, ‘GATT Doctrine’ (1996) 2 Virginia Journal of International Law, 379, 380.

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agreements. Failure to apply this test or the use of an alternative pattern of interpretation can result in overturned rulings.23 12.3.1 Textual Interpretation By accepting the rules of the Vienna Convention, the panels and the Appellate Body give priority to an essentially textual approach while acknowledging that the ‘ordinary meaning of a term’ needs to be informed by the context in which that term is used.24 The Appellate Body in a number of instances has confirmed such ‘textualism’ and insisted that panels must take seriously the wording of the treaty text.25 Accordingly, the Appellate Body in EU-Hormones emphasized the importance of due attention to the details of the texts. In particular with regard to competing interests and respective values, the details of the text itself may reflect a ‘delicate and carefully negotiated balance … between these shared, but sometimes competing interests of promoting international trade and of promoting the life and health of human beings.’26 It has been noted that panels when deviating from the textual approach and instead interpreting a provision in the light of its purpose without giving due regard to the individual words and phrases, almost always give rulings that tilt towards one particular value among the competing values at stake, namely that of liberal trade – since the

23



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In the US–Shrimp report the Appellate Body criticized the panel for not having followed the steps of treaty interpretation. The correct process entailed looking at the text of the provision first and interpreting the ordinary meaning of the words, then to ascertain the object and purpose of the treaty where the meaning of the text is equivocal or inconclusive or where confirmation of the correctness of the reading of the text is desired. The examination of the object and purpose of the chapeau was not necessary until the examination of the context of the chapeau was undertaken. In this case, the determination of the object and purpose of the chapeau was undertaken independently of the other, specific provisions of Art XX GATT. Addressing the chapeau first implies the assumption of the measure being a priori incapable of being justified under the specific provisions. The Appellate Body stated accordingly “Such an interpretation renders most, if not all, of the specific exceptions of Article XX inutile, a result abhorrent to the principles of interpretation we are bound to apply.”, para. 121. AB in Japan–Alcoholic Beverages, 20; Panel in Canada–Automotive Industry, para. 10.12, 807. For an overview of interpretative approaches in WTO law see Lennard, 2002, 17; P. Maki, ‘Interpreting GATT Using the Vienna Convention on the Law of Treaties: A Method to Increase the Legitimacy of the Dispute Settlement System’ (2000) 9 Minnesota Journal of Global Trade, 343. AB in EU-Hormones, para. 177.



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purpose invariably understood by the panel was the greatest possible discipline on barriers to trade.27 The textual approach to interpretation has limitations. Interpretation contra legem is prohibited. This means that interpretation as a process of giving meaning to treaty terms cannot by itself create or add any additional meaning. It is thus confined to defining the meaning of the terms of the WTO covered agreements. The jurisdiction of the dispute settlement body (DSB) does not extend to treaty norms outside the covered agreements, nor does it include the competence to extend the meaning of the terms. The Appellate Body stated that ‘it is not the task of either panels or the Appellate Body to amend the DSU … Only WTO members have the authority to amend the DSU.’28 Thus, interpretation cannot extend the meaning of WTO rules that goes either beyond or against the ‘clear meaning of the terms’ of the respective WTO rules.29 The Appellate Body confirmed that ‘[a]n interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility’.30 The Appellate Body emphasized that the ‘principles of interpretation [in the Vienna Convention] neither require nor condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended.’31 In US–Shrimp, for example, the Appellate Body was able to interpret the term ‘exhaustible natural resources’ as comprising not only non-living but living natural resources as well, in this case sea turtle species, by making references to multilateral environmental agreements. However, despite these extended references, interpretation would not allow a reading of the term ‘exhaustible natural resources’ as extending to a resource that is not exhaustible (such as farmed produce) or an item or issue that might not be considered a resource (such as wind or an individual animal or plant). The essential question in this respect is what the negotiating partners, here the WTO Members, meant when referring to ‘exhaustible natural resources’, not what the disputing parties understand by this term. Limitation regarding a textual interpretation of WTO norms so as to accommodate environmental concerns also arises from the historical context of terms. With regard to various environmental challenges, awareness of these issues was not present at the time of negotiations of the 1947 GATT. Indeed,

27

30 31 28 29

See R. Howse, ‘The Early Years of WTO Jurisprudence’ in J.H.H Weiler, The EU, the WTO, and the NAFTA: Towards a Common Law of International Trade (Oxford, 2000) 53. AB in US–Certain Products, para. 92. Pauwelyn, 2003, 245. AB in US–Gasoline, 23, later in Japan–Taxes, 12. AB in India–Patent, 46. See also ILC Commentary to Vienna Convention Arts. 31, 32.

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climate change was not then an issue. It is therefore unclear whether a textual interpretation focusing on the meaning of a term adopted by the negotiating parties would even allow for an extended literal meaning that takes subsequent developments into account. As argued in chapter 5, the interpretation of ‘exhaustible natural resources’ could be expanded as to include the limited capacity of the atmosphere of the Earth to provide for a stable climatic system as such a resource. Whether or not a panel or the Appellate Body would follow such an understanding is hardly foreseeable since a textual interpretation does not necessarily mandate such a reading of the term. Though some commentators seem to imply a much more positive conception of the conflict-solving potential of interpretative processes,32 it is far from certain that this potential would be exhausted by panels or the Appellate Body. Among the interpretative arguments, no hierarchy, let alone compulsory application, exists. Despite these efforts, it is the opinion of this author that textual interpretation is not and cannot be a remedy for all problems related to normative conflicts between WTO rules and norms of ‘out-side’ law, such as climate measures. As mentioned above, the meaning of a term is not set in stone, it changes over time. The initial understanding of the negotiators of a treaty text might differ significantly from that of later adjudicators with an onus to reflect contemporary concerns and developments. It remains uncertain how far textual interpretation is able to ‘stretch’ the meaning of a term. Some contemporary issues might simply not be suitable to neatly fit in the confined semantic scope of written words. Conceptual differences could also lead to the application of more than one meaning to a term. While for example the trade law angle of interpretation of GATT Article XX (g) focuses rather restrictively on resources that have a certain economic value, the environmental understanding of ‘resource’ might include certain ecological functions with no or minor calculable economic benefits. Wetlands or grasslands, for example, untilled soil as a CO2 sink or certain micro-organisms that have a function in filtration processes, could fall into this category. The paradigmatic difference in valuing certain functions and commodities can carry over into interpretative processes, precluding diverging understandings or definitions of a given treaty term. Given the conflict of interests and values, harmonious interpretation based on the treaty text alone – that is interpretation that seeks to accommodate non-trade interests into WTO treaty texts – will not be possible under all

32



Marceau, 2001, 1081–1131; G. Marceau, ‘WTO Dispute Settlement and Human Rights’ (2002) 13:4 EJIL, 753.



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circumstances. A textual interpretation therefore provides only a very limited tool for conflict avoidance. 12.3.2 Evolutionary Interpretation There is, however, more than the plain wording. The significance and meaning of a word may change over time and with the evolution of the law. Such change is recognized by the principle of ‘evolutionary interpretation’. This principle is the seemingly contradictory counter-part to the principle of contemporaneity.33 According to the latter, terms of a treaty must be interpreted in the light of linguistic usage at the time when the treaty was concluded.34 A juridical fact therefore must be appreciated in the light of the law contemporary with it.35 This principle of contemporaneity remains the rule and starting point of treaty interpretation. However, there is ample scope for exceptions to this rule. Evolutionary interpretation provides for such an exception, as it does not make reference to rules of international law in force at the time of conclusion of a treaty but lets new, subsequent law influence the meaning of pre-existing treaty terms. The application of the principle to treaties that are not constitutional in nature has been confirmed in various ICJ judgments and international arbitration awards.36 In particular, in the case concerning the Gabčikovo-Nagymaros

33



34



35



36

Also termed: doctrine of inter-temporal law, see for further references: Brownlie, 2003, 126; Lauterpacht, The Function of Law in the International Community, 1933, 283–285; R. Higgins, ‘Some Observations on the Inter-temporal Rule in International Law’ in J. Makarcyk (ed.) Theory of International Law, Essays in Honor of K. Skubiszewski, 1999, 173. M. Fitzmaurice, ‘The Practical Working of The Law of Treaties’ in M. Evans (ed.) International Law, 2003, 186. The principle of contemporaneity was first expressed in the Island of Palmas arbitration (Netherlands v. United States) (1928) 2 RIAA 831 at 845. See Aegean Sea Continental Shelf case, ICJ Reports 1978, 3, La Bretagne arbitration decision (1986) 90 RGDIP 716, para. 49, Guinea-Bissau/Senegal Maritime Boundary Arbitration (Award of 31 July 1989 [1990]) 83 ILR 1, para. 85. In the latter case the tribunal interpreted terms such as ‘continental shelf’ and territorial sea’ that were mentioned in 1960 bilateral agreement in the light of new law that existed in 1989. However, the tribunal made it clear that other notions, such as ‘exclusive economic zone’ could not be ‘interpreted in’ into the preexisting treaty. Incorporation ex post facto into the treaty by means of interpretation was deemed not possible. “To interpret an agreement concluded in 1960 so as to cover also the delimitation of areas such as ‘exclusive economic zone’ would involve a real modification of its text and, in accordance with a well-known dictum of the international Court of Justice, it is the duty of a court to interpret treaties, not to revise them.” (para. 85.)

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Project,37 the Court explicitly acknowledged the principle of evolution in treaty interpretation. In this case, however, the initial 1977 treaty already entailed an evolutionary aspect. Articles 15, 19 and 20 of the 1977 treaty explicitly required the incorporation of new environmental norms and standards in order to evaluate environmental risks.38 With regard to these provisions the Court stated that: [t]hese articles do not contain specific obligations of performance but require the parties, in carrying out their obligations to ensure that the quality of water in the Danube is not impaired …, to take new environmental norms into consideration when agreeing upon the means to be specified in the Joint Contractual Plan.39

On that basis the ICJ noted that ‘the Treaty is not static, and is open to adapt to emerging norms of international law’.40 Indeed, the ICJ continued, it entailed an obligation to take into account new environmental norms and standards. Thus, the evolutionary approach to interpretation was a requirement to the implementation of the treaty with regard to the obligation of the parties to maintain a certain quality of water and to protect nature. It extends necessarily to evolving issues, depending on the status and development of environmental norms. In more general terms, the Court expressed the relationship between the dynamism of environmental law and evolutionary treaty interpretation in its well-known dictum in the same case: Throughout the ages, mankind has, for economic and other reasons, constantly interfered with nature. In the past, this was often done without consideration of the effects upon the environment. Owing to scientific insights and to a growing awareness of the risks for mankind – for present and future generations – of pursuit of such interventions at an unconsidered and unabated pace, new norms and standards have been developed, set forth in a great number of instruments during the last two decades. Such new norms have to be taken into consideration, and such new standards given proper weight, not only when States contemplate new activities but also when continuing with activities begun in the past.41

By recalling its Advisory Opinion on the Legality of the Threat or Use of Nuclear Weapons, the Court also emphasized the fact that ‘the environment is not an abstraction but represents the living space, the quality of life and the 39 40 41 37 38

Hungary vs. Slovakia, ICJ Reports 1997. Ibid., para. 120. Ibid., emphases added are the author’s. Ibid. Case Concerning the Gabčikovo-Nagymaros Project, ICJ Reports 1997, para. 140.



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very health of human beings, including generations unborn’.42 Hence, particular ‘common interest’ norms, for example those that aim at the protection of the environment are necessarily evolving, as they do not relate to a static abstraction but are related to growing awareness of environmental threats and scientific progress. The Arbitral Tribunal in the Iron Rhine Railway case noted a ‘general support among the leading writers today for evolutive interpretation of treaties’.43 This interpretative rule has also been confirmed by WTO jurisprudence.44 The Appellate Panel in US–Shrimp took an evolutionary approach to treaty interpretation recognizing that the words ‘exhaustible natural resources’ in GATT Article XX(g) were crafted more than 50 years ago and ‘must be read … in the light of contemporary concerns of the community of nations about the protection and conservation of the environment.’45 The incorporation of developments in environmental law into the provisions of Article XX(g) was based on two grounds: first, preambular language, i.e., the objective of sustainable development, and, second, the abstract and general character of the terms used in Article XX. While the first argument relates primarily to a teleological approach to interpretation; the latter is relevant to an evolutionary approach to interpretation. It is, however, interesting to note the apparent connection between these two approaches. Evolutionary interpretation seems not only to require a ‘semantic hook’ in the general or abstract treaty terms; it could also be mandated by the ‘evolutionary character’ of the object and purpose of a treaty which, as was done in that case, can – inter alia – be extracted from preambular language. The object and purpose of a treaty, as one scholar explains, play



42



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45

ICJ reports 1996 para. 29, referred to in Case Concerning the Gabčikovo-Nagymaros Project, ICJ Reports 1997, para. 112. Arbitration regarding the Iron Rhine (“IJzeren Rijn”) Railway (Belgium v. Netherlands), 24 May 2005, Permanent Court of Arbitration, paras. 81–84. Not only did the Tribunal consider evolutionary interpretation to be invoked by conceptual or generic terms in a treaty it also looked at the object and purpose of a treaty insofar as they entail a certain degree of dynamism (for instance if the purpose of a treaty is to create longer lasting, sounder relations between the Parties). See reference in footnote 109, AB Panel US–Shrimp: “See Namibia (Legal Consequences) Advisory Opinion (1971) I.C.J. Rep., p. 31. The International Court of Justice stated that where concepts embodied in a treaty are “by definition, evolutionary”, their “interpretation cannot remain unaffected by the subsequent development of law … Moreover, an international instrument has to be interpreted and applied within the framework of the entire legal system prevailing at the time of the interpretation.” AB in US–Shrimp, para. 129.

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a central role in treaty interpretation. This reference to object and purpose can be understood as entry into certain dynamism. If it is the purpose of a treaty to create longer lasting and solid relations between the parties …, it is hardly compatible with this purpose to eliminate new developments in the process of treaty interpretation.’46

Accordingly, the Appellate Body argued that ‘the preamble attached to the WTO Agreement shows that the signatories to that Agreement were, in 1994, fully aware of the importance and legitimacy of environmental protection as a goal of national and international policy.’47 Thus, although Article XX was not modified by the Uruguay Round it did not preclude any future adjustments in the meaning of its terms to contemporary environmental concerns. The reference to the preamble of a treaty is a common means of identifying the intention of the parties and the context to be used according to Article 31(1)VCLT.48 It could also indicate an evolutive character of the entire treaty. By referring to the objective of sustainable development, explicitly acknowledged in the preamble of the WTO Agreement, the Appellate Body concluded: ‘From the perspective embodied in the preamble of the WTO Agreement, we note that the generic term ‘natural resources’ in Article XX(g) is not ‘static’ in its content or reference but is rather ‘by definition, evolutionary’.49 The use of broad and general treaty terms also gives an indication of the intention of the drafters of the dynamic character of the WTO Agreement. Pauwelyn argues that the use of broad, unspecified terms – such as ‘exhaustible natural resources’, ‘public morals’ or ‘essential security interests’ in GATT Arts. XX and XXI – is an indication that the drafters intended these terms to be interpreted in an ‘evolutionary manner’. It may, indeed, be an indication that WTO Members wanted these terms to evolve with society and international law, or, at least, should have realized the vagueness of these terms would result in their meaning being open to discussion and variation depending on the context and times.50

Given the frequent use of abstract terms in WTO treaties, the same author continues, evolutionary interpretation has become the rule and contemporaneous interpretation the exception.51 Certainly, the WTO Agreement is purported to create long-lasting, robust economic relations between Members. As such, 46



49 50 51 47 48

R. Bernhardt, ‘Evolutive Treaty Interpretation, Especially of the European Convention on Human Rights’ (1999) 42 German Yearbook of International Law, 16–17. AB in US–Shrimp, para. 128. See Fitzmaurice, 1957, 227–228; Brownlie, 2003, 634. AB in US–Shrimp, para. 130. Pauwelyn, 2003, 267. Ibid., and 268, footnote 89 with further references. Supporting this view: Fastenrath, 1991, 295.



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a dynamic element is inherent in their relations. More importantly, however, sustainable development as stated in the preamble is part of the WTO Agreement’s object and purpose. In this respect, the interpretation of the WTO agreements cannot be divorced from the dynamic development around the objective of sustainable development. Nevertheless, evolutionary interpretation is bound by inherent limitations of treaty interpretation. Developments in law between the time of negotiation of a treaty and the time of a dispute may influence the interpretation of the meaning of treaty terms. Evolutionary interpretation can, however, not go beyond or against the ‘meaning’ of the terms – even if the understanding of them has changed substantially.52 The cardinal principle, it was noted in a slightly different context, ‘is that interpretation as a procedure seeks to clarify what has already been decided, with binding force. It must stop short of changing what has been decided, for that involves revision which is a quite separate procedure governed by separate rules.’53 Interpretation, including evolutionary interpretation, may therefore not disapply certain norms even if developments in international law should render them redundant or inutile. Neither can it abandon the ‘semantic fold’ in which a certain term is nested. 12.3.3 Teleological Interpretation Article 31 of the Vienna Convention gives place to textual, contextual and teleological interpretation.54 The Appellate Body recognized such ‘holistic nature of the interpretative task’.55 In US–Shrimp it emphasized the interplay of all three approaches, when it said:

52 53



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55

Pauwelyn, 2003, 246. D.W. Bowett, ‘Res Judicata and the Limits of Rectification of Decisions by International Tribunals’ (1996) 8 African Journal of International Law 577, 586 (referring to the interpretation of judgments, not treaty norms). Art 31 (1) VCLT: A Treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ Panel in United States – Sections 301, para. 7.22, 638. As noted by the International Law Commission (ILC) – the original drafter of Article 31 of the Vienna Convention – in its commentary to that provision: “The Commission, by heading the article “General Rule of Interpretation” in the singular and by underlining the connection between paragraphs 1 and 2 and again between paragraph 3 and the two previous paragraphs, intended to indicate that the application of the means of interpretation in the article would be a single combined operation. All the various elements, as they were present in any given case, would be thrown into the crucible, and their interaction would give the legally relevant interpretation. Thus [Article 31] is entitled “General rule of interpretation” in the singular,

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these rules [customary rules of interpretation of public international law] call for an examination of the ordinary meaning of the words of a treaty, read in their context, and in the light of the object and purpose of the treaty involved. A treaty interpreter must begin with, and focus upon, the text of the particular provision to be interpreted. It is in the words constituting that provision; read in their context, that the object and purpose of the states parties to the treaty must first be sought. Where the meaning imparted by the text itself is equivocal or inconclusive, or where confirmation of the correctness of the reading itself is desired, light from the object and purpose of the treaty as a whole may be usefully sought.56

It has been noted that elements of the context include the preamble and annexes to a treaty as well as all agreements made by all the parties to a treaty in connection with the conclusion of that treaty, and any instrument accepted as related.57 As regards object and purpose, in practice the panel and Appellate Body have considered it an independent basis for interpretation.58 A clear teleological approach was, however, rejected for a determination of the objective and purpose based on the ‘terms of the treaty’. Instead of establishing the objective and purpose from a treaty as a whole, which involves examining not least the preamble,59 and other related provisions, the Appellate Body emphasized the text at hand. In those instances where the Appellate Body expressed its interpretative task as examining the object and purpose, its approaches are inconsistent: sometimes leaning towards the object and purpose of a particular provision,60 sometimes the object and purpose of the relevant WTO Agreement as a whole

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not “General rules” in the plural, because the Commission desired to emphasize that the process of interpretation is a unity and that the provisions of the article form a single, closely integrated rule.’ (Yearbook of the ILC, 1966, 219–220). WT/DS58/AB/R, 114 with reference to I. Sinclair, The Vienna Convention on the Law of Treaties, 2nd ed., 1984, 130–131. Lennard, 2002, 25. Cameron and Gray note that the ‘cross-references and interrelationship between all of the WTO Agreements opens the possibility of considering them when interpreting a particular agreement’, 2001, 255, In Japan–Alcohol, the Appellate Body rejected an teleological approach and noted that ‘the treaty’s object and purpose’ is to be referred to in determining the meaning of the ‘terms of the treaty’ and not as an independent basis for interpretation. AB in Japan– Alcohol, para. 20 G. Fitzmaurice, ‘The Law and Procedure of the International Court of Justice, 1951–54 – General Principles and Sources of Law’ (1953) 30 BYIL, 1; G. Fitzmaurice, ‘Treaty Interpretation and other Treaty Points’ (1957) 33 British Yearbook of International Law, 207–209, 228. See also: ILC Commentary, 221. See, for example AB in US–Shrimp, paras. 116–117.



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was considered,61 and sometimes both.62 Here, our finding in Part I might be of importance. We concluded that sustainable development is defining the end goal, the purpose, of the WTO. Such finding was backed up by WTO jurisprudence, the text of the Preamble of the WTO Agreement and concordant statements by the WTO Secretary General. Teleological interpretation in this sense is thus interpretation in the light of sustainable development as a concept integrating WTO law and other policies and strands of law. In this context a ‘new teleological interpretation’ was identified that recognized that both WTO and non-WTO policies need to be obtained.63 According to such interpretative attempt, the operationalization of WTO exception clauses provides policy space to WTO Members so that actions taken in other fora are coherent with WTO law. In particular the balancing approach introduced by Appellate Body in US–Shrimp has been described as ‘nourishing sustainable coherence within the international legal order’.64 While interpretation in the light of sustainable development could provide an opportunity of creating such coherence, it still awaits further and coherent jurisprudential elaboration and practice. Despite its promising nature, also the teleological argument falls short of accommodating trade restrictive measures that are partly protectionist. This limitation of teleological interpretation in the light of sustainable development was stated by the WTO Secretary General I hope it is now clear that WTO Members’ trade restrictions imposed to implement non-trade considerations, will be able to prevail over WTO market access obligations so long as they are not protectionist. In other words, the WTO provisions themselves recognize the existence of non-WTO norms and other legal orders and attempts to limit the scope of application of its own provisions, thereby nourishing sustainable coherence within the international legal order … The WTO does … take into account other norms of international law. Absent protectionism, a WTO restriction based on non-WTO norms, will trump WTO norms on market access. In so doing, it expands coherence between systems of norms or legal order. Moreover, I believe that in leaving Members with the necessary policy space to favour non-WTO concerns, the WTO also recognizes the specialization, expertise and importance of other international organizations. In sum, the WTO is well aware of the existence of other systems of norms and that it is not acting alone in the international sphere.65



61 62



63



64 65

See Lennard, 2002, 27–8. See, for example, AB in EC–Hormones ‘Consideration of the object and purpose of Article 3 and of the SPS Agreement as a whole reinforces our belief’, 177. P. Lamy, ‘WTO – Do we Need it?’, address before the European Society of International Law, Sorbonne, Paris, 19.05.2006. Ibid. Ibid., emphases added.

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Given that some of the conflicts between trade measures and WTO law arise because these measures entail a protectionist notion, teleological interpretation might thus not adequately resolve such conflicting situations. Moreover, even if a teleological interpretative approach were adequate, it remains just one out of many interpretative arguments. The indeterminate nature of interpretative arguments provides the WTO dispute settlement system with the necessary degree of flexibility to fashion its own reasoning while, at the same time, it inevitably offers a variety of possible results. 12.3.4 Interpretation with Reference to Norms outside the Treaty: Art. 31.3(c) VCLT: General Comments Under the Vienna Convention, the existence of other rules of international law that apply between the parties to a treaty is relevant to the interpretation of a treaty. Besides the ordinary meaning of the terms, the context, and object and purpose, these rules have to be taken into account on an equal footing.66 Article 31.3(c) of the Vienna Convention is of particular interest to the present purpose of harmonizing treaty provisions in the course of interpretation. According to this provision ‘any relevant rule of international law applicable in the relation between the parties’ shall be taken into account together with the context of the treaty. It is recognized as vital to include other rules in judicial decision-making, when appropriate. This recognition is linked to general concerns about ‘treaty parallelism’. McLachlan notes: ‘[i]t is no accident that this renewed attention [on interpretation under Art 31.3(c)] has surfaced at a time of increasing concern about the fragmentation of international law – a concern that the proliferation of particular treaty regimes would not merely lead to narrow specialization, but to outright conflict between international norms.’67 The purpose of this principle of interpretation is to foster ‘coherence in the interpretation of treaty obligations’68 and the unity of international law. In this sense, the ILC Study Group on Fragmentation saw it as a ‘principle of

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68

See ILC in YBIEL 1966, vol. II, 220. With reference to Art 31.3(c) ’these three components are all of an obligatory character and by their very nature … not … in any way inferior to those which precede them’, also Neumann, 2002, 357. McLachlan, 2004, 280. Marceau, 2001, 1089. See also French, 2006; McLachlan, 2005; Pauwelyn, 2003, 251–274. For an overview see also P. Sands, ‘Sustainable Development: Treaty, Custom and the Cross-fertilization of International Law’ in Boyle and Freestone, International Law and Sustainable Development (1999c) 49, 50.



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systemic integration’.69 When applying Article 31.3(c) VCLT, a treaty must be interpreted against the thick background of all relevant international law. The principle not only states the applicability of general international law in the context of interpretation, but ‘it points to the need to take into account the normative environment (system) more widely’.70 Article 31.3(c) of the VCLT does not limit the scope of other rules in any particular way. Without restriction regarding their source or to the time of their coming into existence,71 rules included under the scope of Article 33(1) (c) have been recognized as including customary law rules, general principles of law,72 and, where applicable, other treaty provisions.73 Among these other rules, no rule of preference applies. It remains unclear how to solve a situation where several relevant, but contradictory rules of international law are applicable. Nor does Article 31.3(c) entail any preference for the ‘other rule’ over the interpreted treaty. Outside rules are not brought into the interpretative process because of their overriding character (except for jus cogens, but then the interpreted rule disapplies). Apparently, Article 31.3(c) is not a conflict norm in the sense that it deals with questions of priority or hierarchy. It does not attach any stronger normative weight to rules extraneous to the treaty to be interpreted. What it seeks is a harmonious reading of apparently conflicting norms by interpreting them so as to render them compatible.74 The ILC Study Group offers no guidance on how the ‘need to take into account’ can be determined. The group

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Sands, 1995, 85, saw it as a principle of ‘integration’. The notion of ‘systemic’ integration was recently added by C. McLachlan, ‘The Principle of Systemic Integration and Article 31 (3)(c) of the Vienna Convention’ (2005) 54 ICLQ, 279–320 and ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 175. ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 175–176. Art 31.3(c) does not limit this reference to other rules of international law to those that existed at the time of conclusion of the treaty, nor does it explicitly include other law that had developed at the time of application. See: J. Pauwelyn, The Nature of WTO Obligations, Jean Monnet Working paper 2002. See in particular on general principles taken into account under Art. 31.3(c): ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 199; Pauwelyn, 2003, 271; and M. Koskenniemi, ‘General Principles. Reflections on Constructivist Thinking’ in M. Koskenniemi, Sources of International Law (London: Ashgate, 2000) 359–399. McLachlan, 2005, 289; ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 175 and 180. See also Neumann, 2002, 359: “Daher sind alle in Art 38 IGHSt genannten Rechtsquellen umfasst.” Also: Marceau, 2001, 1087; Pauwelyn, 2003, 255; Sinclair, 1984, 119; Contra: Sands, who seems to limit the rules in Art 31.3 (c) to customary international law while the relationship between two or more treaties is dealt with in Art 30 VCLT. Sands, 1999c, 48–50. ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 174.

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appears to be satisfied with linking the significance of ‘taking into account’ to the performance of a systemic function in the international legal order whereby specialised parts are linked to each other and to universal principles.75 The paradox of such a view is that any (relevant) rule under this systemic function is always already linked to and ‘seen in the light’ of any other. In other words, if, for example, a WTO norm is to be interpreted in the light of a rule entailed in a MEA, the interpretation of the other rule – equally linked to the international legal order – may likewise need to take into account the WTO rule. Such a ‘systemic’ explanation of the need to take other rules into account could render interpretation a circular process where one rule endlessly undoes the other. It could become impossible to conceptualize either the WTO rule or the MEA rule without considering the other, unless there was good reason to let the outside rule inform the WTO rule. Such an argument could perhaps be made if the outside rule represented a ‘collective interest norm’, ranging somewhat higher in the international value system, without a legitimate claim to normative superiority. A number of general principles or customary law rules could fall within this category. This seems to correlate with the somewhat hidden view of the ILC Study Group that ‘[w]ithout the principle of “systemic integration” it would be impossible to give expression to and keep alive any sense of the common good of humankind, not reducible to the good of any particular institution or ‘regime’.76 Another possibility of attributing stronger normative weight could concern treaty rules of ‘integral’ character (or treaty obligations erga omnes partes) that shall be taken into account when interpreting a ‘reciprocal’ treaty. In these cases, the danger of ‘endless deconstruction’ may be avoidable. Again, the strength of the need to ‘take into account’ can only be determined on a case by case basis. ‘Outside’ rules have to be applicable in the relations between the parties. Unlike customary law and general principles of law which are generally applicable, the applicability of other treaty rules arguably depends on the membership to that other treaty. As a traditional minimum-requirement both Parties in dispute need to be Parties to the other treaty as well. Whether this applies to all parties to the treaty under interpretation remains a contentious issue. The ILC Study Group concluded that such requirement would make any use of other conventional law under Art 31.3(c) unlikely. There is practically no conformity of membership to multilateral treaties. In fact, were it to be required, it would sever multilateral treaties from the rest of international law

75 76



Ibid., 202. Ibid., 205.



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as ‘islands’ permitting no reference inter se in their application.77 The Study group therefore supported the view that membership of the disputing parties to both treaties should suffice.78 Recent WTO jurisprudence, however, indicates that only agreements to which all other WTO Members were Parties could be taken into account under Art 31.3(c) VCLT. The WTO panel in EC–Biotech dismissed the request of the EC to take account of the rules in the 1992 Convention on Biological Diversity and the 2000 Cartagena Biosafety Protocol on the grounds that not all parties (in particular the US) to the WTO treaty to be interpreted had become Members to these other treaties.79 Applying this finding to the case-example of a trade-restrictive climate measure, allows a number of conclusions to be drawn. First, there is no congruence of membership of the WTO and Kyoto Protocol or the UNFCCC.80 According to the view expressed by the EC–Biotech panel, the rules of these two treaties would therefore not be taken into account when interpreting GATT or GATS provisions under Article 31.3(c) VCLT. It remains possible to take these treaties into account as facts elucidating the ordinary meaning of certain terms in the relevant WTO treaties, though this approach has been criticised as a ‘rather contrived way of preventing the ‘clinical isolation’ as emphasized by the Appellate Body’.81 Second, while the terms ‘applicable in the relations between the parties’ in Article 31.3(c) are seen as referring to the Parties to the dispute, the likelihood of reference be made to the rules of the Kyoto Protocol when interpreting rules of WTO agreements remains rather limited. In the examples highlighted in Part II of this study, it became clear that conflict potential lies mostly where Members to the Kyoto Protocol discriminate non-Members’ trade with certain products or services. In this constellation, Kyoto rules would not be applicable under Article 31.3(c), except for the rather unlikely event that a rule contained in the Protocol reflects customary law or jus cogens.

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Ibid., 200. So also G. Marceau, ‘WTO Dispute Settlement and Human Rights’, 13 EJIL, 2000, 781. ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 200–1. EC–Biotech Products, 7 February 2006, WT/DS 291–293, INTERIM, 7.68–7.70. The ILC Study group criticized this approach. It found that it ‘makes it practically impossible ever to find a multilateral context where reference to other multilateral treaties as aids to interpretation under article 31.3(c) would be allowed. The panel buys what it calls “consistency” of its interpretation of the WTO Treaty at the cost of the consistency of the multilateral treaty system as a whole.’, ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 191. 172 States are members to the Kyoto Protocol, the WTO has 151 members (, last visited 12 March 2008). ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 191.

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Some of the non-Kyoto WTO Members, however, are Members of the UNFCCC; in which case the rules of the UNFCCC would remain applicable in the context of interpretation. The ultimate objective of Article 2 UNFCCC could give ground for interpretative influence on WTO norms. The overall commitment to the ‘safe stabilization goal’ would need to be taken into account when interpreting the provisions of the WTO agreements. The scope and function of interpretation under Article 31.3(c) VCLT is perhaps the most controversial aspect. As mentioned above, according to the claims of some scholars, Article 31.3(c) has the facility to integrate all sources of international law.82 In this sense, Article 31.3(c) was perceived as ‘quite essential for promoting harmonization and guaranteeing the unity of the international legal system’.83 Indeed, the function of ‘systemic integration’ – whereby treaty norms are interpreted with reference to their normative environment, that is, the ‘system’ of international law as a whole84 – is crucial in this quest for unity. The question, however, is whether treaty interpretation is the most adequate means to achieve such unifying systemic integration. The arguments put forward in favour of such a broad function are not convincing. Three concerns relate to the practical use of interpretation under Article 31.3(c) in this context. First, interpretation with reference to other rules depends on some textual or contextual uncertainty of the term to be interpreted. Interpretation with reference to other international law rules has merits where the treaty norm to be interpreted ‘calls’ for such an interpretative approach. Four situations can be identified where use of Article 31.3(c) would ‘normally’ arise. First, where a treaty rule is unclear or ambiguous; second, where the terms used in the treaty have a well-recognized meaning in customary law to which the parties can therefore be taken to have intended to refer; and third, where the treaty language indicates an evolving meaning or where the terms of a treaty can be classified as ‘generic’ or are by their nature open-textured and reference to other sources of international law will assist in giving content to the rule. Fourth, where the object and purpose of a treaty allow the conclusion ‘that the parties have committed themselves to a programme of a progressive development. In these cases, there is a necessary presumption that the meaning of the term was intended to follow the evolution of the law and correspond with the

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French, 2006, 301; McLachlan, 2005, 301. ILC Study Group on Fragmentation, report on Fifty-Sixth session, 2004, Supplement No 10 (A/59/10), 301. ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 175.



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meaning attached to the expression by the law in force at any given time.85 Adopting a technically different approach, the Arbitral Tribunal in the Iron Rhine case applied the intertemporal rule of interpretation as one ‘relevant rule of international law’ under Article 31.3(c).86 Apart from these ‘hook-ups’ within the treaty, interpretation with reference to other norms seems to have limited potential for creating ‘systemic integration’. In particular, where the terms of a treaty are clear, that is, where there is no such textual or conceptual uncertainty, interpretation is unlikely to place these terms in their normative environment. Creating unity also relies however on the relation of ‘clear’ terms to outside norms. Second, there is considerable uncertainty as to what ‘interpretation with reference to’ and ‘taken into account’ actually mean. Without attempting a comprehensive analysis, some internal constraints can be noted. Interpretation is a semantic exercise. Whether by reference to ‘ordinary meaning’, ‘party intent, ‘object and purpose’, effectiveness, or other relevant rules of international law – it always is about giving meaning to the terms of a treaty. Interpretation by taking account of the normative environment under Article 31.3(c) of the instrument that is being interpreted therefore ultimately finds it limits where coherence with other norms requires dis-application of the provision to be interpreted. Interpretation cannot – not even momentarily – ‘set aside’ treaty provisions. The technique of interpretation is exhausted where a definitive priority of application is required or displacement of a norm is sought. It is in this context the critique of Judge Higgins in the Oil Platforms case may be understood. In her separate opinion she concluded that ‘[t]he Court has, however, not interpreted Article XX, paragraph 1(d), by reference to the rules on treaty interpretation. It has rather invoked the concept of treaty interpretation to displace the applicable law.’87 Such displacement, however, generally lies outside the scope of interpretation. Despite the apparent potential of Article 31.3(c) its use for ‘integrating’ other rules in a particular treaty is rather constrained. In other words, under Article 31.3(c) the treaty being interpreted retains a primary role.88 The other rule has a secondary role, in the sense that there can be no question of the other norm displacing the treaty norm, either partly or fully.89

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Aegean Sea Continental Shelf (Greece v. Turkey), Judgment, ICJ Reports 1978, para. 77. Arbitration regarding the Iron Rhine (“IJzeren Rijn”) Railway (Belgium v. Netherlands) 24 May 2005, Permanent Court of Arbitration, para. 79. ICJ, Oil Platforms case (Iran v. US) (Merits), ICJ Reports 2003, Separate Opinion Judge Higgins, para. 49. See Sands, 1999c, 57. Ibid.

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If a priority of rules must be established, it must be done by recourse to conflict rules, such as lex specialis, lex posterior, lex superior or other general principles that demand integration of norms. These principles deal with the application of norms, not with their interpretation. The ILC Study Group seems to adopt a ‘wider’ notion of interpretation, comprising of both interpretative arguments alongside competence to set aside invalidated rules. Interpretation as ‘systemic integration’ is understood as interpreting and applying the treaty in its relationship to its normative environment, that is, ‘other’ international law.90 This certainly is a possible view. It is, however, diverting from the traditional view on legal reasoning which considers treaty interpretation as one component of a wider array of legal techniques. Usually lawyers proceed from the treaty text to customary law and general principles of law. This approach has illuminatingly been described as a progression of legal reasoning through ‘concentric circles’: each one constituting a field of reference and potential assistance for the next.91 Interpretation under Article 31.3(c) is thus part of a larger interpretation process, while interpretation is part of a larger process of legal reasoning. In the course of this study, the distinction between interpretation and application of norms will be maintained according to this view. International judicial and arbitral practice have only recently and reluctantly started to use Article 31.3(c) more extensively.92 The US–Iran Claims Tribunal invoked the principle in order to fill possible lacunae under the IranUS Claims Settlement Declaration, for example to find that general rules of international law defined certain property rights under the Treaty or the determination of national requirements for bringing a claim before the Tribunal.93 The OSPAR Arbitral Tribunal in the arbitration regarding the MOX Plant accepted the scope of reference to other rules of international law but rejected taking account of the instruments contended by Ireland, which were: access to information based on the 1992 Rio Declaration and the 2001 Aarhus Convention on Access to Information, Public Participation in Decision-Making, and Access to Justice in Environmental Matters, on the grounds that they were 90



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ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 179, 205. M. Huber, ‘Letter’ reproduced in (1952) 44-I Annuaire de l’Institut de Droit International, 200–201. See Sands, 1999c, 51. Sands highlights the ‘endemic’ nature of this reluctance by providing examples from a number of different tribunals: GATT and WTO Panels and Appellate Body, International Court of Justice, European Court of Human Rights. (51–56) See, for example, Amoco International Finance Corporation v. Iran, Iran-US C.T.R., vol. 15, 1987-II, 222, para. 12 and Esphahanian v. Bank Tejarat, Iran-US C.T.R., vol. 2, 1983-I, 157.



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‘evolving international law’ but not ‘rules of law applicable between the parties’ according to Article 31.3(c).94 The European Court of Human Rights has a longer history of applying the principle. In the Golder case the Court expressly invoked Article 31.3(c) to support the conclusion that the principle of international law forbidding the denial of justice has to be read into Article 6(1) of the European Convention on Human Rights.95 As mentioned, the International Court of Justice, albeit previously confirming that an ‘international instrument has to be interpreted and applied within the framework of the entire legal system prevailing at the time of interpretation’96 has only recently referred to Article 31.3(c) in the Oil Platforms case.97 12.3.5 Article 31.3(c) VCLT in WTO Jurisprudence The permissibility of WTO adjudicating bodies applying this principle to the interpretation of WTO agreements has sometimes been contested on the grounds of ‘limited jurisdiction’ according to Articles 1.1, 4.2, 4.4, 7 and 11 of the DSU. Both adjudicating bodies are a creation of the WTO and do not exist independently from it.98 According to Article 7.1 DSU the mandate of the panels is ‘to examine, in the light of the relevant provisions in (name of the covered agreement(s) cited by the parties to the dispute, the matter referred to the DSB

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Dispute Concerning Access to Information Under Art. 9 of the OSPAR Convention, Final Award (Ireland v. the United Kingdom) 2 July 2003, Permanent Court of Arbitration, ILM vol. 42 (2003), 1137–1138, paras. 99–105. ECHR Golder v. UK, Judgment of 21 February 1975, ECHR Series A no. 18, at 14, para. 29, 57 ILR 201. For reference to Art 31.3(c) VCLT in order to decide whether rules on state immunity might conflict with the right of access to courts under Art 6.1 of the European Convention on Human Rights, see Al-Adsani v. UK, Judgment of 21 November 2001, ECHR, 2001-XI, 79; Fogarty v. UK, Judgment of 21 November 2001, ECHR 2001-XI, 157; and McElhinney v. Ireland, Judgment of 21 November 2001, ECHR 2001-XI, 37. See also Loizidou v. Turkey (Merits) Judgment of 18 December 1996, ECHR 1996-VI, 2231, para. 44. Legal Consequences for States of the Continued Presence of South Africa in Namibia (Advisory Opinion), 1971, ICJ Reports 31. The court held that the interpretation of the Covenant of the League of Nations could not remain unaffected by the subsequent development of the law, including the Charter of the United Nations and customary law. A similar approach was adopted in the Aegean Sea Continental Shelf case (Greece v. Turkey), ICJ reports, 1978, para. 78) and the Gabčikovo-Nagymaros case (ICJ reports 1997, para. 140). Iran v. United States of America (Merits) ICJ Reports 2003, 161, 41. Marceau, 2001, 1102.

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by (name of the Party) in document … and to make such findings as will assist the DSB in making recommendations or in giving the rulings provided for in that/those agreement/s. Article 11 suggests a limited jurisdiction for panels: it requires a panel to ‘make an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements’. In addition, Articles 3.2 and 19.1 DSU make clear that ‘Recommendations and rulings of the DSU cannot add to or diminish the rights and obligations provided in the covered agreements.’ However, the WTO does not exist in hermetic confinement. Accordingly, the Appellate Body could not allow the covered agreements to be read in clinical isolation from public international law. By accepting the rules of the Vienna Convention as applicable to WTO dispute settlement, also Article 31.3(c) falls within the scope of the specific authorization of the DSU itself. In addition, occasional fear is expressed that interpretation according to Article 31.3(c) runs counter to the prohibition of adding or diminishing rights and obligations in the covered agreements, linking this issue to the scope of interpretation under Article 31.3(c) as explained above. This concern is not substantiated. Interpretation by definition cannot change the meaning of terms by propelling them beyond their semantic scope. The rationale of interpretation is to construct the meaning of an instrument by a legal technique. When Article 31.3(c) is used, this technique involves taking account of the wider legal environment. However, these other norms are ‘relevant’ because they are already binding on (at least) the parties to the dispute. No right would therefore be added or diminished that did not already exist. Despite the recognition of the customary rules of interpretation by the DSB; Article 31.3(c) VCLT has received little explicit reference. In US–Shrimp, the Appellate Body referred to Article 31.3(c) for introducing ‘additional interpretative guidance, as appropriate, from the general principles of law’.99 Apart from this example, the Appellate Body has not invoked Article 31.3(c) for taking account of non-WTO rules. In fact, the EC–Biotech panel used reference to the article as an argument for not including outside rules.100 As mentioned above, the Appellate Body, however, has in several cases taken account of newer developments in international law without explicit reference to Article 31.3(c).101 Again, in US–Shrimp, when interpreting the 99





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AB in US–Shrimp, para. 158, fn. 157. It used Art. 31.3(c) for not taking account of rules of the CBD and the Biosafety Protocol on the ground that not all WTO Parties were parties to these agreements. It also, if more obscurely, dismissed taking account of the precautionary principle as a general principle of law by implicitly rejecting its legal status as a ‘relevant rule’. See for an overview Neumann, 2002, 356–364.



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words ‘exhaustible natural resource’ of Article XX(g) of GATT 1994 reference was made to a number of non-WTO treaties, such as CITES, CBD, UNCLOS. Here, the Appellate Body did not use Article 31.3(c) to include these reference points, nor did it need to. The term ‘exhaustible natural resources’, contended the Appellate Body, must be read by a treaty interpreter in the light of contemporary concerns of the community of nations. The use of these broad and unspecific terms indicated their need to be interpreted in an evolutionary manner. It remains unclear whether these references were made pursuant to Article 31.3(c) or to Article 31(1) VCLT.102 It seems that an evolutionary approach, rather than recourse to Article 31.3(c) was accepted. This assumption rests on the suggestion that a distinction exists between an evolutionary approach to interpretation and the ‘taking into account of any relevant rule of international law’ according to Article 31.3(c). The distinction arguably depends on the spectrum of extraneous law for inclusion in the interpretative process. The use of newer rules that exist in the same legal ‘topic-area’ as the rules to be interpreted (e.g. rules of economic law, environmental law, Human rights law) seems to indicate an evolutionary approach; while under Article 31.3(c) the entire normative environment becomes the legal background for interpretation. Though both approaches seek to adjust the treaty to temporary concerns and strive to enhance the coherence of the legal system; they are both subject to limitations. Article 31.3(c), although apparently wider in scope in terms of ‘relevant rules’, is limited by their applicability. Evolutionary interpretation, on the other hand, is not contingent upon the requirement of applicability of outside rules. Though the scope of ‘relevant law’ is limited, nevertheless, to ‘topically-related’ law. 12.4 Conclusions This chapter has shown that although interpretation provides an important tool for harmonizing apparently conflicting norms, it is inherently limited. Limitations relate to the purpose of interpretation as giving meaning to the terms of a treaty. Newer developments in international law, in particular where they lead to overlapping and conflicting norms, might not always be easily accommodated by the semantic scope of treaty texts. Reference to outside rules by applying the principle of evolutionary interpretation can only be made in those

102

See Neumann, 2002, 364; Pauwelyn, 2003, 256; Cameron, 1998, 20; Petersmann, 1997, 120; Marceau, 1999, 116; Murphy, ‘Biotechnology and International Law’ (2001) 42 HILJ, 86.

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cases where the WTO rule is broad and ambiguous enough to allow for input from other rules. Article 31.3(c) VCLT allows for another avenue for interpretation ‘in the light of other relevant rules of international law’. However, also interpretation according to Article 31.3(c) VCLT has several limitations. First, uncertainty prevails as to what rules are applicable. According to WTO jurisprudence, only rules that are binding on all parties to the treaty to be interpreted are ‘applicable’ in the sense of Article 31.3(c). This view excludes most of other conventional rules. Second, the argument is in danger of circularity. If a treaty is to be interpreted by taking account of its wider normative environment, the treaty also exerts normative force on other rules within this environment. This could lead to the somewhat paralysing situation of endless hermeneutic circles. Third, interpretation is a legal tool for giving meaning to the terms of a treaty. It falls short of usefulness where extraneous rules are contradictory, in which case the conflict has to be decided by establishing normative priority. Treaty interpretation, including interpretation with reference to outside rules, cannot function as a priority or conflict solution principle to the extent of overall ‘systemic integration’. It can contribute to promoting harmonization and unity of the international legal system. But treaty interpretation cannot, by itself, accomplish this.103 In other words, while Article 31.3(c) provides for taking account of the normative environment of a treaty norm in the process of interpretation; limitations exist where the object and purpose of treaty or the terms of the treaty do not contain the necessary ‘openness’ or ‘ambiguity’ for inclusion of extraneous rules. In cases where outside legal norms are found to be contradictory to the treaty to be interpreted and no harmonious reading is possible, the ‘innermost circle’ of interpretation is exhausted and the next ‘concentric circle’ – dealing with the question of priority of rules – needs to be entered. Article 31.3(c) is not a legal instrument which can be used to disapply a treaty norm. Where, for example, a WTO rule is strict and clear, an apparent conflict with a contradicting outside rule cannot be ‘interpreted away’. Only in those cases where the WTO term itself provides for a ‘hook-up’ by means of which the other rule could impart meaning in the process of interpretation could a real conflict with other rules be avoided. Given the uncertainties as to the application of a certain interpretative argument coupled with the ‘traditions in legal literature that dictate scepticism about the very possibility of there being anything that could be called a theory of interpretation’,104 there is no consensus – and surprisingly little debate – over the proper content of a theory on how legal texts should be

103 104

See French, 2006, 302. Moore, 1985, 286.



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interpreted. With regard to the subject dealt with in this treatise – the conflict of norms – limitations of treaty interpretation are of crucial importance. The adverse consequences of the lack of legally binding principles in such a delicate area are self-evident.105 If there is no consensus concerning the correct interpretative argument(s) to be applied in the process of treaty interpretation, the mere existence of interpretative arguments cannot be considered as means of avoiding or solving an apparent normative conflict. The lack of legal predictability in the field of treaty interpretation is not limited to this situation alone. Courts and scholars have never been particularly cautious when distinguishing the theory of interpretation from an overall theory of legal reasoning (‘adjudication’) of which interpretation is a part. Interpretation only names one ‘discrete sub-activity within the activity of legal reasoning. It is not a synonym for legal reasoning itself.’106 Apart from interpretation, the application of the treaty in the context of other law provides another example of legal reasoning. This type of adjudication is based on the fact that every treaty is part of the wider context of international law.107 The distinction between application and interpretation is a crucial one as it allows for the consideration of rules outside a treaty for different reasons.108 Legal reasoning based on the application of a treaty in this wider sense will be discussed in more detail in the next chapter. Suffice it to say here that the limitations that apply to the process of interpretation do not necessarily constrain other types of legal reasoning that take account of other international treaties, non-treaty law or current developments in international law in general. As we have seen, interpretation cannot provide a panacea; rather there is increasing demand for applying a ‘principle of integration’. Such a principle – different from interpretation – would allow us to see the rules in view of some comprehensible and coherent objective. From the perspective of their contribution to some generally shared ‘systemic’ objective, the rules have to be read harmoniously and, when necessary, prioritized according to their significance to that objective. One such technique, I suggest, is applying the principle of integration under the objective sustainable development. This principle would not only 107 108 105 106

Cassese, 2001, 135. Moore, 1985, 284. Pauwelyn, 2003, 202 This distinction was made clear by Sir Humphrey Waldock. In his Third Report on the Law of Treaties he distinguished in Art 56 of his draft between the interpretation of a treaty in the light of the law in force at the time when the treaty was drawn and the application of a treaty governed by the rules of international law in force at the time when the treaty is applied. YBILC 1964, vol. 2, 8. See for more discussion on this draft: Pauwelyn, 2003, 202.

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help overcome the constraints to establishing normative priority that mark the process of interpretation. More important, it would also elucidate the obscure ‘generally shared – systemic – objective’ of the international legal rules to which the ILC Study group referred.109 The Study Group came close to defining this objective as the ‘common good of humankind’.110 My suggestion is that ‘sustainable development’ might be an objective more appropriate, less indeterminate and practically more useful. However, ultimately the two notions are probably not so far from each other, only insofar as the latter is more clearly delineated. Indeed, if ‘the common good of humankind’ or more succinct ‘sustainable development’ – provided that it is sufficiently clear in its content – were applied as the template of integration, it would render meaningful the attempt to allocate rules to their respective place in the international normative system. To sum up, as a result of limitations to interpretation, a WTO panel may be faced with a situation in which interpreting WTO norms may not solve an apparent conflict. Thus the question how contradictory non-trade rules relate to WTO law remains open. If the approach to such a situation is exclusively based on interpretative means, then an important strand of the quest for fairness and legitimacy is cut off. The result could be deemed a legal one, but not necessarily a legitimate one. In order for a finding to be legitimate it has to be based on evolving standards of what constitutes right process and the ‘right substantive law’ to be applied.111 Conflict resolution principles and a judicial principle of integration are certainly part of an evolving standard of ‘conflict law’. After all, the question remains what a WTO panel or the Appellate Body can or ought to do in the situation where it is unable to find a harmonious reading of WTO and outside law. Can it simply disrespect the outside law, can or must it pronounce a non-liquet, or are there other solutions to this challenge? As we have seen, interpretation provides only one mode of legal reasoning or adjudication. The application of other rules offers another. As we shall explore now, the determination of what rule remains applicable is left to various principles of conflict resolution.

111 109 110

ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 177. Ibid., 205. Franck, 1995, 26.

Chapter 13

Principles of Conflict Resolution

In the event of interpretation not leading to a harmonious reading of two norms, a genuine conflict between WTO law and the other norm exists. If the other norm is found to constitute a breach of international trade law do other rules or principles exist that can deal with a genuine legal conflict? Here, the law of treaties provides a number of conflict resolution principles applicable when conflict avoidance techniques, e.g. interpretation, have failed. The specific question with regard to the case example of this study is this: If the exercise of rights under the Climate Convention or the Kyoto Protocol leads to a conflict with a WTO norm, what techniques – beyond interpretation – exist to resolve this conflict? In this situation international law provides legal tools, so-called ‘priority rules’ or ‘choice of law rules’, to determine which one of the two rules should be applied in this situation and which one – momentarily or permanently – has to give way.1 13.1 Explicit Conflict Clauses In anticipation of conflict with other norms, States sometimes enumerate in the text of international treaties methods of dealing with the situation. Thus, a treaty may contain explicit conflict clauses (or savings clauses) defining the relationship to pre-existing or future treaties or that very treaty.2 Conflict

1



2

The rule which is disapplied in this particular situation cannot be breached and does not give rise, therefore, to State responsibility in this particular case. The discarded norm, however, remains applicable in other circumstances. Thus, another court or tribunal may decide differently on the issue of the applicable law. Examples include Article 103 UN Charter “In the event of a conflict between the obligations of the members of the United Nations under the present Charter and their obligation

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clauses define which of the two norms shall prevail. The other norm is not invalidated or terminated; it is, rather, temporarily set aside. Although the discarded rule does not apply in the particular circumstance, it may apply in other circumstances. The WTO agreements contain no general conflict clause and only very few provisions that deal with the relationship between WTO law and other norms of international law.3 In particular, the view of considering Articles 3.2 and 19.2 of the DSU as conflict clauses needs to be rejected. Articles 3.2 and 91.2 do not proclaim that WTO covered agreements must necessarily and always prevail over all past and future law, nor do they address the jurisdiction of the panels or the applicable law before them. They deal with the limits of a WTO panel as a judicial organ in interpreting WTO covered agreements. Here, – in the limited course of interpretation – a panel may ‘not add or diminish the rights and obligations provided in the covered agreements’.4 This view seems to be in accordance with the WTO panel in Korea–Measures Affecting Government Procurement, which explained that We take note that Art 3(2) of the DSU requires that we seek within the context of a particular dispute to clarify the existing provisions of the WTO agreements in accordance with customary international law rules of interpretation of public international law. However, the relationship of the WTO agreements to customary international law is broader that this. Customary international law applies generally to the economic relations between WTO members. Such international law applies to the extent that the WTO treaty agreements do not ‘contract out’ from it. To put it another way, to the extent that there is no conflict or inconsistency, or an expression in a covered agreement that applies differently, we are of the view that the customary rules of international law apply to the WTO treaties and to the process of treaty formation under the WTO.5

The WTO agreements are in particular silent about the relationship to MEAs. Despite the mandate of the CTE to examine the relationship between the WTO treaty and MEAs, no dedicated solution has been elaborated. The CTE did, however, endorse ‘multilateral solutions based on international cooperation and consensus as the best and most effective way for governments to tackle



3 4



5

under any other international agreement, their obligations under the present Charter shall prevail.”; Art 311(1) UNCLOS ‘The Convention shall prevail, as between State Parties, over the Geneva Convention on the Law of the Sea of 29 April 1958’. For a discussion of conflict clauses in the WTO treaties; see Pauwelyn, 2003, 343–361. Pauwelyn, 2003, 352–355. Contrary: J. Trachtman, ‘The Domain of WTO Dispute Resolution’ (1999) 40 Harvard Int’l Law J., 342, allowing only for the application of customary rules on interpretation as part of the procedural, not the substantive, law. Para. 7.96.



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environmental problems of a transboundary or global nature’.6 Reference to MEAs has to be seen in combination with the Decision on Trade and Environment, integral to the Final Act, 1994. The Decision states that there should not, nor need to be, any policy contradiction between upholding and safeguarding an open, non-discriminatory and equitable multilateral trading system on the one hand, and acting for the protection of the environment, and the promotion of sustainable development on the other.7

The possibility of appropriate modifications of the provisions of the multilateral trade system is moreover envisaged with a view for the need to enhancing positive interaction between trade and environmental measures, for the promotion of sustainable development.8 As of yet, no such modification has been made. As regards the relationship between climate and international trade rules, no explicit or general conflict clause can be found, either in the Kyoto Protocol or the Convention or in any of the WTO covered agreements. However, even in the absence of explicit conflict clauses, there are implicit expressions of intent on what to do in the case of conflict. These indications of Parties’ intentions will primarily play a role in the interpretation of the norms in question so as to avoid a conflict. However, they may also be important in the situation of a normative conflict. This will be the case where no clear-cut solutions to the conflict exist. 13.2 Implicit Conflict Clauses in the Kyoto Protocol and UNFCCC The question which needs to be answered is whether Article 3.5 UNFCCC and/ or Articles 2.3 and 3.14 Kyoto Protocol entail such implicit conflict clauses. Despite the importance of clarifying the relationship between the climate agreements and the WTO, the issue of WTO relevance of climate measures has been largely absent from the work within the Convention. The UNFCCC Subsidiary Body for Scientific and Technological Advice (SBSTA) gives marginal information on the relationship with the WTO: ‘the interaction between WTO rules and measures arising from national implementation of commitments, …



6 7



8

WTO/Doc. WT/CTE/1, para. 171 (1996). WTO Secretariat, The Legal Texts. The Results of the Uruguay Round of Multilateral Trade Negotiations, 1994, 411. Ibid., 412.

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has not been the subject of policy-oriented work of the subsidiary bodies of the Convention’.9 According to Article 3.5 UNFCCC, measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. Article 3.5 promotes a supportive and open international economic system leading to sustainable economic growth and development in all Parties, particularly developing country Parties. The wording of Article 3.5 neither prohibits nor endorses the use of trade restrictive climate measures.10 Nothing in this provision requires climate measures not to be trade restrictive as long as the threshold of arbitrary or unjustifiable discrimination is not reached. If climate measures, including unilateral ones, taken to combat climate change, constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade, it remains unclear what the provision implies. While Article 3.5(2) UNFCCC seems to address issues of regulatory design and decision-making, it entails no implicit expression of which law ought to prevail in case of conflict with trade norms. Article 3.5 UNFCCC is not of a mandatory character, meaning that Member States to the Convention may apply climate measures in a manner that renders adverse economic impacts less likely. Member States are not precluded, however, from imposing stronger trade-restrictive measures, for example, where the effectiveness of the climate measure or the climate regime is at stake. Similarly, Articles 2.3 and 3.14 of the Kyoto Protocol express the general willingness (‘shall strive to’) to minimize adverse effects of response measures, including adverse effects of climate change, effects on international trade, and social, environmental or economic impacts on other Parties, particularly developing countries. Some scholars have therefore inferred a legal duty to take all reasonable measures to try to reduce as much as possible violations of GATT rules,11 although no such mandatory language is employed. Rather, also in this provision, no priority is given to trade rules. International trade is one of many potentially affected areas and no a priori privilege is accorded to it. Rather the obligation to minimize the adverse effects of

9

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11

FCCC/SBSTA/2003/INF.7, 4. Yamin and Depledge, 2004, 73. So also Bodansky, 1993, 505: ‘It [the principle concerning the need for a supportive and open international economic system] is neutral in effect, since it does not define what types of trade measures constitute “arbitrary or unjustifiable” discrimination or are a disguised restriction on trade. Thus, it neither condones nor forbids using trade measures of the sort contained in the Montreal Protocol to enforce the Convention.’ Grimeaud, 2003, 81.



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climate change, which refers to the overall duty to prevent dangerous climate change,12 appears to be of principal importance given the primary reference to the ‘adverse effects of climate change’ in Article 2.3 KP and the ultimate objective of the UNFCCC and the Protocol. Indeed, reference to the adverse impacts of climate change was included against the opposition of some countries who wished to restrict adverse effects to negative economic impact resulting from the implementation of response measures.13 So was, for example, the proposal by Australia that the Protocol should not derogate from rights and obligations under existing international agreements, in particular the World Trade Organization (WTO), not included in the final text.14 Annex I Parties and the majority of developing countries felt that confining the scope of impacts to economic considerations alone would not have done justice to the range of impacts at stake.15 The references in the Kyoto Protocol to international trade are general in character and do not specify trade effects or respective trade norms. Could they still indicate an implicit savings clause? In my view, Article 2.3 of the Kyoto Protocol could be understood as a general presumption in the sense that climate measures are presumed to be designed in a way as to avoid conflict with trade norms. Trade conflict probability is presumed to have been taken into account in the design and implementation of the measure and attempts made to eradicate or minimize the potential for trade conflicts. Moreover, the implementation of climate change mitigation measures may need to offset the competitive advantage enjoyed by non-Members to the climate regime or non-compliers, which is another adverse economic impact of climate responses. Actions to limit greenhouse gas emissions impose high costs on a country in the short term while the climate change mitigation benefits occur globally over the next several centuries. This creates a strong incentive to be a ‘free rider’, i.e. to avoid costs to limit greenhouse gas emissions while benefiting from the actions of other countries.16 ‘Free riding’ not only aims at avoiding climate mitigation costs for those countries not participating in the global efforts under the climate regime. It also leads to competitive advantages of those States which do not seek to constrain emissions. Non-internalization

12 13



14



15 16

Yamin and Depledge, 2004, 247. J. Depledge, Tracing the Origins of the Kyoto Protocol. An Article-By-Article History, Prepared under Contract to UNFCCC August 1999–2000, 2000, Technical Paper, FCCC/ TP/2000/2, 27 et seq. Consolidated Negotiation Text by the Chairman, 13 October 1997. See also Depledge, 2000, 108. Yamin and Depledge, 2004, 252; Bodansky, 1993, 523 et seq. E. Haites, ‘Conclusion: Mechanisms, Linkages and the Direction of the Future Climate Regime’ in Yamin (ed.) 2005, 337.

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of climate mitigation costs might lead to ‘carbon leakage’, i.e. the creation of cheaper markets for high emitting industries, so-called ‘pollution havens’. As a result, Annex I Parties to the Kyoto Protocol may seek to maintain their international competitiveness relative to non-Annex I Parties or non-Members without targets. The protection of Annex I Parties should also therefore be seen as a legitimate interest under Article 2.3 of the Protocol. Where such conflicts nevertheless occur, they are presumed unavoidable or necessary for the climate measure to be effective, unless proven otherwise. Therefore, the argument can be made that Article 2.3 entails an implicit conflict clause in the following sense: the Parties in implementing climate policies and measures under Art. 2 KP shall strive to minimize effects on international trade, unless such effects are necessary to ensure the effectiveness (including environmental effectiveness) of the climate measure. If one does not follow this argument, the relationship between climate change response measures and trade rules appears at best to be neutral. This is indicated also by the Preamble to the WTO Agreement which states – inter alia – that the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking to protect and preserve the environment is a requirement (‘while allowing for’) for the conduct of trade relations and economic endeavours. While the Preamble is not a treaty provision as such it is part of the systemic context against which a treaty has to be read and applied.17 Moreover, the WSSD Plan of Implementation18 as well as the Doha Ministerial Declaration19 include provisions that international trade and environmental protection should be mutually supportive. The original draft still entailed the clause ‘while ensuring WTO consistency’, but this formulation was not included in the final text.20 The acceptance of mutual supportiveness implies that both the GATT/WTO and the UNFCCC/KP are of equal legal standing in international law.21

17



20 18 19

21



As the ICJ noted in the South West African Cases with regard to the UN Charter: ‘The preambular parts of the United Nations Charter constitute the moral and political basis for the specific legal provisions thereafter set out.’ Ethiopia v. South Africa (Liberia v. South Africa) ICJ Reports 1966, 34, para. 50. A/CONF.199/CRP.7, para. 92. WT/MIN(01)/DEC/1, para. 6. ‘Draft Plan of Implementation of the World Summit on Sustainable Development’, 26 June 2002, A/CONF.199/L.1. M. Winkler, Der Treibhausgas-Emissionsrechtehandel im Umweltvölkerrecht, Arbeitspapiere aus dem Institut für Wirtschaftsrecht, Universität Halle-Wittenberg, Oktober 2002, 18.



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While no explicit savings clauses can be found in the WTO treaty or any of the climate treaties, the implicit references fail to give a clear indication of priority of either climate or trade norms in case of conflict. At best, they appear to be neutral. Taking the references in the climate treaties and the Preamble to the WTO Agreements together, any vague and implicit expression of the Parties to the Convention and the Kyoto Protocol to give priority to any norms contained the international trade agreements or to require WTO consistency, as some scholars seem to read into Article 3.5(2) UNFCCC or Article 2.3 Kyoto Protocol,22 evaporates. In the absence of conflict clauses, either explicit or implicit, resort to the principles of lex specialis and lex posterior may have to be taken. 13.3 Lex specialis derogat lege generali In international law there seems to be support for the principle of according the more specific treaty provision precedence over a more general one dealing with the same subject matter. The principle is occasionally referred to by scholars,23 and Courts and Tribunals24 including the WTO Dispute Settlement Body.25 However, these references are often made in different contexts and may entail different meanings.26 The general idea behind the principle is that a special provision gives the ‘closest, detailed, precise and strongest expression of State consent’27 and

22



23



24



25



26



27

So, for example, de Cendra, 2005, 39: ‘the KP … recognizes the need to apply climate related measures in a way which is consistent with the WTO. Thus domestic climate change measures that may have an impact on trade must be designed so as to be compatible with WTO law”. See, for example: Sinclair, 1984, 93; Fitzmaurice, 1957, 236–238; McNair, 1961, 219; Jennings and Watts, 1992, 1280 See, for example, Chorzow Factory, PCIJ (ser. A), Nr. 9, 30; Mavrommatis Palestine Concessions, PCIJ (ser. A), Nr.2, 30–31; Rights of Passage, 1960, ICJ Rep. 6, cf. Simpson and Fox, International Arbitration, 1959, 75; Gabčikovo Nagymaros, ICJ Reports 1997, para. 132: “The relationship [between the Parties] … is governed, above all, by the applicable rules of the 1977 Treaty as a lex specialis.”. For an overview of the ‘mixed WTO jurisprudence’ on the applicability of lex specialis principle within WTO law, i.e. where one WTO agreement conflicts with another internal agreement, see: Lennard, 2002, 70–72. The ILC Study group notes that the principle can be understood in two ways: first, as demanding the specific rule to be read and understood within the confines of the general rule or standard, and, second, where both rules point in incompatible directions, instead of the general rule, the specific one is applied. ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 28 et seq. Pauwelyn, 2003, 388.

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therefore can be considered to reflect the intention of the parties that this provision ought to prevail. It is, thus, a consequence of the contractual freedom of States. However, despite being a valid and commonly used principle, its function and scope as a principle of conflict resolution still require clarification.28 The relationship between climate and WTO norms partly elucidates the problematic application of the lex specialis principle. The decisive element is speciality with regard to the same subject matter. This requirement is particularly difficult. What is regarded as the ‘same subject matter’ depends on the view of the panel or the Appellate Body. It has been stated that it is the object of the measure challenged which defines the subject-matter, rather than looking at the objective and purpose of the entire treaty. Therefore, the argument is possible that a MEA-based measure dealing with the protection of human, animal or plant life or health, which falls within the scope of Article XX(b) GATT, (partly) overlaps ratione materiae with this GATT provision.29 However, also the opposite view is possible, i.e., that the subject matter of a MEA dealing with issues of environmental protection is inherently different from the matter dealt with by a WTO treaty if the trade treaty deals with the environmental issue in an exception clause. Still, even if it were possible to define a trade-restrictive climate measure and the violated trade norm as dealing with the same subject-matter, the determination of specialty is another issue of contention. It is impossible to rule precisely on the generality or specialty of the multilateral trading system.30 Lindroos and Mehling note in this context that the scope of the trading system has become so broad and general as to cross almost all other areas of international law, while it still, specifically, relates to matters of free trade.31 Similarly, the international climate regime cannot be defined only in the narrow context of an environmental agreement. We have seen above that 28



29



30 31



The ILC addressed this issue within its Study Group on Fragmentation of international Law. In his report on the function and scope of the lex specialis rule and the question of self-contained regimes, the Chairman of the group, Martti Koskenniemi, suggested that while ‘special regimes’ can be created, no such regime exist independently of the framework of general international law. Various special laws and regimes may support their own hierarchies and priorities and bind the relevant treaty bodies in the sense of limiting their jurisdiction. However, the applicable law is not limited and includes general law and other obligations that stand outside the’ special regime’. M. Koskenniemi, Study on the Function and Scope of the Lex Specialis Rule and the Question of ‘Self-Contained Regimes’, UN Doc.ILC(LVI)/SG/FIL/CRD.1/Add.1 (4 May 2004) 37–38. Marceau, 2001, 1090. See on this issue Jackson, ‘Fragmentation and Unification Among International Institutions: The World Trade Organization’ (1999) 31 NYU J Int’l L and P, 824. A. Lindroos, and M. Mehling, ‘Dispelling the Chimera of “Self-Contained Regimes” International Law and the WTO’ (2005) 16 EJIL 5, 864.



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the climate agreements have a breadth and contextual richness that goes far beyond international environmental law sensu stricto. Without delving further into the theoretical discussion on the principle of lex specialis, suffice it here to contend that this principle fails to provide any satisfactory solution for defining the relationship between climate measures and WTO rules.32 This becomes particularly apparent when assessing climate and trade norms from the viewpoint of supporting and promoting sustainable development. Specificity, in this situation, becomes indeterminable.33 The principle may prove to provide constructive solutions in some circumstances, though particular difficulties remain. One concerns the distinction between ‘general’ and ‘special’ law. It can be based on the substantive coverage of a provision (subject matter) or the number of legal subjects to whom it is directed. Each route leads to different conclusions. The relationship of the principle to other conflict resolution principles, such as, for instance, the lex posterior principle, is also unclear. Not admitting of automatic application, its use, functionality and scope depend rather on subjective and informal views about its ‘relevance’ and ’importance’.34 13.4 Lex posterior derogat lege priori Articles 30(3) and 30(4) of the Vienna Convention on the Law of Treaties provide a further conflict resolution principle that deals with the application of successive treaties of the same subject matter.35 Again, this principle is an expression of the contractual freedom of States according to which their

See for similar conclusion: M. Rodi, M. Mehling, J. Rechel, and E. Zelljadt, ‘Implementing the Kyoto Protocol in a Multidimensional Legal System: Lessons from a Comparative Assessment’, 16 YbIEL 2005, (forthcoming in 2007). 33 See also Verheyen, noting that ‘nothing in the negotiation history or the structure of the existing rules of international law indicates that the rules of the climate regime are lex specialis vis á vis other rules of international law. This applies both to the level of primary rules and the level of legal consequences for breach of secondary rules’, 2005, 143. 34 ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 29. 35 Art 30.3.: When all the parties to the earlier treaty are parties also to the later but the earlier treaty is not terminated or suspended in operation under Art 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the latter treaty. Art 30.4.: When the parties to the later treaty do not include all the parties to the earlier one: (a) as between States parties to both treaties the same rule applies as in paragraph 3; (b) as between a State Party to both treaties and a State Party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations. 32

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latest expression of State consent ought to prevail. Although Article 30 of the Vienna Convention gives expression to the relationship between successive treaty norms, this principle also applies in respect of other norms of international law, in particular custom. Article 30 provides a priority norm for the application of conflicting treaty provisions: both treaties/treaty rules remain in force, they are not invalidated or terminated, but priority is given to the application of the latter treaty. Apart from the element ‘same subject matter’ already discussed above, the decisive feature of this principle is the time of a treaty’s conclusion or adoption. In the case of the WTO treaty, this is, per today, 15 April 1994. It is, thus, not the date of entry into force that determines the time element of Article 30.36 Depending on the outcome of the Doha Development Round or the work of the CTE and the CTD, however, certain changes in the legislative framework might alter this precise date. Treaties, in particular those that address global concerns, are constantly expanding by, for example, the addition of successive protocols or amendments. These treaties, referred to as ‘expanding’, ‘living’ or ‘continuing’ treaties’ pose a significant challenge to the determination of ratione temporis. In fact, as suggested by Lindroos and Mehling, ‘the continuous development, constant application, and renewed confirmation of most international treaties, customary law, and general principles virtually rule out a determination ratione temporis pursuant to the doctrine of lex posterior contained in Article 30(3) VCLT’.37 Application according to a priority ratione temporis may further lead to a rather arbitrary constellation which has more to do with accident or luck than consistency with the latest legislative intent of States. Given the complexity of international law, negotiators may not always be cognisant of or have examined pre-existing obligations before consenting to a successive one. Nor is the time of conclusion absolutely predictable, leading possibly to involuntary derogations from other rules that happen to be concluded at a prior point of time. This situation was aptly expressed by Jenks as follows: [n]or, unhappily, is it always reasonable, in view of the complexity of governmental organizations in the modern State and the wide variations in the procedures whereby international obligations are now contracted, to assume, when conflicting networks of obligations have developed simultaneously or almost simultaneously, that the parties concerned knew, or must be deemed to have known, when undertaking an obligation 36



37



According to the statement by the Expert Consultant Group at the Vienna Conference, Official Records of the Vienna Conference, vol. 2, 253, para. 39. See for a discussion of the relevance of ‘entry into force’ in the relationship between two parties: Pauwelyn, 2003, 372–375. Lindroos and Mehling, 2005, 864.



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of a specialized character, of the existence of a prior obligation of a similar character which may be inconsistent with it.38

As regards the relationship between the WTO treaty and the climate agreements, the arbitrary situation becomes apparent. The text of the UNFCCC was adopted in May 1992. According to the lex posterior principle, conflicting provisions with trade norms might be disapplied due to the conclusion of the WTO Treaty in April 1994. On the other hand, the Kyoto Protocol, concluded in 1997, could reverse this situation, leading to the odd situation that while the Kyoto Protocol’s provisions prevail, the references to the Convention would be cut off. Further reversals may be caused by future WTO treaties or additional protocols to the Convention. The climate agreements, in particular, exemplify the difficulties posed by ‘living treaties’. Most modern multilateral conventions are of this nature. As Pauwelyn notes: They are rules part of a framework or system which is continuously confirmed, implemented, adapted and expanded, for example by means of judicial decisions, interpretations, new norms or the accession of new state parties (for which not only the consent of the new Party is required, but also the reciprocal acceptance of all, or a majority of, existing parties). Such treaty norms were not only consented to when they originally emerged, but continue to be confirmed, either directly or indirectly, throughout their existence, in particular when monitored and evolving within the context of an international organisation (such as the WTO).’39

In either case, it can be assumed that efforts to establish a hierarchy between trade norms and climate norms by the application of the traditional conflictresolution techniques presented by principles of lex posterior and lex specialis in international law are bound to fail. 13.5 Conclusions This analysis leads to the conclusions already rehearsed at the outset, namely that the common, traditionally accepted and applied, techniques for conflict avoidance and conflict resolution do not under all circumstances lead to satisfying results. Both, interpretation and conflict resolution principles, are marked by several inherent limitations that ultimately prevent the setting aside

38



39

Jenks, 1953, 444. With regard to procedural matters of treaty making, see: E.W. Vierdag, ‘The Time of “Conclusion” of a Multilateral Treaty’ (1989) 60 BYIL 75, 93. Pauwelyn, 2003, 378.

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of norms, where a priority needs to be established. Those priority principles that do exist are limited in their usefulness when the resolution of the kind of conflict exemplified by climate and trade norms is at stake. It should be noted that traditional legal techniques fall short of indicating clearly what should be done in the case of normative conflicts. At the same time, it does not seem advisable to elaborate some kind of ‘general rule on treaty priority’. Such a rule would be unable to account for the diversity of interests and values of the international community. Instead, the heterogeneity of treaties and the situations that may arise call for some sort of integration. Harmonizing interpretation is possible where the respective treaties are part of the same regime, share a similar object and purpose and ‘carry a parallel “ethos” – e.g. between several environmental or trade instruments inter se.’40 Harmonization, though, is generally excluded where the conflicting norms are included in treaties under different regimes, a situation, which prompted the ILC to make the following observation: [i]t cannot be assumed a priori that a similar readiness [to envisage a ‘mutually supporting’ role of conflicting treaties] exists as between parties to treaties across regimes, treaties that seek to achieve physically incompatible solutions, or are inspired by very different (perhaps opposite) objectives in situations experienced as zero-sum games. In such cases, at the end of the day, one treaty must be preferred over the other. At that point, focus shifts from co-ordination to rights and obligations. Even as open-ended or programmatic provisions are easily amenable to accommodation, this cannot be said of provisions laying out (subjective) rights or obligation. For giving effect to them, it remains important that the possibility of recourse to regime-independent disputesettlement is provided.41

That notwithstanding, the ILC Study Group offers little guidance on how to determine which norms should be preferred. It is in this context I put forward the principle of sustainable development as a principle of integration and suggest ranking prevailing norms according to their support sustainable development.

40 41



ILC, Report of the Study Group on Fragmentation, A/CN.4/L.682, 4 April 2006, 119. Ibid. (emph. add.)

Chapter 14

Applicability of Non-WTO Law in WTO Dispute Settlement Next we shall assess the applicability of the principle of sustainable development to WTO dispute settlement. The existence of this principle and its usefulness in situations of normative conflict is one thing. Its relevance in trade disputes before the WTO Dispute Settlement System is quite another. Therefore, the chapter will first deal with the question of general applicability of non-WTO law to WTO dispute settlement before arguing for the specific application of the principle of sustainable development in this forum in the following chapters. Importantly, in the following elaborations, emphasis will not be placed on the expansion of the WTO DSB’s jurisdiction.1 Rather, it is argued, the jurisdiction readily encompasses the legal tool to determine the balance and eventually priority of conflicting norms and respective interests and values. 14.1 WTO Dispute Settlement and Public International Law WTO law is part of public international law and not a ‘closed’ or ‘self-contained’ regime in the sense that no other law than the positive law of the WTO Agreements would apply to the resolution of a dispute about WTO Member’s rights and obligations. Because WTO law does not exist in ‘clinical isolation’ from international law, non-WTO public international law plays a role in WTO dispute settlement.2



1



2

For such a suggestion see A. Guzman, ‘Global Governance and the WTO’ (2004) 45:2 Harvard International Law Journal, 306. See AB in US–Gasoline, 621.

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WTO law being a special – not a separate – field of international law engages with other international law in a complex relationship. This was illustrated by Kuijper: [t]he GATT, as is the case with all those international organizations which have their own substantive law and are not merely vehicles for international negotiation and coordination, inevitably is a special branch of international law. As with all such branches it develops rules which deviate from general international law and which further refine and adapt rules and principles of international law.3

WTO law with all its special rules and particularities must be considered as international law applied to economics.4 Other international law continues to apply to the WTO unless the WTO treaty has explicitly contracted out of it.5 States can ‘contract out’ certain rules of international law in their particular treaty relations. But their competence to do so is quantitatively limited. They cannot contract out the entire system of international law. Accordingly, in legal scholarship, is has been stated that [i]n so far as the WTO treaty was not created nor exists in a legal vacuum, neither does its dispute settlement system. That system, providing for the judicial settlement of disputes under certain rules of international law, is merely a tool or an instrument to enforce WTO covered agreements as they were created and necessarily continue to exist in the wider corpus of international law.6

Presumption against conflict implies that general international law applies as long as not expressed otherwise. As a starting point, a treaty therefore has to be considered within the system of international law. The application of general law shall, thus, not be inferred from general rules that have been included or excluded in the treaty. Such presumption also stands in the way of assuming that an explicit mentioning of a particular international law rule excludes all the other (non-mentioned) rules. By arguing that WTO law does not exist outside of or separate from international law, the role of public international law in the WTO becomes apparent. The crucial question with regard to the application of general law in situations of conflict of WTO and other norms concerns therefore ascertaining the extent to which general public international law is relevant in WTO dispute settle

3



4



5 6

Kuijper, 1994, 228. See also, P. Mavriodis, ‘Remedies in the WTO: Between a Rock and a Hard Place’ (2002) 11 EJIL, 762. So P. Weil, quote in P.M. Dupuy, ‘Où en est le droit international de l’environnement à la fin du siècle?’ (1997) 101.4 RGDIP, 873–901, 899. See Pauwelyn, 2001, 577. Pauwelyn, 2003, 460–461.



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ment and is able to provide a solution. This question relates to the sources of law in the WTO and the competences of the WTO Dispute Settlement Body. 14.2 Jurisdiction and the Applicable Law in WTO Dispute Settlement According to Article 1.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)7 and Appendix I to the DSU the substantial jurisdiction of the WTO panels and the Appellate Body is limited to claims under the WTO covered agreements.8 Article 1.1 DSU stipulates that any dispute arising out of any of the multilateral WTO agreements may be resolved according to the rules and procedures of the DSU. The basis or cause of action of a WTO dispute must, therefore, be found in the ‘covered agreements’. This is confirmed by Article 3.2 DSU which states that the DSU mechanism ‘serves to preserve the rights and obligations of the Members under the covered agreements’. Furthermore, Article 7.1 enjoins WTO panels ‘[t]o examine, in the light of the relevant provisions in (the respective agreement(s) cited by the parties to the dispute), the matter referred to the DSB…and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in that or those agreement(s)’ and to ‘address the relevant provisions in any covered agreement‘ (DSU Article 7.2). Finally, Article 11 instructs panels to ‘make an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements.’ Non-WTO rules, such as general public international law rules, are therefore generally excluded as a valid legal basis for a claim and can not be enforced. Does this imply that non-WTO law or general public international law do not play any role in the settlement of a dispute where WTO claims are

7



8

Art 1.1 of the DSU provides: The rules and procedures of the Understanding shall apply to disputes brought pursuant to the consultation and dispute settlement provisions of the agreements listed in Appendix 1 to this Understanding (referred to in this Understanding as the ‘covered agreements’). Of the roughly 70 WTO treaties, only the Marrakech Agreement’s results are covered. According to DSU Art 23.1 (a) to (c) there are three kinds of complaints: (a) violation complaints – by far the most frequent, (b) non-violation complaints – challenging of a measure that does not conflict with GATT 1994, but nevertheless results in ‘nullification or impairment of a benefit’, and (c) ‘situation complaints’.

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concerned? This is certainly not the case. However, the exact role of public international law and the extent to which it is relevant to WTO dispute settlement remain interesting but controversial issues.9 Despite the controversy, there are convincing reasons for a decisive role of public international law norms, e.g. general principles, in the course of WTO dispute settlement. The extent of a panel’s jurisdiction is dependent on the terms of reference, setting out both the subject matter of the dispute (ratione materiae) and the parties to the dispute (ratione personae).10 Under the standard terms of reference, contained in DSU Article 7, a panel is restricted to addressing only those claims adequately specified in a Member’s request for establishment of a panel.11 The complainant must, therefore, set out all of the claims it wants the panel to address. While the panel – and in case of an appeal, the Appellate Body – is precluded from ruling on different or subsequent claims,12 there is no limitation on the ‘legal arguments’ advanced to support or reject the original claims. In the course of a dispute, parties usually develop extensive legal argumentation. A panel or the Appellate Body, however, is generally free to accept or reject such arguments and has the discretion to develop its own autonomous legal reasoning in support of its findings and conclusions.13 This freedom in legal reasoning is based on the competence of the bodies as quasi-judicial organs, authorized to consider all aspects of a dispute, including those legal issues not strictly arising under a covered agreement.14 The standard of review provides this competence by granting panels the authority ‘to make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements’. Such a view has important implications for the relevance of public international law in the course of WTO dispute settlement. The distinction between ‘a claim’ and ‘a legal argument’ is a consequence of the distinction between the jurisdiction of the WTO legal organs and the law applicable in their procedures.



9

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13 11

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Matsushita, Schoenbaum and Mavroidis note: “An interesting and unresolved issue is whether WTO panels and the Appellate Body have jurisdiction to decide question of public or private international law (or even Member State law) when such issues arise in connection with a controversy under a covered agreement.”, 2003. See generally: B. Jansen, ‘Scope of Jurisdiction in GATT/WTO Dispute Settlement: Consultations and Panel Requests’ in F. Weiss, Improving WTO Dispute Settlement Procedures: Issues and Lessons from the Practice of Other International Courts and Tribunals, 2001, 45. Palmeter and Mavroidis, Dispute Settlement in the WTO, 2004, 19. WTO Secretariat, A Handbook on the WTO Dispute Settlement System, 2004, 101–102. AB in EC–Hormones, para. 156; AB in Korea–Dairy, para. 139; AB in US–Certain Products, para. 123. For further references see, WTO Secretariat, 2004, 102. See Matsushita, Schoenbaum and Mavroidis, 2003, 24.



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A clear distinction needs thus to be made between the jurisdiction of a panel or the Appellate Body and the legal arguments it can develop to support its conclusions. This distinction relates to the issue of applicable law in a dispute settlement process.15 While the jurisdiction of the WTO dispute settlement body is limited to claims arising out of the WTO covered agreements; this does not imply a limitation of the scope of the law applicable in interpretation and conflict resolution.16 While claims brought before a WTO panel thus ought to be based on rules of the ‘covered agreements’, the question remains whether independent defences for the claimed breaches of WTO laws can be based on rules that are not included in the covered agreements. This relates to the matter of the applicable law. Once it has been decided that a WTO panel has jurisdiction to hear a case, the law to apply for resolving the dispute must be identified. Here, the law on which a claim can be based can differ from the law that can be invoked by the defending Party.17 WTO panels are permitted to take account of WTO law-independent defences. In this context, strong arguments have been made for the applicability of non-WTO law in WTO disputes.18 As one author states, despite this obligation to address and possibly apply these [the rules referred to in Art 7.2 DSU] WTO rules, nothing in the DSU or any other WTO rule precludes panels



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This distinction is commonly accepted in legal scholarship between the jurisdiction of a court or tribunal and the applicable sources of law before it. See for example ITLOS in the MOX Plant case, Ireland vs. United Kingdom, Order of June 24 2003 where “The Tribunal agrees … that there is a cardinal distinction between the scope of its jurisdiction …, on the one hand, and the law to be applied by the Tribunal, on the other.” 6, para. 19. Another example can be found in the Lockerbie cases where the consideration of Libyan claims under the Montreal Convention fell under the ‘jurisdiction’ of the ICJ. The court however continued to examine other (applicable) international law, e.g. UN Security Council resolution 748 invoked as a defence. See Questions of Interpretation and Application of the 1971 Montreal Convention Arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v. US and UK), Provisional Measures, ICJ Reports 1992, para. 42. Bartels, 2001, 501–502; Palmeter and Mavroidis, 1998, 99; Pauwelyn, 2001, 554/566; Marceau, 2002, 757–779. The WTO panel is limited in its examination of the case to the claims invoked by the claimant and the defenses invoked by the defending Party (non ultra petita). Counter-claims are not permitted. If the defending Party wishes to respond with a counter-argument to the dispute, it has to launch its own claim. Only matters that a panel must examine ex officio (e.g. its own jurisdiction) need not to be brought before it. See Pauwelyn, 2001, 559–565; and 2003, 440–478.

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from addressing and, as the case may be, applying other rules of international law so as to decide WTO claims before them.19

The relevance of wider international law has also been specified by a recent WTO panel as follows: We take note that Article 3(2) of the DSU requires that we seek within the context of a particular dispute the existing provisions of the WTO agreements in accordance with customary international law rules of interpretation of public international law. However, the relationship of the WTO agreements to customary international law is broader than this. Customary international law applies generally to the economic relations between WTO members. Such international law applies to the extent that the WTO treaty agreements do not ‘contract out’ from it. To put it another way, to the extent that there is no conflict or inconsistency, or an expression in a covered WTO agreement that applies differently, we are of the view that the customary rules of international law apply to the WTO treaties and to the process of treaty formation under the WTO.20

The WTO agreement, Pauwelyn argues, is by definition a treaty of public international law and can therefore not be applied in isolation from other rules of international law.21 By accepting the applicability of other public international law, the scope of legitimate defences for non-compliance with WTO law is considerably widened. Panels may be asked not only to interpret WTO in the light of these norms, or to fill the (mostly procedural) gaps, but to modify or even to substantially overrule and thus dis-apply the WTO provision. In concordance with the view that the treaties of the WTO are ‘automatically born into’ the system of public international law, it remains to examine which international legal norms retain applicability in the context of WTO dispute settlement. 14.3 Sources of non-WTO Law in WTO Dispute Settlement The fundamental source of law in the WTO is the texts of the relevant agreements themselves. In addition, all sources listed in Article 38 I of the Statute of the International Court of Justice are potential sources of law applicable in WTO dispute settlement. In this context, Palmeter and Mavroidis list 19



20



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Pauwelyn, 2001, 561. Supporting his view: L. Bartels, Applicable Law in the WTO Dispute Settlement Proceedings, 2001; Palmeter and Mavroidis, ‘The WTO Legal System: Sources of Law’ (1998) 92 AJIL, 398. Panel in Korea–Government Procurement, para. 7.96. Pauwelyn, 2003, 1001; also Bartels, 2001; Palmeter and Mavroidis, 1998, 399.



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prior practice under GATT, including reports of GATT dispute settlement panels, WTO practice, particularly reports of dispute settlement panels and the Appellate Body, custom, the teachings of highly qualified publicists, general principles of law; and other international agreements all contribute to the rapidly growing and increasingly important body of law known as ‘WTO law.22

When deciding on the applicability of non-WTO law in a WTO dispute, several distinctions have to be made. Non-WTO can consist of specific treaty provisions in non-WTO treaties, e.g., MEAs or human rights treaties. NonWTO can also be found in general international law, e.g. general principles and customary law. The question of applicability has to be considered in the light of the ‘legal fold’ to which the non-WTO norm belongs. 14.3.1 Customary Law The inclusion of general public international law, namely the application by WTO panels of rules of general customary law, may cause legal concerns. One area, as discussed earlier, where the application of customary rules has been accepted, is in the process of treaty interpretation according to Article 31.3(c). Apart from the example of interpretative rules, the applicability of customary principles is more difficult. Given the more abstract nature of customary rules, panels have to make an own assessment as to the emergence of a (new) rule of custom and its particular content in a dispute over WTO law. The Appellate Body has in general been very reluctant in deciding on whether WTO treaty provisions have been altered by an allegedly supervening customary rule. In EC–Hormones, for example, the Appellate Body was extremely hesitant to considering whether, as the EC claimed, the precautionary principle as a rule of general or customary international law ought to supplement the provisions of the SPS Agreement.23 The opinion of the Appellate Body does not reveal what the consequences would have been had the precautionary principle been accepted as part of customary international environmental law or general customary law.24 In similar terms, the panel in EC–Biotech found that the ‘legal status of the precautionary principle remains unsettled’ and that

22 23



24

Palmeter and Mavroidis, 1998, 399. AB in EC–Hormones, para. 123: ”The precautionary principle is regarded by some as having crystallized into a general principle of customary international environmental law. Whether it has been widely accepted by Members as a principle of general or customary international law appears less that clear. We consider, however, that it is unnecessary, and probably imprudent, for the Appellate Body in this appeal to take a position on this important, but abstract, question.” See Matsushita, Schoenbaum and Mavroidis, 2003, 64–65.

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it ‘need not take a position on whether or not the precautionary principle is a recognized principle of general or customary international law.’25 Despite the rather debatable logic of this finding, the question still remains as to what the effect the precautionary principle would have had, had it been recognized as custom. The panel agreed that it would become relevant under Article 31.3(c) VCLT. Still, as general international law, it could also be directly applicable with the effect of modifying or displacing opposing WTO rules. If it could be established by the defendant invoking, for example, that the principle is indeed part of customary international law, a WTO panel would have to take this principle in account even if it were incompatible with WTO provisions. If it cannot be proven (by the complainant) that the treaty provision continues to apply as lex specialis, a WTO panel would then have to acknowledge that the respective WTO agreement had been revised by subsequent custom and accept this principle as a valid justification for the alleged breach of WTO law. One would expected, though, panels to show in any case extreme caution before concluding that a new customary rule or a general principle had emerged and that this rule or principle rule would override prior WTO law.26 In sum, defences based on customary law can only be successful if the strict rules for the emergence of customary norms are met. This makes the prospect of new custom overruling explicit WTO treaty provisions extremely unlikely, if not exactly impossible. 14.3.2 General Principles of Law While the role of customary rules in a WTO dispute settlement context might be limited, general principles of law exert a more direct influence on the outcome of a dispute. On several occasions, GATT and WTO panels and the WTO Appellate Body have invoked general principles of law to support their reasoning, though practice is not consistent. In United States–Measures Affecting Imports of Softwood Lumber from Canada, the panel invoked the principle of estoppel27 – without actually using 27 25 26

Panel in EC–Biotech Products, para. 7.89. See Pauwelyn, 2003, 131–143. Estoppel is a legal principle which precludes someone from denying the truth of a fact which has been determined in an official proceeding or by an authoritative body. As “a principle of justice and of equity it arises when ‘a man, by his words or conduct, has led another to believe in a particular state of affairs, he will not be allowed to go back on it when it would be unjust or inequitable for him to do so.’ (Moorgate Mercantile v Twitch-



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the term – in a proceeding involving subsidies and countervailing measures.28 The principle was implicitly invoked also on other occasions, for example, in not allowing a claim the claimant had previously explicitly abandoned in a written statement29 or rejecting the establishment of a panel because of the untimely evocation of an issue.30 The Panel in Argentina–Poultry quoted a non-adopted GATT-panel statement that estoppel could only ‘result from the express, or in exceptional cases, implied consent of the complaining parties’ when it admitted an antidumping claim by Brazil. Argentina had argued that a previous proceeding before a Mercosur Ad Hoc tribunal had estopped Brazil from pursuing a claim in the WTO.31 However, the Appellate Body has yet to apply the principle explicitly. Moreover, in EC–Export Subsidies on Sugar, the Appellate Body plainly rejected the applicability of the principle in the settlement of a WTO dispute.32 On other occasions, however, the applicability of general principles was accepted, particularly procedural principles and some principles of treaty interpretation that do not have the character of customary law. Examples of the latter are the principles of effectiveness,33 of in dubio mitius,34 and of legitimate expectations, legal security and predictability.35 General principles of international law are also commonly referred to in order fill procedural gaps. The WTO Agreement does not contain any provi-

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ings [1976] 1 QB 225, CA at 241). The principle responds to the doctrine of venire contra factum proprium in legal systems based on civil law. Panel in United States-Softwood Lumber, paras. 308–325 Panel in US–Steel Plate, 7.29. AB in US–Meat, para. 5.32. Panel in Argentina–Poultry, 7.17. For more examples on the use of the principle of estoppel in WTO dispute settlement see Palmeter and Mavroidis, 2004, 43–45. AB in EC–Sugar, stating further: “Moreover, the notion of estoppel, as advanced by the European Communities, would appear to inhibit the ability of WTO members to initiate a WTO dispute settlement proceeding. We see little in the DSU that explicitly limits the rights of WTO Members to bring an action”, para. 12. AB in Japan–Taxes with reference to the 1966 Yearbook of the International Law Commission, Vol. II, 219. The Appellate Body in US–Gasoline held that the interpretation of a provision cannot result in a reading that reduces whole clauses or paragraphs of a treaty to redundancy or inutility, as all terms of the treaty must be given meaning and effect. sec IV, 22. In EC–Hormones, the Appellate Body interpreted the requirement of Art 3.1 SPS that measures must be ‘based on” international standards as not being a current binding requirement but as a goal to be realized in future. By applying the principle in dubio mitius, the Appellate Body rejected the interpretation of Article 3.1 that would transform international standards into binding norms. Panel in US–Underwear, 7.20 and GATT Panel in US–Superfund, where it was noted that the multilateral trading system contains rules not only to protect current trade but also to create predictability needed to plan future trade. See also Petersmann, 1997, 95.

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sions on issues such non-retroactivity of treaties,36 burden of proof, standing and representation before panels, due process, abuse of rights, and error in treaty formation.37 Finally, the application of general principles of law seems to be less problematic – if at all – in cases where principles are referred to in WTO texts.38 One example of these ‘manifested’ principles is that of ‘good faith’, mentioned in Articles 3.10 and 4.3 of the DSU and Articles 24.4, 24.5, 48.2 and 58 of the TRIPS. The Appellate Body has considered good faith to be ‘at once a general principle of law and a principle of general international law’.39 The former reference clearly indicates a link to Article 38 of the Statute of the International Court of Justice, listing such principles as a source of international law. It is, however, not entirely clear to what the Appellate Body intended to refer when it assessed the second term. Probably it was just meant to be another expression of the understanding of the WTO as no self-contained regime but an open system within the international legal order.40 The Appellate Body has recognized ‘good faith’ as an ‘organic’41 and ‘pervasive’ general principle that underlies all treaties’.42 Now, the principle of ‘good faith’ plays numerous roles in the context of WTO law. There is a general presumption of ‘good faith’ by panels and Appellate Body of the defending member’s conformity of action with its obligations under the agreements unless there is ‘clear evidence to the contrary’.43 ‘Good faith’ has also been accepted as a general principle of treaty interpretation, whether via the 36 37



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43 41 42

AB in Brazil–Coconut. For an overview of relevant case law see Cameron and Gray, 2001, 248–298 and Pauwelyn, 2001, 563. The explicit confirmation of certain general principles in WTO agreements does not implicitly mean to contract out all other general international law. In order for general international law principles not to apply to any WTO treaty, that treaty needs to explicitly contract them out. Consequently, any explicit confirmation of general rules and principles is only declaratory. As the Appellate Body noted in US–Hot Rolled Steel: ‘the rules of treaty interpretation in Articles 31 and 32 of the Vienna Convention apply to any treaty, in any field of public international law’. AB in US–Hot-Rolled Steel, 212. For a different view see Klabbers, 2005, 412; Trachtman, 1999, 324. AB in US–FSC, para. 166. See H.E. Zeitler, ‘Good Faith in the WTO Jurisprudence – Necessary Balancing Element or an Open Door to Judicial Activism?’ (2005) 8:3 Journal of International Economic Law, 724. AB in US–Hot-Rolled Steel, para. 101. AB in US–Cotton Yarn, para. 81. Panel in Argentina–Footwear, para. 6.14. See also AB in EC–Sardines, para. 278; Panel in Argentina–Peaches, para. 7.124; and Panel in Argentina–Footwear, para. 6.14. This presumption was also applied by GATT panels, See, e.g., Arbitrator Award, Canada/ European Communities – Article XXVIII Rights, DS12/R – 37S/80, 26 October 1990, 4.



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reference in Article 3.2 DSU leading to Article 31 of the Vienna Convention or as a customary interpretative principle.44 The requirement of good faith in interpretation has been called a ‘core principle of interpretation of the WTO Agreements’45 and has been used by the panels and the Appellate Body accordingly.46 ‘Good faith’ has also been used as a principle guiding the application of substantive WTO law. Partly by referring to Article 26 of the Vienna Convention,47 partly to good faith as a general principle of international law,48 the principle of good faith has been applied to stress the obligation of States to refrain from acts which would defeat the object and purpose of a treaty to which they are Members.49 This view, arguably, could work both ways in the situation of a normative conflict with another international treaty as the principle could be invoked both in support of a claim of WTO violation and as an argument for the defence. 14.4 In Sum It can therefore be summarized that general international law remains relevant and applicable in a WTO dispute settlement context. The applicability of general principles of law is both widely accepted and practised. This practice can be seen as an expression of an understanding of the WTO as an open system within the international legal order rather than a self-contained regime. While claims of WTO violation cannot be based solely on a general principle of law, justifying a violation on the basis of such a principle, however, is possible. Panels and the Appellate Body are by no means precluded from taking account of or applying rules and principles of general international law in order to decide WTO claims brought before them. In practice, panels and the Appellate Body have frequently referred and applied other rules of international law in their examination of WTO claims. This has only partly been done in the course of interpretation. In addition, and more importantly, panels and the Appellate Body have frequently applied

44 45

48 49 46 47

See Lennard, 2002, 55. See, e.g., GATT Panel Report, US–Hot-Rolled, SCM/185, 15 November 1994, para. 368; GATT Panel Report, US–Tuna, DS29/R, 16 June 1994, para. 5.18.; GATT Panel Report, United States–Anti-Dumping Duties on Imports of Stainless Steel Plates from Sweden, ADP 117, 24 February 1994, para. 235. See, e.g., Panel in US–Underwear, para. 7.20, and Panel in US–Section 301, para. 7.22. See, e.g., Panel in US–Shrimp, para. 7.41; Panel in India–Patents, fn 135 to para. 7.69. See, e.g., AB in US–Hot-Rolled Steel, para. 101. Panel in US–Shrimp, para. 7.41; see also Panel in US–Byrd Amendment, para. 7.64.

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other rules and principles of international law independently of giving meaning to specific terms given in a WTO treaty norm.50

50



See for a sophisticated systematization of these examples, Pauwelyn, 2003, 207–212 and 470–472.

Chapter 15

Applicability of the Principle of Sustainable Development in WTO Dispute Settlement After seeing how general international law continues to apply to WTO disputes, the next issue to address is whether the principle of sustainable development can be applied in situations where a conflict between a WTO treaty and another international agreement lies at the heart of a trade dispute. In part II we could see that interpretation in the light of the principle of sustainable development is necessary and possible in order to adopt the meaning of certain WTO terms to more recent developments within the international legal order. Thus, the application of the principle of sustainable development in the course of interpretation is not a matter of debate. Still, it remains to be clarified whether sustainable development as a legal principle can also be applied to issues of substance outside the scope of interpretation – as an independent principle of integration of economic interests, social justice and environmental protection – with regard to the present and the future – within the limitations posed by certain fundamental ecological functions. The applicability of the principle of sustainable development before a WTO panel or the Appellate Body can be reasoned on various grounds. 15.1 Applicability as Part of WTO Law First and foremost, the principle is part of WTO law itself. As we explored in part I, its inclusion within the Preamble of the WTO Agreement means it is integral to the ‘covered agreements’. The reference to the preambular manifestation of sustainable development was enough for the Appellate Body in US–Shrimps to use the principle – referred to as an ‘objective’ – as a means of importing contemporary concerns of the community of nations on the protection and conservation of the environment into the interpretation of the term

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‘natural resources’ in Article XX(g) GATT.1 This application of the principle has the consequence that it no longer can be set aside as a ‘nebulous goal’.2 Listed in the Preamble it must be put into legal practice by requiring to ‘add colour, texture and shading‘ to the interpretation of the agreements annexed to the Agreement Establishing the WTO. This role of the Preamble in interpretation was confirmed by Judge Tanaka as follows: The preambular parts [of the UN Charter] constitute the moral and political basis for the specific legal provisions thereafter set out.3

The inclusion of sustainable development in the preamble of the WTO Agreement, however, is not limited to having legal effect in interpretative processes only. The application of the principle is possible independent of giving meaning to WTO terms. In particular, as a conflict principle its application is providing a welcome, effective and practical solution to the so far unsettled issue of the relationship between the WTO treaties and MEAs.4 15.2 Applicability as a General Principle of Law Second, as a general principle of law, the applicability of sustainable development is generally independent of its reference in the preamble in the WTO Agreement, though such reference eases the argumentative requirements. If



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4

AB in US–Shrimp, para. 129. So Brownlie in an earlier edition of ‘Principles of Public International Law’, though in the latest (6th) edition, 2003, he included a section on sustainable development as an emergent legal principle, 276–277. Dissenting Opinion by Judge Tanaka, in South West African Cases, ICJ Report 1966, 298. See also T. Broude, ‘Elements of the Principle of Integration in WTO Jurisprudence: Another Look at the Shrimp Case. A Comment prepared for the International Law Association’s Committee on the Law of Sustainable Development’ in International Law of Sustainable Development, ILA, 2006 Toronto Conference, Annex II, 25–31. Broude comments: ‘In most of its aspects, the Shrimp I Report and its follow–up in Shrimp II can be read as stimulating, pragmatic applications of the Principle of Integration in the context of trade.’(29). He notes further ‘the Principle of Integration may be both a rule of interpretation and a more general rule of implementation at the same time. Moreover, …, additional thought needs to be given to the question of whether the Principle of Integration qualifies as a rule of conflict – determining which norm prevails in case of conflict – or a rule of incorporation – injecting environmental protection as an interpretative consideration even when it is not expressly incorporated.(30).



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the principle of integration had not been ‘written in’ to WTO law, it can definitely be ‘read in’.5 In this context Broude marks succinctly In other words, it [the Principle of Integration] may not need to be expressly incorporated into a given body of international law to be valid, just as other second/order rules, such as rules of interpretation or responsibility, need not be specifically incorporated, given their general and persuasive nature.6

International law remains applicable as long as WTO law has not overtly contracted out the rules or principles that shall not apply. In the case of sustainable development, the WTO agreement not only did not contract it out, it positively and expressly contracted it in. This alone is a strong argument for its applicability. 15.3. Mandatory or Permissive Application? Once the applicability of the principle of sustainable development as a principle of both, interpretation – injecting the protection of ecological functions as an interpretative consideration even where it is not expressly incorporated – and of conflict resolution – determining which norm prevails in case of conflict – has been established, it is necessary to consider whether the principle is of mandatory or permissive nature. In other words, does the principle of sustainable development require the integration of various components within certain ecological limitations or does it merely allow for it? Various arguments speak for its mandatory character. First, as a general principle, it is generally binding on all States, whether incorporated into any particular treaty language or not. However, in those cases, where sustainable development is expressed in an international treaty, specific commitment has been made to its requirements. The particular reference to sustainable development, e.g., in the preamble to the WTO Agreement, indicates the acceptance of its legal mandate. The practice of the WTO Appellate Body in US–Shrimp indeed supports the view that integration of ecological concerns into other disciplines is not merely permitted, rather it is required.7 Second, as a general principle, even in the absence of explicit mentioning in treaty law, it exerts a strong normative force. Whether it amounts to a juridical imperative in international law is still contentious. However, given the in 7 5 6

Broude, 2006, 29. Ibid., 30. Ibid., 30.

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creasing normative density in international law, the importance of sustainable development in reconciling the conflicting demands of – at least – development and the environment can scarcely be overstated.8 The mandatory character in thus closely linked to the necessity of employing such a principle. Because no adequate alternatives exist, the principle is the only means to approach the situation of normative conflict between diverse interests. This necessity has already been forcefully expressed in part I.9 In this context, Lowe notes: [i]f, for example, sustainable development is declared to be the reconciling principle that establishes the relationship between development and environment, it is highly unlikely that any other principle will be employed to effect that reconciliation, at least until sustainable development is displaced. The concept effectively ‘occupies the field’, to borrow from European Community law. Further, any shifts in emphasis that may be necessitated by the accidents of case law will be tested for their coherence with sustainable development. In these senses, the principle exercises an immense gravitational pull.’10

In WTO law, however, both, the inclusion of sustainable development in the preamble of the WTO Agreement, the practice of the dispute settlement system, and the status as a legal principle together could sum up to the conclusion of the principle’s mandatory character. While such a conclusion might be somewhat premature, it could, in effect, mean that sustainable development might be developing into a binding principle in dispute settlement procedures of the panels and the Appellate Body. In case of normative conflict, it would then not lie within the judiciary discretion of the panels and the Appellate Body to apply the principle. They would, by law, be required to apply the principle of sustainable development



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Lowe, 2000, 217 In this sense, Judge Weeramantry argued: ‘The problem of steering a course between the needs of development and the necessity to protect the environment is a problem alike of the law of development and the law of the environment. Both these vital and developing areas of law require, and indeed assume, the existence of a principle which harmonizes both needs. To hold that no such principle exists in the law is to hold that current law recognizes the juxtaposition of two principles which could operate in collision with each other, without providing the necessary basis of a principle for their reconciliation. The untenability of the supposition that the law sanctions such a state of normative anarchy suffices to condemn a hypothesis that leads to so unsatisfactory a result. Each principle cannot be given free reign, regardless of the other. The law necessarily contains within itself the principle of reconciliation. That principle is the principle of sustainable development.’; Gabčikovo Nagymaros, ICJ Reports 1997, 90. Lowe, 2000, 217.



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as a normative principle in order to examine WTO claims and to decide the case before them. 15.4 Dispute Settlement Authority and ‘Judicial Activism’ The application of sustainable development as a legal principle of integration points to a fundamental dilemma in international trade law and probably other economic law as well. On the one hand, WTO rule-based tests of trade-discrimination are seen as inefficient in fighting protectionism while allowing for appropriate exceptions. Too many protectionist measures escape appropriate judicial consideration and too many legitimate justifications are overlooked.11 On the other hand, a balance-test, such as the one based on the principle of sustainable development, would make the panels or the Appellate Body largely responsible for defining the appropriate (sustainable) policy.12 Does such judicial behaviour exceed the authority of the panels or the Appellate Body? Still, resolving a dispute by applying and interpreting WTO treaty and other norms is a highly political act, closely watched from diverse political wings. For every rule or principle applied, it has been warned, there will always be a counter-rule or opposing principle.13 Thus, the interpretation and application of norms will always have to be considered within the political context they are carried out. As Klabbers notes ‘Whoever controls the interpretation of a treaty controls the scope of rights and obligations. And control over the process often presupposes control over the methods to be used: the rules of interpretation’14 (and application, one might add). The reliance of the judicial process on the political rationale underlying the legal reasoning may indeed be what renders quasi-judicial organs capable of breaking new ground. Political priorities shift over time and orient themselves toward new developments in the international community. In 1947, when the GATT was drafted, sustainable development arguably played no role whatsoever in international politics. In 1993, when negotiating the WTO Agreement, the situation was very different. Attention was turning towards sustainable development as an objective for international law and later WTO law. Given

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13 14

See, for example, M. Poiares Maduro, We, the Court: the European Court of Justice and the European Economic Constitution, 1997, 53. Ibid., 59. See also L. Bartels, ‘The Separation of Powers in the WTO: How to Avoid Judicial Activism’ (2004) 54 ICLQ, 861. See Koskenniemi, From Apology to Utopia, 1989, and McNair, 1961, 365 Klabbers, 2005, 427

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the emergence of this concept as a principle of international law during the last decade, a process we examined above, it plays an even stronger role today. In the absence of a clear political decision on this (stronger) role, judicial methods offer a means of acknowledging these developments and building them into the WTO system. In other words, the political nature of dispute settlement and judicial authority are securities against petrifaction of WTO law. This situation is quite different from the charge that the quasi-judicial organs exceed their authority by engaging in ‘expansive judicial lawmaking’.15 It is a necessity for the development and flexibility of the WTO to adapt to contemporary needs, if only (or mainly) via judicial decisions. But what would the consequences be? This question raises two issues: the precedental significance of such application and the practical implications of the application of the principle. While the former has already been briefly elaborated, the latter will be subject to closer examination in chapter 16. 15.5 In Sum It can be stated that the principle of sustainable development is applicable to settlement of disputes over WTO claims. Because the relationship between the WTO and other non-WTO treaties, in particular MEAs, has remained subject to political debate; it is especially in this context the principle of sustainable development could significantly advance the issue’s resolution. Its integrative character, combining the major objectives of international agreements, i.e. economic freedom, human freedom and welfare and environmental protection, within the limitations set by the protection of basic ecological conditions, allows conflicting interests and respective norms to be accommodated in a way that ensures a ‘sustainable’ result. A submission from the EC regarding the relationship of WTO rules and MEAs points in the same direction. The EC argued that: MEAs and WTO are equal bodies of law. WTO rules should not interpreted in ‘clinical isolation’ from other bodies of international law and without considering other complementary bodies of international law, including MEAs. In those rare cases, in which interpretation is not sufficient to avoid a potential conflict, there is a need to determine – under rules of public international law – which is the applicable body of law.16 15 16



See Bartels, 2004, 894. Multilateral Environmental Agreements (MEAs): Implementation of the Doha Development Agenda, Submission by the European Communities, para. 31(i), 21 March 2002, (TN/TE/W/1).



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The application of the principle of sustainable development will eventually determine the applicable law, according to which law best serves the principle’s objective. While a complaining Party cannot see its rights diminished by a defence informed by a rule by which it is not bound, e.g. non-WTO treaties to which the complainant is not a Party, its rights can be defined by reference to the general principle of sustainable development which applies to it independent of any treaty membership. The principle is a ‘pointer’ of ‘sustainable law’. Both the violated WTO norm and the conflicting non-WTO (treaty) provision need to be ‘calibrated’ against the principle of sustainable development. That means that not all non-WTO law, e.g. MEAs, equally and non-critically could be a successful defence against a claim of WTO incompatibililty, but only those norms that pass the principled requirements of sustainable development. Non-WTO and WTO norms will necessarily have to be scrutinized to ascertain their ‘sustainable integrity’. A norm must prove its conduciveness to the principle, i.e. it must be able to recognize certain absolute ecological limits, and it must take account of wider societal circumstances. Equally the principle could establish a valid defence of human or other social rights protection where they come into conflict with WTO norms. Such norms as pass this ‘sustainability test’ would have a stronger normative status, thus overriding and setting aside other norms. It needs to be remembered, at this juncture, that a rule or principle that is part of the applicable law does not necessarily prevail over WTO law. In the case of sustainable development, however, the principle itself would determine the priority of norms within the applicable law and, thus, the outcome of a dispute. If the conflicting provision in question is a clear affirmation of the objective of sustainable development and the measure is applied in a manner that supports this objective, the conflicting norm prevails over the WTO rule in question, which then cannot be applied.

Chapter 16

Application of the Principle of Sustainable Development: Practical Consequences

16.1 The Aim of Creating Coherence We have finally come to the point at which we need to ask what the consequences of the application of the principle of sustainable development in the context of climate and trade norm conflicts would be. In order to provide a meaningful answer to this question, we have to be mindful of the objective of applying the principle of sustainable development. In the relationship between climate law and international trade law conflicts could arise, whose resolution based solely on interpretation of WTO law would seem unlikely or unsatisfactory. Unlikeness is based on the inherent limitations of the process of interpretation. While some conflicts could be ‘interpreted away’; others might not easily be dealt with by giving meaning to the terms of the WTO agreements’. In such a situation of genuine normative conflict, certain conflict clauses or conflict principles would usually define the prevalence of norms. However, in the context of climate and trade law, no such conflict clauses in the traditional sense exist or to guide a meaningful solution. Therefore, as it has been suggested in this book, the principle of sustainable development as a legal principle of integration of social and environmental provisions into international trade law could provide an appropriate means of dealing with the (so far) unresolved issue of the relationship between WTO law and MEAs, exemplified in this study by international climate law, contained in or deriving from the agreements and legal documents of the international climate regime. The application of the principle of sustainable development is, in my view, a possible way of addressing the intersection between the rules of trade treaties and the environmental and social values inherent in the climate agreements. This suggestion is based on the understanding that in a complex and

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interdependent world, no single, simple solution can adequately address the variety of issues and interests at stake. Still, certain situations, e.g. legal disputes, demand solutions. In these situations, the final result needs to derive its legitimacy from two criteria: first the affected interests must be balanced, and, second, the result must not jeopardize common interests and concerns of the global community. In these situations, a principle-based approach (as opposed to a strict rule based solution) is appropriate, which provides a framework within which the two criteria just mentioned can be addressed. This is where unifying principles such as sustainable development come into the picture. And it is where the theoretical commitment to sustainable development in different areas of law, such as world trade law, human rights law, development law and environmental law will be tested. It precisely in this context that George Abi-Saab’s statement gains significance: In a world characterized by deepening economic interdependence and the growing complexity of international rules reflecting common concerns about human rights, human development, and the human environment, there is a great need for unifying concepts and principles to guide decision-makers – be they national or international, including the judges of the diverse international fora – through the huge maize of seemingly overlapping international rules and commitments. Sustainable development has emerged as one such concept.1

By applying the principle of sustainable development, the coherence of the international legal order is eventually aspired. This coherence means that the aspects of the international legal systems can be aligned to issues that are of common interest and concern. By applying the principle of sustainable development, it is hoped, the norms of the international legal system can be founded on a ‘common denominator’, which, in Justice Weeramantry’s words, is ‘a sense of common responsibility for the increasingly interdependent societies and economies, for our shared environment and natural resources, and for the condition of humanity.’2 What this specifically means for WTO Dispute Settlement Procedure has yet to be assessed in detail by legal scholarship and judicial practice. Still, the

1



2

George Abi-Saab, Member and former Chairman of the WTO Appellate Body, Foreword, in Gehring and Cordonier-Segger, Sustainable Development in World Trade Law, 2005, xxxiv. Weeramantry and Cordonier-Segger, Introduction to Sustainable Justice: Implementing International Sustainable Development Law, in Weeramantry and Cordonier-Segger (eds.), Sustainable Justice, 2005, 2.



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importance of the principle of sustainable development for WTO adjudication has been observed in the following way: The WTO Dispute Settlement Procedure has a particular importance for the development of the concept of sustainable development. It is the most likely place in which to find evidence of States actively pursuing the goal of sustainable development by the imposition of trade restrictions, and also the most likely location of careful and authoritative analysis of the compatibility of such restrictions … with a State’s international trading obligations.3

In the course of WTO dispute settlement it is therefore necessary to translate generalities like these into specific procedural and substantive requirements. 16.2 Nature of a Legal Test for Sustainable Development How can trade law promote sustainable development? And how do we ensure complementarity between trade and climate measures? Public international law, which includes international trade and climate law, can and should ensure that both areas are geared to facilitating sustainable development. It is therefore necessary to employ a balanced, integrated legal analysis towards this common end.4 But is there any judicial reasoning tool – a ‘legal test’ – embodied in the principle of sustainable development, by which competing social, economic and environmental claims can be accommodated, reconciled and integrated? This seemingly essential question has only rarely and certainly not comprehensively been addressed in legal literature. Also judicial practice, in addressing the proliferating number of disputes relating to conflicts between environmental, economic or developmental norms, has yet to establish a coherent and coordinated approach to the adjudicability of sustainable development as an integrative principle.5 Cordonier-Segger and Justice Weeramantry note poignantly When cases involving sustainable development arise, tribunals will often find themselves called upon to apply a broad general approach, the detailed implications of which have not yet been considered by scholars and regulators. It is very much the situation of common law judges, who with only the broadest of general guiding principles,

3



4



5

V. Lowe, ‘Preface to Does the WTO Dispute Settlement Understanding Promote Sustainable Development?’ in Cordonier-Segger and Gehring (eds.) 2005a, 257. Cordonier-Segger and Gehring, ‘Introduction’ in Cordonier-Segger and Gehring (eds.) 2005a, 4. See Boyle, 2008.

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fashioned an intricately nuanced system of law to meet a myriad situations which the formal law giver had not and could not have anticipated. In short, justice systems are at the cutting edge of the development of this concept. Both domestically and internationally, judges will need to show imagination, initiative and vision in handling a matter so deeply fraught with implications for the global future. Only this imagination, initiative and vision can move us toward ‘sustainable justice’.6

It is thus timely to move beyond the ‘mere invocation’ of a principle of integration, and to develop a more substantive – more methodologically defined – judicial approach to sustainable development as a tool for integration. The difficulty and complexity of such an approach has led some to rejecting its desirability. The ILA Committee on International Law on Sustainable Development, for example, notes critically Promoting the development of integration as a judicial reasoning tool should allow a judicial body to act in a more integrated manner than is currently the case. Perhaps, and in line with and in light of the constraints of the judicial model, courts and tribunals, rather than developing a reductionist approach to problems through the judicial application of some kind of formula or methodology in which rules are modified and misshaped, should instead recognise the complexity of the system of which they form part and seek to use the law sensibly and rationally to provide a coordinated answer; not so much integration for its own sake, but rather using integration as a lens through which synergies are found and then built upon.7

However, rather than reducing the scope of legal analysis by the application of an integrative tool, the opposite – an actual expansion – is purported. Conflicting norms are considered against the substantive requirements set by sustainable development. This leads to ‘taking stock’ of their supportiveness of ecological processes and functions and their flexibility to account of wider societal interests. Neither is integration attempted for its own sake. In fact, a plain principle of integration – if severed from sustainable development – arguably lacks any substance and meaning of its own.8 For that reason, sustainable development as judicial a tool is necessary for providing direction to the process of integration. The challenge is to conceive a legal reasoning framework for sustainable development the purpose of which is to integrate environmental, social and economic considerations while observing certain ecological limitations.

6



7 8

Weeramantry and Cordonier-Segger, in Weeramantry and Cordonier-Segger (eds.) 2005, 2. Toronto Conference 2006, 21 (emph. add.) So also K. Meesen, ILA, 2006 Toronto Conference, International Law on Sustainable Development, 19, comment in fn. 104.



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While this involves some kind of methodological model, it needs to stay clear of the mechanistic application of facts to readily-determined law.9 Not only is such rigid rule undesirable, it might simply be impossible to offer a single, all-applicable judicial test, given the great diversity of conflicts, the complex nature of the issues at stake and the global character of the task. In this thesis only a preliminary proposal for a broad judicial framework can be advanced, the elements of which a international court or tribunal might take into account in the specific situation of applying the principle of sustainable development to normative conflicts, such as climate and trade law conflicts.10 This proposal, it is hoped, will encourage further legal discussion and research. This framework is first and foremost based on a ‘principled’ test. This means in other words that it is impossible to predict a given solution at the outset. The result will depend on the application of the abstract and general requirements of the test to the facts and the circumstances of the particular case.11 Given the range of likely conflicts between climate and trade law rules, the test needs to be able to accommodate as wide a range of ‘constellations’ as possible. It therefore aims at identifying those climate measures which, despite their trade restrictive – and maybe even protectionist – effect ought to prevail over trade rules by reason of their compliance with sustainable development. Second, the test could be applied independently of normative reference to environmental measures in the treaty text, e.g. in exception clauses in the WTO treaties. The principle of sustainable development as a general principle of law could constitute the framework in which the environmental, social and trade norms and interests can be equal and integral parts.12 When a measure prescribed or permitted under an international climate agreement, e.g. Kyoto Protocol, comes into conflict with rules of international trade, the principle functions as a legal test that properly balances interests in trade liberalization with other common interests, chief among them the protection of the Earth’s atmosphere.13

9

11 10



12 13

See ILA report, 2006, 20 for similar conclusion. Cordonier-Segger, 2004, 592. See for a similar suggestion of a ‘juridical sustainability test’: M.C. Cordonier-Segger, 2004a, 591. Brown-Weiss, 1992a, 728. See for an earlier proposal of such a ‘balancing test’: J. Dunoff, ‘Reconciling International Trade with Preservation of the Global Commons: Can we Prosper and Protect?’, 49 Wash & Lee L. Rev. 1407. Without explicitly referring to sustainable development, Dunoff noted ‘[t]he world community needs a conceptual framework that will enable it to reconcile the various international interests at stake in the conflict between environment and trade. This framework should include principles that permit a harmonization of the use of trade measures to protect the global commons with the strong interest in liberalized

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Still, this test could also be useful in the interpretation of treaty terms. The importance of general international law including the principle of sustainable development as an integrative principle to the interpretation of treaties has been pointed out. The following proposal consists of two steps. First, I will outline an approximation of the various elements that such a test could entail, before, second, the specific case studies (assessed in Part II) of climate-trade law conflicts will be examined in the light of this test. 16.3 Possible Elements of a Legal Test for Sustainable Development The framework provided by the principle of sustainable development would allow for the examination of issues of common concern as an integral part of trade law. As a starting point, it would mean that trade norms and traderestrictive measures that promote sustainable development would not stand as alternatives but as mutually reinforcing elements in this legal test. Only where a particular measure is better equipped to protect common concerns might the principle of sustainable development be invoked in support of this measure and to the detriment of the norm promoting liberalized trade. It is therefore suggested that a legal sustainability test includes the following components: (1) identification of the affected interests, (2) primary sustainability of the measures (the type and strength of the interest protected by the trade restrictive measure), (3) secondary sustainability of the measure (broader sustainability), (4) proportionality of means and ends, and (5) procedural aspects. 16.3.1 Identification of Affected Interests The court or tribunal would need to identify the interests at stake. These involve not only the rights and duties of the Parties to a particular dispute but also the interests of the broader community. Here, interests in protecting essential natural and ecological functions need to be identified as well as wider social, economic and environmental interests. Interests of the domestic and international community and of present and future generations would need to be taken into consideration. Cordonier-Segger suggests in the context of trade.’ (Ibid., 19). See also: R. Stewart, ‘International Trade and Environment: Lessons from the Federal Experience’ (1992) 49 Wash. & Lee L. Rev., 1349.



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this test special attending to the needs of the most vulnerable, from an intergenerational and an intra-generational perspective.14 16.3.2 Primary Sustainability: Type and Strength of Interests Protected by the Measure The strength of interests protected by the measure needs to be identified. Does the measure aim at protecting issues of common importance or of purely domestic concern? With regard to sustainable development as defined in Part I, a starting point here is to determine whether the measure aims at protecting – or at least not threatening – a fundamental ecological function (primary sustainability). As suggested by Dunoff, one way of determining whether a measure is designed to protect global interests would be to see whether the specific environmental interest is protected by customary or treaty law. With regard to treaty law, the determination needs qualification. Not all interests dealt with in international treaties can be considered to represent issues of common importance. Here, the number of Member States and specific clarification in the treaty texts on the kind of interest would be necessary to establish the ‘weight’ of the protected interest. One indication of an issue’s global importance is the use of the concept of ‘common concern’ in the respective multilateral treaty. As regards climate change, the 189 Parties to the UNFCCC consider change in the Earth’s climate and its adverse effects being a common concern of humankind.15 Not only does this allow concluding the (almost) universal recognition of the importance of protecting the climatic system, it means that the vast majority of States have a legal interest in protecting the climate system, and a legal responsibility to prevent damage to it.16 The atmospheric system is thus treated as a global unity insofar as injury in form of global warming or climate change may affect the community of States as a whole. As such it is a common resource vital to the interest of mankind. This means that the protection of the climate system cannot be treated in the same manner as other environmental issues, e.g. species protection or waste management. The protection of the climate system is truly an issue of common importance upon which societies, economies and ecosystems depend. After the type and strength of interest have been identified, the next step would be to examine the primary sustainability of the measure, that is, the 16 14 15

Cordonier-Segger, 2004, 591. UNFCCC, Preamble, para. 1. Yamin and Depledge, 2004, 68; Sands, 2003, 287.

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measure’s capacity to fulfil its purpose. The means employed need to be reasonably related to the ends. Here it would be required that a measure promotes the interest protected. The purpose of the measure must be to protect the interest supported by the objective. Amongst the legitimate objectives, the protection of certain essential ecological functions takes a stronger stand. The measure must thus be apt to achieve this objective. It is important at this point to note that no ‘effects test’ based on causation is required. In particular in the field of environmental protection a substantial period of time, sometimes hundreds of years, may have to elapse before the effects attributable to the implementation of a given measure can be observed. Moreover, the observed effect is likely to come about by the sum of measures. No climate change mitigation measure alone can reduce greenhouse gas emissions to the extent that the resulting gas concentration in the atmosphere does not dangerously interfere with the climate system. The spatio-temporal scope of effects of mitigation measures will thus hardly allow the clear determination of a causational link between a particular measure and its impact on the protection of climatic stability. With regard to measures of climate change mitigation, their primary sustainability needs to be defined by their capability to reduce greenhouse gas emissions. 16.3.3 Secondary Sustainability: Assessment of the (Broader) Sustainability of the Measure A ‘sustainable development test’ would further include the assessment of the ‘broader sustainability’ of the measure, that is, the extent to which wider interests than those represented by the primary objective of the measure are taken into account. Such wider sustainability focuses on the ability of, for example, an environmental measure, to take social and economic interests into account. The assessment of the ‘broader sustainability’ may require certain substantive and procedural elements, such as a Sustainability Impact Assessment (SIA). Essentially, the court or tribunal would seek to ensure that neither the economic, nor the environmental, nor the social interests at stake have been excluded.17 A measure would not be sustainable, if it allows one or more of the dimensions of sustainable development to be ignored. It is worth noting here, that this thesis does not suggest a merely procedural approach to be taken by the dispute settlement organs in their assessment of the (sustainable) legitimacy of national regulatory measures that aim to protect 17



Cordonier-Segger, 2005, 592.



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trade externalities. Procedural criteria, such as, e.g., interest representation, participation, risk assessment, serious across-the-board international negotiations, or due process considerations in the political process that led to the adoption of a trade-restrictive measure play an important role in the assessment of the sustainability of the measure. However, they are only indicative of the substantive merits of sustainability. Sustainable development as a principle of integration is a principle of conduct and result; it contains procedural as well as substantive requirements. Still, it is the outcome of the process that needs to be sustainable and thus legitimate, rather than the process alone. Diligence of the process does not necessarily ensure sustainability of the outcome. The purpose of the assessment is to examine the effect of a certain traderestrictive measure on long-term sustainability. The suggested criteria below cover substantive aspects with regard to social, environmental and economic effects of a measure. a) Environmental Interests In line with the ‘integrated thinking’ approach, the effects of the measure on the wider natural and biophysical environment have to be considered (‘wider environmental integrity’). ‘Wider’ in this context means environmental impacts not purported by the measure. Would or could the measure have negative effects on other environmental assets and ecological functions, e.g. species protection, wetland protection. And if so, does the measure seek to avoid or mitigate these negative effects? An example of such a ‘wider’ environmental impact purview would, for example, be to investigate the impact on biodiversity of afforestation or reforestation projects under the CDM by planting mono-cultural, non-indigenous tree species or even genetically modified species. Thus, although a measure is in itself aimed at stabilizing the atmospheric greenhouse gas concentration by increasing the sequestration of carbon dioxide and has an environmental objective, it could have a negative impact on biodiversity. Other examples of climate projects with potentially negative environmental impacts are huge hydro-dams or even wind parks. What this part of the assessment seeks to determine is whether such harm is unavoidable, and if not, whether and which other possibilities have been considered to minimize the impact. In order for a measure to be sustainable, it needs to minimize its negative impact on the environment to the greatest extent possible.

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b) Social Interests This part of the assessment links to considerations of social justice as integral parts of sustainable development. The court or tribunal would need to seek ways to accommodate between and reconcile competing interests, including poverty alleviation, security and bridging of the ‘North-South divide’. In this context, it has been commented that in particular would a court or tribunal need to consider whether the measure imposes burdens on countries or actors that traditionally suffered from disadvantages, and have not benefited from past unsustainable practices.18 When relevant for the respective case the assessment needs therefore to include social criteria, e.g. health impacts, local air quality, employment, land rights or titles, indigenous peoples rights and interests, transfer of environmentally sound technology, financial transfers, burden and benefit sharing issues etc. Here, the assessment would attempt to establish whether the measure supports social interests and seeks to minimize possible negative social impacts. Depending on the particular factual circumstances, sustainability of a measure demands that these – and perhaps other – social criteria are taken into account in the design and implementation of the measure. In terms of a trade-restrictive environmental measure, justifiability of such measure based on the principle of sustainable development would require the recognition and integration of social interests in the design of the measure where such interests are at stake or affected by the measure. c) Economic Interests Finally, interests of an economic character affected by the design of the measure and the manner of its application also need to be assessed. If sustainable development seeks the integration of environmental, social and economic interests, the measure ought certainly not to be ignorant of the latter. In particular, the question whether a measure would contribute to poverty alleviation and development in less affluent countries includes means of benefit sharing or technology or financial transfer to developing countries, or addresses global disparities in any other effective way is of importance in this respect. The assessment would thus inquire whether the measure aims at supporting economic interests of those affected by it, or, at least, seeks to minimize economic impacts by, e.g. aiming to increase effectiveness and efficiency, reducing or avoiding discrimination, avoiding nullification or impairment 18



Cordonier-Segger, 2005, 592, noting that exceptions might need to be created for these countries or parties based on the principle of common but differentiated responsibilities.



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of rights and benefits of others etc.). Still, in some cases the purpose of the measure or the insurance of its effectiveness may require high economic costs or a certain degree of discrimination. Here, a balancing of the interests at stake is necessary. 16.3.4 Proportionality of Means and Ends There are two levels of proportionality. First, the measure (means) needs to be proportionate to the primary interest (end) to be protected. Primary proportionality of the measure should focus on the balance between the burden imposed by the measure, and the potential benefits which may derive from its implementation. The idea behind such test is that means employed should be proportionate to the interest to be protected. The doctrine of proportionality acts as a limit on State action. It acts as a check on the protectionist impulse.19 In terms of trade and environment, the proportionality test should consist of weighing the expected environmental benefit of the measure against the burden imposed on trade.20 Here, the more important the protected interest for the international community, the lower are restrictions which apply to the burden it causes. Measures that protect fundamental ecological and natural functions could therefore be considered proportionate even if they cause considerable economic or social burdens. A measure that aims at reducing significant amounts of greenhouse gas emissions can thus be proportionate despite its impacts on the economy. Second, also each of the mentioned criteria (a-c) will necessarily entail an element of proportionality where the proposed benefit of the measure is weighed against its (negative) impacts. A measure, for example, that takes account of economic interests to the detriment of significant social or environmental interests cannot be deemed sustainable. Essentially, Cordonier-Segger suggests: the jurist would seek to ensure that neither the economic, nor the environmental, nor the social priorities had been completely ignored. While there are few clear bright lines, and no hard and fast rule, as each factual situation is different, it would not be ‘sustainable’ to allow one or the other dimension of sustainable development to be excluded (the principle of integration).21

21 19 20

Dunoff, 1992, 23. See for a similar suggestion: Montini, 2001, 155. Cordonier-Segger, 2004, 592.

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The requirement of proportionality, however, does not include a necessity test like the one envisaged under WTO jurisprudence so far. An environmental measure in order to be proportionate to its purported end does not need to show the absence of any reasonably available less trade restrictive alternative. This is one of the distinctions between an independent sustainability test and the legal test utilized by the WTO panels and the Appellate Body. The ‘trade ethos’ or hierarchical dominance of trade interests over all other considerations implied in the necessity requirement stands in stark contrast to the integrative character of the principle of sustainable development. Because, such universal privileging of trade interests over ecological interests can, in certain instances, seriously devalue the environmental or social interest at stake, a different approach needs to be applied. Rather, as Dunoff suggested, there should be a balancing of the interest in preservation of the global commons with the interest in economic efficiency, sovereignty, and political harmony.22 He continues advocating this balancing framework, rather than rigid rules, because definite rules are inappropriate in this area. Global environmental protection and liberalized trade are both legitimate and important values that states can advance. For this reason, one should not – as the trade regime does – create a hierarchy where one set of interests always trumps the other set. Some trade measures serve more pressing interests than others do, and different trade restriction impose different costs upon the global trading order. There should be no a priori winner in any particular conflict between the interests in liberalized trade and the interests in environmental protection.23

Another alternative, of course, would be to include the requirement of sustainability into the necessity test under WTO law. This would entail that a traderestrictive measure is justifiable as necessary if it can be shown that other, less trade restrictive alternatives are not sustainable or not ‘reasonably available’ in the sense that unsustainability excludes reasonableness. A similar adjustment can be conceived to WTO terms like ’arbitrary’ or ‘unjustifiable discrimination’. The application of a sustainability test would allow qualifying a measure as non-arbitrary or a justifiable trade-discrimination if it serves the ends of sustainable development. This might be of particular importance in situations where a climate measure seeks to offset comparative disadvantages of the implementing country against the economic advantages of ‘free riders’. As mentioned above, ‘free riders’ are countries not participating in the global efforts under the climate regime, and seeking not only to

22 23



Dunoff, 1992, 24. Ibid.



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avoid climate mitigation costs but gaining competitive advantages from their climate inaction. Instead of a ‘trade priority’ which is inherent in tests of ‘least trade restrictiveness’ or ‘reasonably available alternative’, a sustainability test proposes balancing of the interest in preserving the stability of the Earth’s climate with economic interests of non-Members or non-compliers. Rather than merely balancing the rights and obligations under WTO law of WTO Members, this balance has to be determined in the context of sustainable development. The fact that a governmental measure aims at protecting issues of global importance, and in their wake aims at protecting domestic industries, has to be taken into account when its negative effects on trade interests of other WTO Members is examined. In the context of the integrating principle of sustainable development, trade discrimination could under certain circumstances be a legitimate means for protecting the effectiveness and integrity of the governmental measure as well as for protecting the international competitiveness of the State or States that has/have implemented the measure. In other words, even if the measure aims at offsetting negative economic impacts (e.g. unfair competition advantages by non-Members or carbon leakage) of implementing and maintaining a climate measure, this kind of (undisguised) protectionism has to be recognized as a legitimate and justifiable concern.24 The principle of sustainable development in its capacity of a principle of integration could thus provide a platform for a holistic assessment of the mass of matters at stake. Trade and other concerns, such as environmental or social, could be viewed under the integrating objective of sustainable development and given proper and adequate consideration. Trade restrictive measures would be judged by their capacity to facilitate sustainable development. Measures which pass the test could, for example, not be considered arbitrary or unjustifiable precisely because of their ability to advance sustainable development. 16.3.5 Procedurals The sustainability assessment comes with a number of procedural requirements, such as carrying out a SIA,25 access to information, consultation with

24



25

See also A. Cosbey, Lessons Learned on Trade and Sustainable Development. Distilling Six Years of Research from The Trade Knowledge Network. IISD and ICTSD, 2004, 7–23. Sustainability Impact Assessments have most often been developed in order to analyze the potential impacts of trade agreements. See, for example, D. Blobel et al., Report on

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the public, involvement of civil society, consultation (with decision makers in the other fields in the other countries/country), negotiation in good faith, and consultation of all stakeholders. They might also include a risk assessment where the science behind the trade measure is uncertain. According to the precautionary principle, which we identified as being part of the principle of sustainable development, a lack of scientific certainty cannot justify postponing measures which mitigate climate change. A determination of the acceptable level of risk will largely depend on the value judgement of the society in question. Different nations can have different tolerances for risk. However, with respect to the risk of irreversible ecological damage – the likely result of global climate change – the precautionary principle demands positive action of protection and damage prevention. The UNFCCC and Kyoto Protocol are proof of the consensus of their Member States to engage in mitigation measures despite remaining scientific uncertainty as to the timing, extent and regional distribution of climate change impacts. While these issues are equally relevant to the principle of sustainable development, a more detailed discussion cannot, however, be pursued in this thesis. The extent to which these procedural requirements would need to be analysed goes beyond the scope of the present study. Still, one may hope that future research explores these issues with the care they deserve. Finally, the test would need to maintain a holistic and long-term perspective. It needs to single out and give preference to measures that facilitate lasting development. But the ultimate test, as noted by Cordonier-Segger, of this reasoning would be whether the resolution leads to an improvement in the collective quality of life that can last over the long term.26

26



Trade, Environment and Sustainability Impact Assessment, July 2005 (). See also M. Gehring, Nachhaltigkeit durch Verfahren im Welthandel, Umwelt- und Nachhaltigkeitsprüfungen und die WTO (Dissertation University of Hamburg, 2005); M. Gehring and M.C. Cordonier-Segger, ‘Sustainable Development through Process in World Trade Law’ in Gehring and Cordonier-Segger (eds.) 2005, 204–205; European Commission, Draft Handbook for Sustainability Impact Assessment, European Commission, Directorate-General for Trade, 2005; and C. Kirkpatrick and G. Clive, Sustainability Impact Assessment of Proposed WTO Negotiations. Overall Project Final Report for Sector Studies: Agriculture, Distribution Services, and Forests. Impact Assessment Research Centre, Institute for Development Policy and Management, University of Manchester, 2005. In the present study, however, the purpose of the SIA is to determine whether the trade restrictive measure facilitates sustainable development, rather than the sustainability assessment of WTO norms. This is a conscious deviation from the general application of a SIA. The idea behind this suggested assessment is to discover the sustainability of a measure against a wider array of criteria than is normally used. If, however, the SIA of the trade restrictive measure gives evidence of its sustainability, an argument for the justification of the measure can be made. Cordonier-Segger, 2004, 592.



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16.3.6 Legal Effect According to this test, sustainable development should function as a guide in determining how to handle conflicting norms. If sustainable development is facilitated by interpreting the conflicting provisions in a harmonious way, no question of norm priority arises. Where such reading is not possible, the ‘sustainability test’ outlined here could be used to determine norm priority. In this sense, the application of the ‘sustainability test’ is inherently different in its legal force than the conflict avoidance technique of interpretation. It is also different from existing conflict resolution principles in that it not only determines norm priority technically ratione temporis or ratione materiae, but because the determination is contextual (ratione contextuūs). The norm that (best) facilitates the objective of sustainable development should eventually prevail. What are the implications of the proposed test for the climate and trade issues highlighted in Part II? The ‘juridical sustainability test’ – performed either separately from WTO treaties’ exception clauses or as an integral part of them, e.g. when interpreting terms like ‘necessary’, ‘arbitrary’ or ‘unjustifiable’ discrimination in Article XX GATT or Article XIV GATS – means that instead of following the strict rule-based test(s) included in WTO law, the analysis of a trade-restrictive climate measure needs to answer whether the climate measure promotes sustainable development in a better way than following the dictates of the trade rule. If it does, the climate measure has to be given priority over trade concerns by virtue of its compliance with the objective of sustainable development. If sustainable development in itself is the end goal of the WTO, then a climate measure which is found being a tool for promoting sustainable development is essentially compliant with the WTO legal system and the common objective of the WTO. Therefore no problem of legitimacy of setting aside ‘non sustainable’ trade norms arises. In order to identify whether a climate measure promotes sustainable development or not, it has to be measured against the requirements of this principle. Such measurement can, in effect, necessitate changes, improvements or modifications of the climate measure. The principle of sustainable development seeks to determine the measure most appropriate for promoting sustainable development and can thus function as a corrective to both, WTO norms and climate measures. In other words, not all and every climate measure would simply be justified by virtue of aiming at reducing GHG emissions, but only those measures that in themselves comply with the mandate of sustainable development, i.e. measures that aim at reducing the emission of greenhouse gases while not being

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ignorant of the interrelationship between economic, social, and environmental factors. If a measure does not subscribe to those requirements, it might still be possible to ‘save’ it according to the narrow criteria of WTO law. A principled justification on the grounds of sustainable development (and its integrative character) would, however, be precluded.

Chapter 17

‘Case’ Studies: CDM and Emissions Trading At this final stage, we shall attempt to identify some criteria that need to be in place for a climate measure to promote sustainable development according to the test established in the previous chapter. We in turn look at the CDM and emissions trading scheme. 17.1 Clean Development Mechanism In the case of conflicts with multilateral trade norms, the ability of the CDM to serve as an instrument of sustainable development will be decisive. In other words, the extent to which the trade impact, i.e. differentiation in eligibility to participate between non-Member States to the Kyoto Protocol and complying Members, can be justified will need to be determined by the contribution of the CDM to sustainable development. In this context, the exclusion of nonMember States and their legal entities to participate in the CDM will have to relate to the ‘sustainable integrity’ of the CDM. 17.1.1 Identification of Affected Interests Which interests would be affected directly or indirectly by a dispute arising over a CDM issue will depend on the particular circumstances of the case. They could be the interests of authorized private companies carrying out a CDM project or of an investor State to which the resulting CERs are to be accredited; a private entity or State which is not a Party to the Kyoto Protocol but is interested in investing in the CDM; the host State; local or indigenous communities; NGOs; private non-commercial entities and many more. However, issues concerning the CDM, as with all climate measures, affect a wider set of

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interests, global and intertemporal, which demand the integrity and efficacy of a climate measure as a means to protect the stability of the global climate. 17.1.2 Strength of the Protected Interest Next, the relationship between the climate measure and the protection of an essential ecological or natural function or condition needs to be assessed. The protection of such a function is the ‘outer frame’ (primary sustainability) for an assessment of the measure’s sustainability and will determine the relationship to other affected interests (secondary or broader sustainability). Here, the question arises whether the CDM aims at protecting such function or condition. Recognizing that the stability of the global climate is essential to human life and welfare, in order to pass a ‘sustainable development test’, it needs to be shown that the measure promotes the stabilization of greenhouse gas concentrations in the atmosphere at a safe level.1 The important criterion in this context is whether the project at stake can result or has resulted in reductions in emissions that are additional to any that would occur in the absence of the certified project activity.2 As said above, the additionality requirement is a crucial aspect of the climate impact of the CDM. Not only is additionality a requirement set out in the Kyoto Protocol/Marrakesh Accords; its contribution to the overall reduction of greenhouse gases is conditio sine qua non of a CDM project’s sustainability. CDM projects must show that the emissions reductions achieved are ‘additional’ to a counter-factual baseline scenario. This is measured by comparing the CDM project’s emissions reductions with an emission scenario that likely would have occurred in the absence of the project.3 If emissions reductions are not additional, the overall cap of Annex I countries will become unduly inflated as emissions will rise without corresponding reductions elsewhere. Such a scenario would stand in strong contrast to the demand of environmental integrity of the CDM4 and the entire Kyoto system as it would not help achieve the ultimate objective of the Convention.

1

4 2 3

See C. Voigt, ‘Is the Clean Development Mechanism Sustainable? Some Critical Aspects’, 8 Sustainable Development Law and Policy (SDLP), 2008, 15–21. Art 12.5(c) Kyoto Protocol, Marrakesh Add.2, Art 43. Yamin (ed.) 2005, 30. Meijer and Werksman define environmental integrity almost solely in terms of additionality: ‘Environmental integrity is the demonstrated ability of the CDM to approve projects and to certify emissions reductions that are widely perceived as additional to what would otherwise have occurred, and support projects that contribute to long-term reductions in concentrations of GHGs in the atmosphere.’ Meijer and Werksman, 2005, 192.



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It is, however, not the only requirement. In order to survive a ‘sustainability check’ a CDM project would need to prove that its additionality does not slow climate change mitigation efforts elsewhere. The additionality criterion in its present state despite being crucial to the environmental integrity of the CDM can create adverse policy incentives to climate change mitigation. The potential of CDM projects to generate much-needed investment flows into a host country has led some developing countries to back off from more progressive energy or climate policies and respective legislation. These policies and laws, if integrated into the baseline, would disqualify CDM projects that aim at meeting these new standards or thresholds.5 In order to promote sustainable development, a solution to and safeguard against this disturbing situation must be found within the climate regime. Another critical concern is that GHG emission reductions by a CDM projects could in fact lead to increased emissions elsewhere (so-called carbon leakage). The design of the CDM has therefore to prevent that the project leads to such increase in emissions elsewhere, whether that is in the same sector, in other sectors, in other regions of the same country or in other countries. 17.1.3 Contribution to Sustainable Development in a Broader Context The contribution of the CDM to sustainable development also needs to be seen in terms of host country development, as expressed in the first goal of the CDM mentioned above. Given the reference to the objective of the Convention and the role that climate change mitigation itself plays in sustainable development, any assessment of the CDM’s contribution must also recognize the wider role projects and the mechanism itself can play as catalysts for sustainable development of host States.6 CDM’s contribution to sustainable development was subject to considerable debate during the negotiations of the Kyoto Protocol and the Marrakesh Accords. In particular, host countries were concerned about their sovereignty and largely unwilling to accept externally determined sustainable development priorities imposed on them.7 This led to only marginal references to

5 6



7

For examples in Ecuador, Mexico, Colombia, see C. Figueres, 2006, Sectoral CDM. See M. Kenber, ‘The Clean Development Mechanism: a Tool for Promoting long-term Climate Protection and Sustainable Development?’ in Yamin (ed.) 2005, 265. See also C. Sutter, Sustainability Check-Up for CDM Projects – How to Assess the Sustainability of International Projects under the Kyoto Protocol, 2003, Berlin, WVB; and French, 2005a, 273. C. Figueres, ‘Sectoral CDM: Opening the CDM to the yet Unrealized Goal of Sustainable Development’, 2006, International Journal of Sustainable Development Law and Policy, draft, 2.

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sustainable development in the Marrakesh Accords, which do not define what is meant by ‘sustainable development’. Rather, under the climate regime it remains the host country’s sovereign prerogative to determine whether a particular CDM project helps it achieve this goal.8 A project is (in the absence of any alternative) considered to contribute to sustainable development if it is congruent with existing national (development) policies.9 This ‘subjective’ approach to sustainable development translates into curtailing and challenging the potential of the CDM. Designing the CDM and meeting CDM project eligibility requirements present significant challenges because host countries have different economic conditions, natural resources and development priorities. Thus, they have different perceptions about what is required to achieve sustainable development. Selecting sustainable development criteria and assessing the sustainable development impact can therefore differ significantly from one host country to another. In spite of several ideas about indicators of sustainable development,10 which provide some guidance on what should be taken into account, ultimately it remains the host country’s sovereign decision to ascertain whether a CDM project activity promotes its sustainable development targets.11 The Designated National Authorities (DNAs) in developing countries are therefore tasked with issuing a Letter of Approval attesting to the project’s contribution to their countries’ sustainable development.12 A CDM project can only be registered if such affirmation is provided to the CDM Executive Board.



8 9

10





11

12



UNEP, Legal Issues Guidebook to the Clean Development Mechanism, 2004, 49. See C. Figueres, Institutional Capacity to Integrate Economic Development and Climate Change Considerations: An Assessment of DNA’s in Latin America and the Caribbean, InterAmerican Development Bank, 2004. See, for example, S. Thorne and E. Larovere, Criteria and Indicators for Appraising Clean Development Mechanism (CDM) Projects, 1999, Paris, Helio International; SouthSouthNorth Network; WWF The Gold Standard: Quality Standards for CDM and JI Projects, Final Draft for Consultation and Draft Technical Appendices, 2002; UNEP CDM Information and Guidebook, 2nd edition, 2004, 16–28 (“Examples of major sustainability indicators that can be used in relation to CDM projects”). The rationale behind this requirement is that the host State is free to explore the main linkages between the CDM projects and impacts on social, environmental and economic dimension of their national policies. Thus, host countries can select CDM projects that bring about the largest developmental benefits. 17/CP.17, FCCC/CP/2001/13/Add.2 Modalities and Procedures for a Clean development Mechanism as defined in Art 12 of the Kyoto Protocol (Marrakesh), see also Decision 17/ CP.7, Annex, paragraph 40(a).



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While there is, without doubt, a strong potential for synergies between addressing environmental problems and advancing social goals,13 there is also the danger that requiring congruency with existing national development policies may not in fact lead to change of benefit to sustainable development as defined above since most existing sectoral and national policies lead to increasing GHG emissions.14 The congruency requirement is thus not a high threshold in terms of sustainable development.15 a) Which Path to Follow? From the point of sustainable development, a low energy path would be the optimal way.16 However, most development paths are likely to lead to increasing energy demands and depend on the availability of energy resources to meet these demands. It is unrealistic to assume that developing countries, or even developed countries for that matter, will in the near future change to development strategies that are based on constant or declining levels of energy consumption. Energy is fundamental to advancing the economic and social dimensions of sustainable development.17 But sustainable development

13



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16 17

See, for example, UNEP’s suggested range of co-benefits, such as reduction in air and water pollution through reduced fossil fuel use, extended water availability, reduced soil erosion and protected biodiversity, creation of employment opportunities in target regions or income groups, promotion of local energy self-sufficiency, CDM Information and Guidebook, 2nd edition, 2004, 15. For a positive example see Costa Rica’s national definition: ‘CDM projects should be compatible with and supportive of Costa Rica’s national environmental and developmental priorities and strategies, including biodiversity conservation, reforestation and forest preservation, sustainable land use, watershed protection, air and water pollution reduction, reduction of fossil fuel consumption, increased utilization of renewable resources and enhanced energy efficiency. Projects should enhance the income opportunities and quality of life for rural people, transfer technological knowhow, and minimize adverse consequences’, quoted in C. Kelly and N. Helme, Ensuring CDM Project Compatibility with Sustainable Development Goals, Center for Clean Air Policy, Washington, D.C., 2000. See C. Figueres, ‘Sectoral CDM: Opening the CDM to the yet Unrealized Goal of Sustainable Development’, 2006, International Journal of Sustainable Development Law and Policy, draft, 2. Kenber, for example, notes that in practice it is unlikely that projects will be made subject to stringent approval criteria as governments, especially countries short of foreign investment, will be reluctant to risk losing inflow of funds and the opportunity to build a portfolio of projects. Kenber, 2005, 266. WCED, 1987, 201. OECD Contribution to the United Nations Commission on Sustainable Development (CSD 14) On the Themes of Climate Change, Energy and Industry, OECD SecretaryGeneral, 2006, 9.

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requires that, different from the scenario outlined in Figure 1, meeting increasing energy demand must not go along with increasing CO2 emissions. Figure 1: Energy-related CO2 emissions in million metric tonnes18 20 000 16 000 12 000

OECD Developing countries

8 000 4 000 0 1970

Transition economies 1980

1990

2000

2010

2020

2030

The WCED noted that it is essential that demands are met by energy sources that are dependable, safe, and environmentally sound.19 In particular, the latter – but arguably all three criteria for such ’sustainable energy supply’ – require decoupling of energy supply from increasing greenhouse gas emissions. Achieving sustainable development in developing (and developed) countries, thus, depends on more efficient energy use, reduction of energy consumption and, importantly, the decarbonisation of their economies.20 The question is whether developing countries should be accorded a privileged position when considering their sustainable development paths. The WCED, in promoting the transition to a sustainable energy era, suggested that traditional fossil fuel use should be accepted in developing countries in order to realize their growth potential, while developed countries should seek to limit their uses of fossil fuels.21 This recommendation is problematic. Sustainable development does not require increased fossil fuel consumption in devel 20 21 18 19

World Energy Outlook (IEA 2005). Ibid., 168. Figueres, 2006. WCED, 1987, 201.



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oping countries. What it requires are equal development opportunities. These, however, depend on the availability of energy resources in general, not only fossil fuels. To grant developing countries a preferential ‘right’ to use fossil fuels would also burden them with an obligation to reduce emissions. Rather, sustainable development requires avoiding such a burden from the outset. Sustainable development of developing countries means to enable them to achieve higher levels of (economic) development with much reduced levels of greenhouse gas emissions and environmental damage. Emulating the negative example of industrialized nations is not sustainable. Energy security cannot be achieved without recognition of the environmental consequences of energy consumption, ‘especially our currently overwhelming and deeply entrenched reliance on fossil fuels’. This inconvenient truth has clearly been addressed by former UN Secretary Kofi Annan.22 He said ‘the need to increase energy supplies in order to fight poverty could entail a vicious circle’ but added that ‘this does not need to happen, because energy supplies do not depend on fossil fuels only’.23 In order to move toward sustainable development, also developing countries must decrease the carbon intensity of their economic development through renewable energy systems, enhanced energy efficiency, and introduction of clean technologies, with the financial and technological assistance of industrialized countries. With respect to developing countries, the purpose of the CDM can thus be understood as assisting them in the transformation of their economies. Thus, the CDM is a crucially important global financial vehicle to catalyze national transitions toward sustainable development in host countries by increasing ‘green investment’ flows into energy supplies, transportation and other industrial sectors.24 In this sense it is evident, as the head of the UN Climate Change Secretariat stated, ‘that the Kyoto Protocol is making a significant contribution towards sustainable development of developing countries’.25 b) Safeguards It requires, however, that the goal of sustainable development is clearly defined and seriously and actively pursued through the CDM. Ensuring the

22



23 24



25

UN Press release ‘Annan stresses energy security and its environmental consequences ahead of G-8 Summit’, 10.07.2006. Ibid. See D. Esty and B. Gentry, ‘Foreign Investment, Globalization and Environment’, in Globalization and Environment, 1997. UNFCCC Secretariat, Press Release, 9 June 2006.

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integrity of the CDM – also with regard to the sustainable development paths of host countries – demands strong safeguards. While an ‘impressive set of safeguards’ already exists providing clear and consistent standards for the environmental performance of CDM projects,26 no such safeguards exist for ensuring sustainable development. Despite the above proposed relatively straight-forward definition of sustainable development in a climate context, i.e. where economic growth is decoupled from GHG emission growth, the climate regime has yet to embrace this understanding. To meet the requirements of ‘sustainability, a CDM project with adverse trade ramifications will need to demonstrate an ability to overcome the still existing obstacles and shortcomings of the Kyoto system. The legal review of CDM projects, whether it takes place under the compliance system of the Kyoto Protocol,27 an international tribunal28 or the WTO Dispute System, will supposedly establish a definition of sustainable development requirements under the CDM. But it is important that climate law and practice construe a coherent understanding of sustainable development. While searching for the conceptualization and definition of sustainable development as an external tributary into international climate, the converse normative flow might be at least as valid and probable, and perhaps more significant in the long run.29 The trade regime could, thus, help discipline and mature the climate regime. If support to the goal of sustainable development is a requirement for ‘surviving’ trade law conflicts, there, apparently, is a good reason for progressing work on safeguards for sustainable development within the climate regime before they are determined elsewhere. Article 12.5(b) of the Kyoto Protocol calls for long-term benefits related to the mitigation of climate change. The contribution of a CDM project to sustainable development should consequently encompass a wider variety of emissions and non-emissions related issues. This requirement relates to the key finding made above in Part I, chapter 2 where we concluded that the overall goal of the climate regime is not only the stabilization and reduction of green26



27



28



29



These are primarily the CDM procedures and modalities on additionality, baselines and leakage. See Meijer, and Werksman, 2005, 191. See, for an overview, Wang and Wiser, 2002, 181–98. The text of the Kyoto Compliance System is contained in the Annex to Decision 24/CP.7, FCCC/CP/2001/13/Add.3. See D. Ratliff, ‘Arbitration in “Flexible/Mechanism” Contracts’ in Freestone and Streck (eds.) 2005, 377 et.seq. Similarly Broude, 2006, 26, who notes in the context of WTO law, that WTO law and practice of sustainable development as a principle of integration gives evidence of State practice and of a legal obligation, thereby contributing to the establishment of the principle as a general principle or even customary law.



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house gases and the enhancement of emission sinks, but that it encompasses the broader purpose of sustainable development. Its global nature, economic focus and the elements of distributive justice make it clear that the climate regime is an important attempt to integrate global environmental concerns into a wider set of considerations.30 The reality of CDM projects has so far been quite different.31 As has been noted, the primary focus of almost all proposed and approved projects to date has been on maximizing the generation of CERs instead of being sustainable development projects.32 Three contentious issues in this respect relate to carbon dioxide capture and storage (CCS), HFC 23 projects and forest conservation.33 First, the consideration of including CCS projects that aim at capturing CO2 emissions from industrial sources and subsequently store the gas underground or in the sub-seabed of the oceans, into the scope of CDM rises not only complicated technological questions with regard to ensuring permanence and monitoring and legal question as to whether the injection of CO2 in geological formations should count as a non-emission, emission reduction or carbon sequestration.34 It also raises more fundamental points as to the contribution to sustainable development of such projects. Criticism addresses the fact that this kind of technological advance channels substantial research and development into end-of-pipe technological fixes without contributing to long-term benefits to low-carbon intensive technological development. In fact, it might actually delay the transition from fossil fuels to more sustainable energy systems.35 So far, no final decision has been taken and the MOP1 requested the Secretariat to organize a workshop on this issue which shall enable the EB to prepare



30



31

34 32 33



35

See French, 2005a, 275. French states: ‘The adoption of the Climate Convention and subsequent developments is a real attempt by the international community to try to move beyond compartmentalization and take a much more holistic approach to an issue, as is, in any event, mandated by sustainable development.’, 275. Projects have been concentrating in a few countries only and project types that are most likely to contribute to host country sustainable development, such as renewable energy, energy efficiency and transport projects are not competitive in the CDM Market and are in danger of becoming marginalized. See W. Sterk, B. Wittneben, Addressing Opportunities and Challenges of a Sectoral Approach to the Clean Development Mechanism, Wuppertal: Wuppertal Institute for Climate, Environment, and Energy, JIKO Policy Paper 1/2005. See Figueres, 2006, 5 and 7; and Kenber, 2005, 268. See Wittneben et al, 2006, 13–14, 19. See for an overview of this kind of technology: IPCC, Carbon Dioxide Capture and Storage, Summary for Policymakers and Technical Summary, 2005. Ibid., 14.

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recommendations on how to approve CCS projects.36 It is therefore timely and necessary to place a wider assessment of CCS and sustainable development on the research agendas. Second, another challenge to the promotion of sustainable development, i.e. long-term climate benefits, by the CDM concerns the proposed inclusion of HFC-23 projects. HFC-23, a greenhouse gas listed in Annex A of the KP is a by-product in the production of Hydrochloroflorocarbons (HCFC-22), an ozone-depleting gas regulated under the Montreal Protocol. Incineration of HFC-23 at existing production sites is already accepted and practiced as CDM, generating low cost CERs (c. 0,50 US$ per tCO2 equiv.). Expanding the scope of CDM projects to new incinerations sites could create the perverse incentive to increase the production of HCFC-22 to generate larger amounts of HFC-23. The contribution to sustainable development is further undermined by the fact that HFC-23 projects provide no technology transfer to developing countries and the low costs CERs from these projects could actually lead to outpacing other high-quality projects. Again, no final decision has been taken in this issue and the Subsidiary Body for Scientific and Technological Advice (SBSTA) was asked by the MOP1 for further elaborations.37 Also here it is recommended that the discussions around this issue seriously consider sustainable development impacts of the extension of such projects. Third, one of the major omissions of the current design of the climate regime, however, is the issue of reducing emissions from deforestation in developing countries and accounting forest conservation activities. A proposal by Papua New Guinea and Costa Rica submitted to COP11/MOP1 in 2005 seeks to include forest conservation activities under the CDM or, alternatively, suggests elaborating an optional Protocol to the Climate Convention. The COP decided to submit the issue for further deliberations to the SBSTA.38 Forest conservation, avoided deforestation and accounting for both will thus be dealt with as part of the post-2012 package. Still, the inclusion of forest conservation projects could bring about the win-win situation envisaged by sustainable development, where economic value is attached to the protection of ecological assets. For developing countries, CDM benefits from ‘avoided deforestation’ could bring about social, economic improvements (via the transfer of environmentally sound technologies – in this case not directly linked to the project) as well as wider environmental benefits (biodiversity protection).39 38 39 36 37

FCCC/KP/CMP/2005/L.1. FCCC/SBSTA/2005/L.27/Add.1. FCCC/CP/2005/L.2. See for a further discussion of protecting forested areas and the CDM: C.M. Pontecorvo, ‘Interdependence between Global Environmental Regimes: The Kyoto Protocol on



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If sustainable development is to be seriously pursued, CDM projects will need to provide those ‘long-term benefits’ required by Article 12.5 of the Kyoto Protocol beyond more immediate impacts. However, those immediate benefits are equally necessary. No long-term benefits can be attributed to the CDM if is does not lead to real, measurable and additional emission reductions.40 The benefits generated by CDM projects may lessen reliance on carbonintensive development. An analysis of sustainable development benefits accruing from CDM projects has identified the following advantageous impacts: direct financial incentives for proving the competitiveness of new technologies for energy reduction, renewable energy generation and increase of energy efficiency (sustainable energy technologies); development of supporting policy initiatives; increased understanding and acceptance of the importance and application of sustainable energy technologies; dissemination of best-practice techniques; strengthening of local institutional, financial and technological capacity; increased (sustainable) foreign investment; and increased access to sustainable energy services.41 Arguably, the most sophisticated analytical methodology for identifying sustainable CDM projects is the proposed Gold Standard, though other approaches exist.42 The Gold Standard aims to ensure that CDM projects deliver real, additional emissions reductions and a clear contribution to sustainable development. The criteria established are divided into three screens: the project type; additionality and baselines; and sustainable development. In particular, regarding the latter, the Gold Standard sets up sustainability matrix, in addition to an environmental impact assessment and stakeholder consultation. The matrix aims at assessing a project’s contribution to sustainable development based on its environmental social and economic impacts.43 The key variables

42 43 40 41

Climate Change and Forest Protection’ (1999) 59:3 ZaöRV 709–749; D.M. Goldberg, Carbon Conservation: Climate Change, Forests and the Clean Development Mechanism (Washington D.C.: Center for International Environmental Law, 1998). Art 12.5(b) Kyoto Protocol. Kenber, 2005, 268. Ibid., also see: . The list on key indicators for the sustainability performance of a project: Local/regional/ global environment (Water quality and quantity, Air quality (emissions other than GHGs), Other pollutants: (including, where relevant, toxicity, radioactivity, POPs, stratospheric ozone layer depleting gases), Soil condition (quality and quantity), Biodiversity (species and habitat conservation) Social sustainability and development (Employment (including job quality, fulfilment of labour standards), Livelihood of the poor (including poverty alleviation, distributional equity, and access to essential services), Access to energy services, Human and institutional capacity (including empowerment, education, involvement, gender) Economic and technological development (Employment (numbers), Balance of payments (sustainability), Technological self reliance (including project replicability,

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are assessed on the basis of on site measurement, existing data and stakeholder consultation and can score negative or positive. If the overall contribution is positive and non-negative in all key components, a project is considered as contributing to sustainable development. While the Gold Standard, certainly, is laudable, its success will, of course, depend on its acceptance by project developers, host, buyer and investor countries and, not least, by the multilateral climate regime, in particular by the Executive Board. What it so far acquired, is a closer and more specific understanding of sustainable development. The Gold Standard, together with other approaches to identifying ‘sustainable’ CDM projects,44 helps to clarify the substance of sustainable development in the particular context of CDM projects, but also beyond this mechanism. The identified criteria and components – if they are accepted and used to guide further project development – would reflect the understanding of the international community, both ‘North’ and ‘South’, on sustainable development. This understanding could be decisive if compliance with WTO norms were at stake. 17.1.4 Proportionality In order to assess the proportionality between the purpose of the CDM and its possible negative effects on international trade, the relationship between the exclusion of non-member participants and the sustainability of the CDM as a climate measure needs to be examined. Having discussed the general relationship between the CDM as a climate mitigation measure and sustainable development, we move on to the participation requirements in the CDM and whether the exclusion of non-Kyoto participants is related to and proportionate to ensuring the environmental integrity of the CDM. CDM is intended to provide to Annex I Parties a cost-effective means to reduce greenhouse gas emissions on a global level. Reducing economic impacts is yet another aspect of sustainable development. Annex I parties are enabled to meeting their targets by investing in emissions reduction projects in developing countries. By introducing the CDM, economic interests of Annex I Parties were integrated into the structure of climate change mitigation under the Kyoto Protocol. States that have committed themselves to concrete

44



hard currency liability, skills development, institutional capacity, technology transfer). See: . Helio International’s Criteria; SouthSouthNorth Network’s work on projects in Brazil, South Africa, Indonesia and Bangladesh; Sutter, Sustainability Check-Up.



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obligations to reduce their greenhouse gas emissions receive support to shoulder the economic burden of these obligations. This point would be partly – if not completely – lost if States that are not Members to the Kyoto Protocol were allowed to participate in the CDM. Emissions reductions achieved by non-Party CDM projects will not offset rising emission in the territories of these States. Instead, when sold on the global carbon market, the overall volume of tradable units for Annex I Parties would rise, thus rendering their reduction obligations less ambitious. Furthermore, due to the recent growth in the CDM market additional investments from nonParties – if they were allowed – could eventually saturate the market, thus diminishing the potential for CDM projects from Annex I Parties. Article 12 of the Kyoto Protocol provides that CER’s accruing from CDM projects shall be used to contribute to compliance with part of quantified emission reduction or limitation commitments of Annex I Parties under the Protocol and not for commercial interests and speculative trading only. In order to protect environmental integrity, i.e., the ability to contribute to the ultimate objective of the Convention, CDM participation and the use, acquisition and transfer of CERs are limited to Annex I Parties to the Kyoto Protocol. CERs, the new legal right created by the CDM, are created for use by Parties to the Kyoto Protocol.45 The restriction of effective State participation follows from the Kyoto Protocol in combination with the Marrakesh Accords.46 A non-Party company wishing to participate in the CDM needs to become a ‘project participant’. A Party to the Kyoto Protocol may thus give private entities permission to participate in the CDM. However, any Kyoto Party that authorizes CDM participation of private or public entities remains bound to its obligations under the Kyoto Protocol. Authorized private entities thus rely on the continued compliance of the Party.47 If the Kyoto Party is not in compliance, all foreign authorized and domestic entities will also lose their eligibility to participate. Moreover, if domestic policies of Kyoto Parties exclude the authorization of non-Party entities, they would generally be excluded from CDM participation. The proportionality of such measure depends on the circumstances of the actual case. What is clear, however, is that Annex I Parties need to establish

45 46



47

See the examination in Part 2, chapter 5.5. FCCC/CP/2001/13/Add.2, Annex, para. 31 and para. 2. See the more detailed discussion on participation in CDM above in Part II. Private entity participation includes entities from Annex I Member States. (Art. 12.9) Entities from non-Parties can be excluded only if they have been authorized by a Party or the non-Party gives its consent to be bound by the Kyoto Protocol. (Vienna Convention on the Law of Treaties, Arts. 34 and 35). See Wilder, 2005a, 253.

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national emissions trading registries, where national companies are able to hold their accounts for buying and selling CERs.48 If entities from non-Parties were authorized to participate in the CDM, it would amount to giving these companies a ‘free ride’ vis-à-vis domestic companies faced with the cost of compliance with national emission levels.49 Accordingly, Annex I Parties may therefore not only have a legitimate interest in excluding non-Party companies from CDM participation,50 such exclusion could also be required by sustainable development. Sustainable development mandates the appeasement of economic burdens arising from measures that promote an environmental objective. The alleviation of economic costs is therefore contingent upon the implementation of the environmental measure – and should not be granted for its own sake, i.e. for the pursuit of merely economic or speculative interests. In other words, those who are not implementing an environmental, e.g. climate, measure and internalizing its costs, cannot claim a share of its economic advantages, let alone to profit from them. Moreover, the comparative disadvantage of Annex I Kyoto Parties derives from the internalization of costs of climate mitigation. Therefore, proportionality eventually relates to balancing their interest in protecting their economic sectors covered by reduction obligations against the economic interest of non-Parties in having free access to a market and profit from the flexible mechanisms without incurring the costs of binding obligations to reduce their emissions; a market which was created for other purposes and participants. Given that Annex I Parties have to incur the costs of complying with their climate obligations in the first place, exclusion of entities from those States that are not willing to commit to a binding emissions reduction target appears proportionate. In the context of the CDM, ensuring the environmental integrity of the CDM – and the climate regime per se, by avoiding the inflation of the overall emission cap – provides further ground for excluding non-Parties and entities. In cases where the exclusion of non-Party entities is motivated by a need to protect the environmental integrity of the CDM, it must be considered proportionate to the harm it causes.

48 49 50



Marrakesh Accords, FCCC/CP/2001/13/Add.2, Modalities and Procedures for a CDM. See, for example, New Economic Foundation, Free Riding on Climate, 2003, ; also Bodansky, 2003. See, for example, European Union, cited in Bodansky, 2003; Government of New Zealand, National Interest Analysis: Kyoto Protocol to the UN Framework Convention on Climate Change, available at: . Similarly, a consortium of environmental groups strongly discouraged the participation of non-party entities, see: .



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17.1.5 Procedural Requirements As procedural safeguards of direct contribution of CDM projects to sustainable development in developing countries, more specific requirements on sustainable impact assessment, public consultation and participation and benefit sharing51 have yet to be included in the CDM regime.52 a) Impact Assessment As with the response to sustainable development indicators, the idea of a mandatory environmental and sustainable impact assessment for all CDM projects was seen as an infringement of the sovereignty of potential host States. As a result the final language of the agreement is weak, requiring nothing more than an ‘analysis of environmental impacts only if the host country makes it mandatory for the project to be approved’.53 The CDM Modalities and Procedures do not provide for the situation that the host country does not have any laws on environmental impact assessment. If stakeholders have concerns about the local environment or social impact of a CDM project, it should be evaluated under the highest international environmental and social assessment procedures and standards.54 However, the more stringent the rules on environmental and sustainable impact assessment are, the more costly might CDM projects become. Since a host country benefits from a CDM project, the absence of harmonized international rules may create an incentive for the host country to refrain from insisting on a thorough impact assessment, in order to make its own market attractive for CDM projects. ‘The CDM’s geographical flexibility,’ warn Meijer



51



52



53 54

See discussion infra, part II. The most straight-forward component of benefit-sharing is the 2% levy on CDM projects investor countries must pay into a ‘Clean Development Fund, to cover administrative expenses and help particularly vulnerable developing countries adapt. Art. 12.8 KP; Decision 15/CP.7, paragraph 15 (Marrakesh Accords). The Decisions Related to Clean Development Mechanism (CDM) adopted by COP/MOP (Dec. 2/CMP.1 to 7/CMP.1) (‘Kyoto Rule Book 2005’) contain no specification on sustainable developments indicators or requirements. Annex, Decision 17/CP.7, paragraph 37(c) and Appendix B, Art. 2(e). UNEP, CDM Information and Guidebook, 2nd edition. 2004, 61–2. However, the identification of international standards provides additional challenges. It has been suggested that existing international or regional standards, such as the Convention on Environmental Impact Assessment in a Transboundary Context (30 ILM 802; Espoo, 28 February 1991) or the World Bank’s operational procedures on environmental assessment (World Bank Operational Policy/Bank Procedures 4.01) could be useful in this context. See Meijer and Werksman, 2005, 210.

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and Werksman, ‘should not become a means of channelling projects to host countries with the lowest environmental standard.’55 Internationally harmonized rules on impact assessment of a CDM project would counter such a perverse incentive. In order for a CDM project to pass a ‘sustainability test’, they might, indeed, be necessary. Still, such a test would evaluate the circumstances of a particular CDM project. In this case, it needs to be shown that the environmental and sustainable impacts were thoroughly assessed. b) Public Participation Involvement of stakeholders, defined as ‘the public, including individuals, groups or communities affected or likely to be affected’ by the CDM project,56 gives an opportunity to a wider circle to comment on CDM projects at various stages of the project cycle. The modalities of the CDM require certain types of information to be made public. There are benefits that could arise from public participation as regards sustainable development. Local communities and NGOs could influence project design; their knowledge of local conditions might be of particular value, making it easier for project developers to recognize community needs and gain public support, avoid delays, financial risks, local unrest or legal action. So far, stakeholder involvement requirements are only of procedural character. Comments from the public must be invited and compiled and form an official input as part of the validation and registration process of a project. The concerns of stakeholders are, however, not required to be substantially reflected in the project development.57 Again, these restrictions on direct public involvement resulted from the unwillingness of countries with different approaches to public participation to agree on harmonized standards.58 However, the requirements of sustainable development may demand a stronger commitment to stricter and harmonized standards for and more direct influence of public involvement.59 The reference to international standards for public participation would prevent a ‘race to the bottom’ toward countries with low or no regulation on public involvement. 57 55 56

58 59



Meijer and Werksman, 2005, 210. Decision 16/CP.7, Annex, paragraph 1(e) and Decision 17/CP.7, Annex, paragraph 1(e). Stakeholders, in particular NGOs, have a kind of ‘watchdog’ function. See, for example, the information made accessible by CDM Watch: . Kenber, 2005, 267. Reference could be made, for example, to the UN/ECE Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters (38 ILM 517, Aarhus, 25 June 1998).



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17.1.6 In Sum Despite the fact that it is the stated goal of the CDM to assist non-Annex I countries to achieve sustainable development, the present regulatory framework remains somewhat rudimentary in identifying and standardizing essential substantial and procedural requirements for meeting this goal. Yet, confrontation with international trade rules may demand a much stronger institutional guarantee for the CDM’s direct contribution to sustainable development. The rather pragmatic and fragmented approach taken so far to ensure the CDM’s environmental and sustainable integrity will need to be replaced by a stronger, harmonized regulatory framework. In a trade conflict, where the principle of sustainable development can be applied as a conflict tool, it will have to be proven that the CDM as a climate measure is systematically promoting sustainable development. This should not depend on a ‘hit and miss’ basis of every single project. In those cases, where the promotion by a CDM project of sustainable development – in both its narrower and wider understanding – can be shown, its violation of trade norms can be justified. 17.2 Emissions Trading When assessing a possible trade-discriminative effect of emissions trading under the ‘sustainability test’, the main question is whether emissions trading – as a tool to implement mitigation obligations – promotes sustainable development. According to Article 17 of the Kyoto Protocol and subject to the modalities agreed in the Marrakesh Accords, Annex I countries may trade or transfer assigned amount units and other Kyoto units between themselves and acquire these units in order to fulfil their commitments under Article 3.1 of the Kyoto Protocol. The purpose of emissions trading is to provide a flexible and costeffective means to achieve a pre-set environmental constraint. An emissions trading scheme has been recognized as the most cost-effective and efficient market-based measure to attain emissions reductions. It is, however, important to keep in mind that emissions trading as such does not reduce greenhouse gas emissions. Still, the integration of achieving an environmental goal – the absolute emissions cap – and economic considerations make obvious the adherence to sustainable development in the context of emissions trading. As discussed in Part II, tensions could theoretically arise to GATT if the holding of Kyoto units were a requirement for import, sale or distribution of energy products and services in Annex I Kyoto States to offset emissions

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during the production process60 or where the trade in emission units is considered to fall within the purview of GATT. We identified in Part II two possibilities to allow the import of electricity from non-Kyoto Member States: first, the importer is obliged – and permitted – to purchase allowances on the emissions trading market or, second, in case the exporting non-Kyoto State has established a mandatory greenhouse gas emissions trading scheme capping absolute emissions, the tradable rights under this scheme are recognized in the importing State.61 Both possibilities either require agreements between the importing and exporting State or an extension of the existing emissions trading scheme envisaged under the Kyoto Protocol. Either alternative entails several challenges. In the first scenario, the obligation to purchase emission units could lead to a reduction in market liquidity in these rights. Such strain on the emissions trading market could have the effect of fewer allowances being available for domestic entities, thereby reducing their ability to make use of cost-effective means to fulfil their commitments. Moreover, the requirement of emission allowances for import will amount to a trade barrier where importers are obliged – and authorized – to purchase allowances but purchasing of allowances is not easy due to, i.e., lack of liquidity.62 The second possibility requires that exporting States have in place an absolute emission cap, the likelihood of which is still rather minimal in nonKyoto Member States. Yet, if such cap were implemented, it would have to be examined whether emission units under that system can be recognized under the Kyoto-based emissions trading system as a ‘reasonably available alternative’ to exclusively recognizing AAUs, CERs and ERUs. Here, problems arise regarding monitoring, reporting of emissions and accreditation and verification of emission units from non-Kyoto States. In order to recognize ‘outside’ 60



61



62



See also: W. Spieth, Europäischer Emissionshandel und deutsches Industrieanlagenrecht (Berlin, 2002) 63 et seq. Spieth argues that this could affect treaties of the EC with thirdparty States regarding mutual recognition of emission allowances. This possibility is envisaged under the EU ETS Linking Directive (2004/101/EC): Following entry into force of the Kyoto, the Commission should examine whether it could be possible to conclude agreements with countries listed in Annex B to the Protocol which have yet to ratify the Protocol, to provide for the recognition of allowances between the Community scheme and mandatory greenhouse gas emissions trading schemes capping absolute emissions established within those countries (para. 18). De Cendra, 2005, 34. A similar situation arises where instead of emission allowances a border tax adjustment (BTA) with a tax equalling the price of allowances is imposed on imported products to offset competitive disadvantages of those firms or industries covered by the emissions trading scheme. In this case, however, no absolute trade barrier arises.



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rights, the emissions systems would need to be compatible, meaning that they need to be harmonized and streamlined. By the end of the day, it means that the non-Kyoto Party were required to implement a similar regulatory scheme as envisaged under the Kyoto Mechanisms. Such requirement, despite its stringency, might however be necessary to ensure the environmental effectiveness of emissions trading under the Kyoto Protocol. The effect such requirements could have is to submit non-Kyoto Parties under a similar emissions cap as implemented under the Kyoto Protocol, thereby expanding the actual scope of the scheme despite missing ratification and avoiding the problem of ‘free riding’ and competitive advantages of certain emissions intensive industrial sectors of non-Kyoto States. 17.2.1 Identification of Affected Interests The scope of interests affected by emissions trading is certainly much wider than merely the interests put forward by the two parties of a dispute. Account has to be made of the interest of the global community in moving toward climate stability, the interest of the group of Kyoto Parties in the environmental integrity of the climate regime, i.e., the ability of the system to reduce greenhouse gas emissions, the interests of those Parties in maintaining carbonconstrained, but competitive domestic industries, the interests of citizens and consumers in the correction of market failures by internalizing ‘climate costs’, alongside interests in non-discriminatory treatment and trade liberalization. 17.2.2 Strength of the Protected Interest At least, two kinds of interests in trade-restrictive components of emissions trading can be discerned: interests in the protection of competitiveness of domestic industries and in securing the environmental integrity of climate regulation against carbon leakage. First, the requirement of Kyoto units for the import, sale and distribution of energy products or services is motivated by the wish to create a ‘level playing field’ for producers and service providers with regard to the internalization of costs accruing out of compliance with the obligations under the KP. This requirement aims at protecting economic interests of domestic industries by offsetting the competitive disadvantage of having to internalize the costs of emissions reductions in comparison with businesses based in non-abating States (non-Parties), which are under no obligation to internalize the costs of meeting Protocol targets.

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Furthermore, the inclusion (in the scope of the measure) of greenhouse gas emissions that have occurred elsewhere by manufacturers of products which are consumed domestically is based on the interest of Kyoto Parties in the environmental effectiveness of the climate regime. The ‘climate impact’ of products is properly mirrored in the price of a product when all, including external – here extraterritorial – greenhouse gas emissions are accounted for. Second, excluding non-Parties and respective private entities from the international emissions trading market could be viewed as a means of securing the environmental integrity of the emissions trading system. The most important requirement of such integrity is the existence of a strong cap on emissions. This cap would be watered down, were emission credits from non-capped States allowed to enter the carbon market. Any inflation of the cap would jeopardise the environmental integrity of the emissions trading market. All participants need to stay within this cap. Here, the administrative control of the trading system, and environmental safeguards, such as reporting and monitoring requirements etc. are of crucial importance. Accuracy of measurement and reporting by Annex I Parties are critical to the successful implementation of the Protocol’s target obligations.63 Administrative control of foreign entities might be more difficult, with less transparency creating an opportunity to circumvent these safeguards. The exclusion of non-Party entities is a means to prevent circumvention of these crucial administrative requirements. According to the principle of sustainable development, the strength of the interests in an effective climate mitigation system and in competitive domestic industries, on the one hand, need to be weighed against the strength of the interest in upholding a liberalized international trading system, on the other. Here, the inherent value hierarchy of the principle of sustainable development, which puts the protection of natural and ecological functions on a higher hierarchical level, comes into play and must eventually determine the outcome. 17.2.3 Sustainable Development in a Broader Context Affected interests extend to those of the wider society. The aim to reduce compliance costs by means of emissions trading would also ease the economic burdens that industries and citizens of Kyoto Parties including consumers of the affected products and services would otherwise have to bear. Emissions trading can thus be seen as a kind of ‘burden sharing’ where those with a 63



FCCC/CP/1998/MISC.7.



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commitment to a carbon constrained economy share the social and economic costs of that commitment. Creating cost-effective GHG emission reduction mechanisms by way of integrating economic considerations into the climate regime, as systematically done by emissions trading, provides a prime example of how to integrate environmental, social and economic interests in one measure. From the outset, emissions trading as such is not supposed to have any adverse environmental effects. Trading serves to reallocate existing assigned amount units (AAUs) among Annex I Parties, with the aggregate obligation of Annex I Parties remaining constant. The contribution of emissions trading to environmental protection is probably still the greater for having enabled Parties to adopt to more ambitious targets than otherwise would have been the case. The inclusion of emissions trading encouraged Parties to adopt the Protocol and enables them to cost-effective compliance with Article 3 commitments. Further, the commitment of industrialized countries to take the lead in climate mitigation would probably not have been made in the absence of economic instruments such as emissions trading. This has to be considered alongside the willingness of developing countries to consider mitigation measures which is contingent upon the proof of such lead. Emissions trading has come to be a – maybe the – central pillar of the mitigation strategy of Annex I Parties. It therefore has a direct bearing on the ability of these States to ‘take the lead’ – while indirectly affecting future commitments of developing countries. The minimization of economic – in particular competitive – advantages that would accrue to non-Parties as a result of not taking measures to abate climate change is therefore an aspect deeply interwoven with the success of the present and future international climate regime. The broader relationship between emissions trading and sustainable development includes aspects of proportionality, equity and the affect of interests other than purely economic ones. Emissions trading cannot be severed from the guiding principles of the Convention and the Kyoto Protocol. This means that efficiency should not come at the expense of equity or sustainability.64 Therefore, considerations of equity ought to lie at the heart of the emissions trading scheme. The assigned amounts in the Kyoto Protocol were negotiated so as to reflect enhanced developed countries’ responsibilities (in that they do not apply to developing countries) and equity (in that they are differentiated in light of various equitable considerations).65 As mentioned above, emissions trading only reallocates assigned amounts and does not change the overall

64 65

Cullet, 1999, 174. FCCC/CP/1998/MISC.7, 38.

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amount assigned to Annex I Parties. It will, thus, not alter the equitable balance between developed and developing countries that was established by the Kyoto Protocol. In order to ensure this balance, a number of safeguards need to be in place. Here lies a critical point of the assessment. For it to justify exclusion or discriminatory treatment of foreign products or services (either directly or indirectly), emissions trading needs to prove that it is more than just a costeffective means of meeting the Kyoto targets. In terms of sustainable development, emissions trading also needs to prove its environmental integrity and effectiveness. In other words, it needs to contribute to climate strategies that seek to ensure long-term climate benefits. Environmental integrity concerns exist because, unlike domestic trading schemes which rely on domestic regulation, including high penalties and strict enforcement to deter non-compliance, the international monitoring, tracking and verifying GHG emissions is far more complex. On this note, Yamin and Depledge express concern because accurate and timely self-reporting by governments in the absence of an international authority enforcing compliance does not have a good track record. Because under the Convention many Annex I Parties had failed to keep pace with their reporting commitments, these considerations fuelled concerns that trading mechanisms that required governments to keep tabs on thousands of emission sources would prove too taxing for many governments and might give rise to fraudulent transactions. Additionally, the lack of stringent Kyoto targets for a number of EITs, such as the Russian Federation and Ukraine, gave rise to concerns that such countries might sell their surplus allowances. Such surplus allowances, which bore no relation to climate mitigation policies, were known as ‘hot air’ or ‘paper tonnes’, and could be used by richer buyer countries to avoid making politically unpopular domestic reductions.66

Therefore, the constituents of environmental integrity need to be ensured. Some safeguards were incorporated in the design of the international carbon market based on the Kyoto Protocol’s flexible mechanisms to ensure consistent standards of environmental integrity. These environmental safeguards, however, where they exist, are still rudimentary at best. Judging from their vulnerability to circumvention they constitute the ‘Achilles heel’ of ‘trade justification’. As long as legal safeguards are not implemented which can systematically guarantee environmental integrity of the trading scheme, it may be difficult to ward off a trade challenge. In the interest of a more robust

66



Yamin and Depledge, 2004, 140.



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defence against a claim of violation of WTO law, it is timely and necessary to develop and consolidate environmental safeguards for emissions trading. As elaborated above, a strong, long-term emissions cap is the crucial variable in determining the environmental integrity of emissions trading. But once the cap has been set, it is equally important that emissions actually remain below the set limit. Here monitoring, reporting, tracking, and verifying requirements play a significant role. Certain safeguards will also need to be in place to make sure emissions reductions primarily happen in the territories of States with reduction obligations (usually referred to as supplementarity) and to avoid surplus units that do not correspond to any emissions reductions or emissions reduction based on climate policies. Moreover, emissions trading needs to systematically provide incentives for technological change and the development of low-carbon societies. These three components, referred to as (a) supplementarity, (b) ‘hot air’, and (c) technological potential, will now be briefly explored before finally discussing the importance of accountability and liability of participants in an emissions trading scheme (d). a) Supplementarity Article 17 of the Kyoto Protocol requires governments to give precedence to domestic climate action.67 The Marrakesh Accords say that the ‘use of the mechanisms shall be supplemental to domestic actions and domestic action shall thus constitute a significant element of the effort made’ by each Annex I Party in meeting its obligation under Article 3.1. This supplementarity requirement has a direct connection with sustainable development. By requiring the priority of domestic action, it implicitly demands a de-carbonizing and restructuring of domestic industry. Reducing harmful emissions by, for example, promoting better means of public, collective transport, alternative energy sources and more energy efficient vehicles has the triple benefit of reducing local air pollution and thus creating better living conditions, creating new employment opportunities and mitigating climate change. This is an illustration of the fact that climate change cannot be tackled as an environmental problem only. However, the exact extent of supplementarity for the use of flexible mechanisms to domestic policies is not legally defined. The word ‘significant’, used in the Marrakesh Accords, does not carry any quantitative connotations and

67

“Any such trading shall be supplemental to domestic action for the purpose of meeting quantified emission limitation and reduction commitments under that Article.” Article 17(3).

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was chosen in preference to words such as ‘primary’ and ‘principal’, which did.68 While certain restrictions exist on the use of credits from land use and land use change (LULUCF) activities under CDM projects,69 emissions trading has not – as yet – been subject to such quantitative restraints. So far, the only aspect Annex I countries were able to agree on was procedural qualifications. To meet the supplementarity requirement, these countries have to submit information about their use of the mechanism and domestic action as part of the general information required by Article 7, to be reviewed by expert review teams according to Article 8. The reporting requirement of Article 3.2 of the Kyoto Protocol whereby Annex I Parties must report ‘demonstrable progress’, is also relevant for assessing supplementarity. Justifying the exclusion of foreign participation in emissions trading (or the requirement that foreign energy, energy- or carbon-intensive products may be accompanied by emissions allowances), would however require proof that the defending Annex I Kyoto Member has an effective domestic climate policy in place and that the use of the flexibility mechanism is an additional and supplemental means of reducing the cost of greenhouse gas emission measures. Emissions trading should not be the only means of implementing climate mitigation strategies, of course, and must not lead to postponing the implementation of other, maybe more effective, climate measures. Were a dispute to arise concerning the exclusion of a country from emissions trading, the legal situation would need to be explored from the perspective of sustainable development. Whether domestic action in the country implementing a trade-restrictive climate measure constitutes a significant element of the climate policy of that country would have to be considered in this context. It would therefore be sensible to set up a measurable, harmonized, multilaterally agreed rule on supplementarity, preferably with a clear quantitative constraint. As with the CDM, the ability of the present international regulatory framework for emissions trading to standardize substantial and procedural requirements for sustainability and supplementarity remains undeveloped. Yet, confrontation with international trade rules may also here demand a much stronger systematic guarantee of the direct contribution to sustainable development of emissions trading.

68 69



Yamin and Depledge, 2004, 145. The total additions to a Party’s assigned amount resulting from LULUCF activities under the CDM shall not exceed 1 per cent of base-year emissions of that Party, times five. Decision 11/CP.7, Annex, para. 14.



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b) Hot Air Another critical element of emissions trading is to ensure that tradable allowances reflect real, measurable and long-term emission reductions based on the implementation of a climate mitigation policy. ‘Hot air’ or surplus allowances bear no relation to such policies and – if they enter the carbon market – could undermine the credibility and environmental effectiveness of the climate regime. The issue of ‘hot air’ arises on two levels: first on the State level and second on the level of allocation of allowances to national entities. First, regarding State obligations, allowances vastly in excess of anticipated needs were agreed under the present climate regime for most Central and Eastern European States. Due to political and economic changes in these countries their targets exceed their projected emissions quite considerably. The challenge is to exclude such ‘paper allowances’ from being traded on the emissions trading market where other countries might purchase them to avoid politically unpopular domestic reductions.70 Hot air could easily compromise incentives to make emission reductions that otherwise would exist under a stronger cap. From a legal point of view, all AAUs are the same – whether ‘excess’ or ‘normal’ – and can be traded if the conditions for trading are met under Article 17 of the Kyoto Protocol. So far, public and NGO pressure on governments has been the only feasible channel open to discourage the trading of such AAUs.71 It might be time to let these considerations take their place in the legal framework and adopt some sort of mechanism to restrict trading to allowances directly related to domestic climate mitigation policies of the selling country. Second, with respect to allocation to national entities, the total quantity of allowances is decisive. Here, it is important to avoid allocating hot air (AAU) allowances – where they exist – to legal entities, e.g. industrial installations. The EU ETS, while not preventing the introduction of hot air into the scheme,72 does attempt to avoid the allocation of hot air to legal entities. Annex 3 to the Directive states:



70 71



72

Yamin and Depledge, 2004, 140. See Climate Action Network Europe (CAN-E) reaction to the EU – Emissions trading proposal: ‘Emissions trading in the EU: Let’s see some Targets!’, 20 December 2001, available on the internet at: . See: J. Anderson and R. Bradley, ‘Joint Implementation and Emissions Trading in CEE’ in Yamin (ed.) 2005, 223–224. They note that the introduction of hot air into the EU ETS through the allocation of allowances would allow the use of this free resource under the guise of what is seen as a ‘domestic policy’, 224.

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The total quantity of allowances to be allocated shall not be more than is likely to be needed for the strict application of the criteria of this Annex. Prior to 2008, the quantity shall be consistent with a path towards achieving or over-achieving each Member State’s target under Decision 2002/358/EC [Burden Sharing Agreement] and the Kyoto Protocol.

However, it is primarily up to the discretion of each Member State to set up a National Allocation Plan stating the total quantity of allowances and how they propose to allocate them, to be reviewed by the Commission. Annex 3 itself contains several provisions that could be used as an excuse for overallocation. These include, for example, accommodation of early action, taking into account technological potential (clean technologies and energy efficient technologies), treatment of new entrants, and unavoidable increases in emissions resulting from new legislative requirements.73 Providing an opportunity for early action is particularly vulnerable to open for the importation of hot air into the EU ETS. The decline in emissions in Central and Eastern European Countries was almost entirely in the industry sector, most of which is covered by the ETS. The significant decline (giving rise to hot air) could very well be seen as ‘early action’.74 Although these countries are not expected to exploit these opportunities to allocate hot air to their legal entities, no legal requirement exists to prevent such allocation. If arguments of environmental effectiveness and integrity are to justify the exclusion of non-Party entities in international emissions trading, preventing hot air from entering the carbon market must rely on more than the mere willingness of State participants. Rather, it is necessary that robust legal security measures are in place that aim at preventing the use of hot air allowances. Another form of ‘additional hot air’ could arise not from the ordinary allocation of hot air allowances to legal entities, but the over-allocation of allowances (even where they are not hot air). Too generous an allocation would compensate for the required emission reduction effort and create also here a disincentive to technological change. These concerns are related– but exist in addition – to the issue of subsidising a particular industry or installation elaborated in Part II. Over-allocation is thus not only a WTO concern with regard to subsidy rules, it also harms the environmental effectiveness of emissions trading.

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See for an overview: Mehling, 2005, 143–151. See Anderson and Bradley, 2005, 224.



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c) Incentives for Technological Innovation In the long-term, a critical element for meeting the climate change challenge will be the development and diffusion of new carbon-constrained technologies. Ultimately, any climate strategy will have to be measured against its capacity to foster the development and investment in new low-carbon technologies.75 One of the main criticisms with regard to the EU ETS has been that it discourages rather than encourages investment in new and low-carbon technologies in the long-term. Sequential, short-term allocation periods and unpredictability as regards future emission caps create investment uncertainties. In the absence of a longer and stronger emission cap emissions trading will not be capable to provide sufficient incentives to develop and bring to the market new technologies.76 Neuhoff et al. note that price signals need to be much higher and more credible in the long-term to generate a significant amount of private resources for research and development.77 Moreover, current allocation periods provide certainty for only three (2005–2007), and then five years (2008–2012) – periods that are far shorter than those associated with investment cycles.78 In addition, certain allocation methodologies and rules on new entrants and closure rules create perverse incentives for CO2-intensive plants to remain in operation in order to receive free allocations, even if closure or replacement is environmentally more effective. In addition, firms might operate more carbonintensive technologies if they anticipate that future allocations of allowances will be proportional to current emissions. This implies higher overall abatement costs in the long term to meet the cap. To a large extent this is the result of international indecision, which in return reduces predictability. Therefore, a much stronger, long-term cap, coupled with longer allocation periods, stable baseline years, allocation certainty which derives future allocation from past allocation and includes stringent technology requirements, for example, based on Best Available Technology (BAT) or long-term efficiency targets and efficiency indicators for industrial sectors are necessary as safeguards for technological change.79

75 76



77



78 79

CEPS, The EU Emissions Trading Scheme: Taking Stock and Looking Ahead, 2006, 13. Matthes, F., Graichen V., and J. Repenning, Power Switch: The Environmental Effectiveness and Economic Efficiency of the European Union Emissions Trading Scheme, Report to WWF, Öko-Institut (2005). K. Neuhoff et al., ‘Allocation, Incentives and Distortions: the Impact of EU ETS Emissions Allowance Allocations to the Electricity Sector’ (2006) 6 Climate Policy, 73–91, 74. CEPS, 2006, 14. See for specific recommendations with regard to the EU ETS second allocation round: WWF, Power Switch: The Environmental Effectiveness of the EU ETS: Analysis of Caps,

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Critical precondition is however that efficiency targets at sector or installation levels are in line with effective long-term climate change targets and that such targets are accompanied by long-term allocation periods and methods that include technology standards and efficiency indicators.80 Particular attention should be paid to the power sector as the principal investment sector relevant to climate change.81 d) Accountability, Responsibility, and Liability Finally, issues of accountability and responsibility play into the integrity of emissions trading. The engagement of private entities triggers the application of rules under domestic as well as private international law. The Kyoto Protocol is silent about the law applicable to emissions trading and the transfer and acquisition of Kyoto units. The interplay of various legal systems, which may entertain a different concept of rules for transfer, trading and liability, could lead to confusion. Trading between private entities is based on contractual agreements. These private commercial contracts are not covered by the Kyoto Protocol. The applicable law to these contractual relations depends thus on the existence of a choice of law clause in the international contract or, in the absence of such a clause, on the application of conflict of law rules. A court or international tribunal then has to consider the applicable law. The conflict of law rules may be based on an applicable treaty or on the national law of the adjudicating body. With many potentially applicable rules, dispute resolution is likely to produce dissimilar, maybe conflicting outcomes on issues of ownership, liability or compensation. To ensure the effectiveness of the ETS, some kind of standard contract should be considered. While trading between private entities on a multinational level becomes an important component of international emissions trading schemes, their engagement can cloud the responsibility of the State Parties concerned under public international law. Trading, acquisitions and responding transfers of AAUs between private entities shall be recorded in national registries. These national registries shall

80



81



October 2005. For more details, see also: Egenhofer, C. and Fujiwara, N., Reviewing the EU Emissions Trading Scheme – Priorities for Short-term Implementation of the Second Round of Allocation, CEPS Task Force Report, No. 57 – Part II, Centre for European Policy Studies (Brussels, March 2006). CEPS, The EU Emissions Trading Scheme: Taking Stock and Looking Ahead, 2006, 13–15. Ibid 15.



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ensure accurate accounting of the issuance, holding, transfer, acquisition, cancellation, and retirement of Kyoto Units.82 Transfers between national registries are in general governed by Article 17 Kyoto Protocol and the provisions of Marrakesh Accords (Decision 18/CP.7). However, it is important to note that all transfers will have to be made through the national registries, including transfers between legal entities. A transfer of Kyoto units by a legal entity in Party A to a legal entity in Party B is, at the same time, a transfer of Kyoto units from Party A to Party B. As private entity trading may affect the obligations of State Parties under an international agreement, the Parties nevertheless remain responsible for the transfer between national registries. Compliance and emissions trading under the Kyoto Protocol are closely linked. An efficient and reliable registry system is crucial to ensure compliance with emission limitation and reduction commitments. At the same time, such system is crucial for the success of the emissions trading market.83 Still, the linking of national registries on an international plane needs to be seen.84 So far, only the EU ETS links the various registries of the EU Member States. As said in Part I, linking registries will be at the heart of IET by making the holding, accounting, and transfer of Kyoto units a reality. Liability of registries – if they are endowed with legal personality – or of registry operators and administrators is therefore an important issue. Questions of liability will have to be resolved under relevant domestic laws. Under certain circumstances, legal issues of international law may be raised. As Hobley and Hawkes note, of particular interest here is the situation where a foreign private entity, authorized to hold an account at the registry, suffers a loss by termination of transfer because the State Party in whose registry the allowances are held does not fulfil the eligibility requirements under the Kyoto Protocol for emissions trading. This potentially may amount to ‘creeping’ or ‘indirect’ expropriation and raises issues of liability and eventually compensation.85 Under international law, deriving from the right of individuals to hold property, foreign investors may claim compensation from the host State where the State has deprived the investor of the value of his investment. In the abovementioned situation, the Kyoto Member State, however, has a direct obligation

82 83



84



85

Decision 19/CP.7. See A. Hobley and P. Hawkes, ‘GHG Emissions Trading Registries’ in Freestone and Streck (eds.) 2005, 154. The International Transaction Log (ITL) under the auspices of the UNFCCC Secretariat is to be launched in April 2007. See Global Carbon Exchange to Launch on Time, 9 August 2006, . Ibid., 150.

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under the Kyoto Protocol to refrain from emissions trading until eligibility has been reinstalled. It is suggested that in this case, where an international obligation leads to property losses, the State may be given wider latitude to interfere with the property rights of the account holder. The compliance system of the Kyoto Protocol is one of the critical means of ensuring the Protocol’s integrity. If a State restricts the movement of Kyoto units in its own territory, the State can thus be seen as acting in the public interest and therefore as not amounting to an expropriation. The law will take into account the legitimacy of the obligations of the Kyoto Member State in imposing limitations on property rights.86 However, foreign legal entities can only hold a registry account if they are authorized by a Kyoto Member State. As suggested above, in the interest of the integrity of the emissions trading scheme, this should be avoided where the foreign entity seeks to participate for reasons of speculation. Not only would one avoid the potential complexities of liability and compensation for losses in situations where no transfer of emission rights can be made, it would also ensure that emissions trading eases the economic burdens only of entities which are actually paying climate mitigation costs. As a consequence this would ensure that emissions trading remains what it always was meant to be: an economic means to an environmetal end. 17.2.4 In Sum Emissions trading may be having a trade-discriminatory effect. In case of conflict with WTO norms, it needs to be shown that emissions trading supports the objective of sustainable development by integrating environmental, social and economic considerations. As was discussed, the ability of emissions trading to stay within the set (strong) emissions cap is crucial for its environmental effectiveness, which, in 86



This situation, however, raises complex questions which cannot adequately be addressed at this point. Under the European legal system, investment protection has been enshrined in Article 1 of Protocol 1 to the European Convention on Human Rights. Here, recent case law indicates that a State is granted wider discretion (or wide margin of appreciation) to interfere with an individual’s property rights in situations where it acts in the public interest. See for example James and others v. United Kingdom, Series A98 (1986), where the ECHR by finding ‘it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, will respect the legislature’s judgment as to what is ‘in the public interest’ unless that judgment be manifestly without reasonable function’ (para. 46). See for further discussion: M. Emberland, The Human Rights of Companies (Oxford: Oxford University Press, 2006) 188–189.



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itself, is a requirement for sustainable development and essential for ‘passing’ the proposed ‘sustainability test’. Environmental effectiveness depends on environmental performance safeguards, such as monitoring, reporting requirements under the Kyoto Protocol, the requirement of supplementarity, of avoidance of excessive allowances, and of supporting – and not impeding – the development of low-carbon technologies. Compliance with the cap is closely linked to accountability of the participants and the efficient functioning of registries at the heart of the system. Here, certain liability issues do remain. While not all aspects could be elaborated here, those that have been elicited show that there remains potential for the legal design of emissions trading to establish more robust environmental safeguards. Not all facets of emissions trading are yet designed in a way that would defeat the circumvention of one or some of its environmental parameters. To survive a WTO claim, however, this is a quality they must exhibit. 17.3 Summary Part III elaborated the application of the principle of sustainable development to conflicts between climate change mitigation measures and WTO norms. In this way, it brought the findings of Part I and II together. An adequate solution, taking into account the collective interest in the protection of the climatic system, cannot be found by relying on the legal reasoning of text interpretation only. The limitations of interpretation are such as to demand openness towards other modes of legal reasoning. Under the applicable law, we suggested the use of the principle of sustainable development as a principle of integration to determine the correct balance of interests and values in such a situation. We argued for the principle’s application in WTO dispute settlement as a general principle of law, already expressly incorporated as part of WTO Law. Finally, we showed that a climate change mitigation measure must satisfy certain criteria to pass the ‘sustainability test’, were such test to be applied to a potential conflict between WTO norms and a climate change mitigation measure. This test can modify and supplement norms of multilateral trade where they do not account of common interests, such as the protection of a stable global climate system. From the perspective of sustainable development these interests must be given priority. However, as suggested at the outset, the test could also help to ‘discipline’ and ‘correct’ climate measures. In our example, we showed that despite their integration of environmental, social and economic considerations as mandated

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by sustainable development, the Clean Development Mechanism and International Emissions Trading are not yet sufficiently robust to safeguard environmental effectiveness and, thus, the environmental integrity of the global carbon market. The threat of a WTO claim is not only a challenge to climate measures – it is also an opportunity. The requirement of complying with the objective of sustainable development is a call to make them better, stronger, more effective and environmentally sound.

Chapter 18

Final Conclusions

18.1 Sustainable Development in Climate Change and International Trade Law Sustainable development at its core demands the maintenance of ecological conditions for human life, welfare and development. It implies limitations on State activities where they threaten these conditions including the natural processes on which they depend. Sustainable development requires the needs of present and future communities to be adequately met while safeguarding the Earth’s capacity to sustain life and support human welfare. There is an intrinsic link between sustainable development and the protection of the global climatic system. The global climate system is a complex ecological system which is fundamental to human survival and all life on Earth. A stable climate is essential to human welfare and development. The stability of the global climate system is threatened by human-induced changes to ecological systems and the accumulation of anthropogenically caused greenhouse gases in the atmosphere. Protection of the global climate system thus becomes a precondition for any development to be sustainable. At the same time, climate measures must accord with the requirements of sustainable development to be effective. This reciprocity has started to take form in the design of the global climate regime. Structures are in place which give evidence of simultaneous integration of environmental, social and economic interests as mandated by sustainable development. They are based on: (i) the common but differentiated responsibilities of industrialized countries and countries with developing economies, (ii) the recognition of the precautionary principle, and (iii) the possibility of using flexible and cost-effective mechanisms when implementing and complying with quantified emissions limitation and reduction commitments.

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At the same time, the international trade regime under the WTO embraces the concept. The legal texts and dispute settlement show that sustainable development has been incorporated as a guiding objective into the WTO system. Liberalization of multilateral trade is thus no end in itself. It means that the purpose of the WTO is the liberalization of international trade in pursuance of the common policy of sustainable development. If it is accepted that such a common policy underlies the WTO legal framework, it helps to determine the substantive content of WTO norms as well as the outcome of dispute settlements. As a consequence, measures that otherwise violate WTO norms could be justified as ‘necessary to ensure sustainable development’. Sustainable development is thus the framework under which a balance must be struck between the obligations under WTO legal texts and other measures supporting the objective of sustainable development. We also argued that sustainable development needs to be understood as the meta-objective of both the international climate regime and the international trade regime of the WTO. Neither free trade nor climate protection can be treated as goals in themselves. Both are means to the same end, the sustainability of human societies. Sustainable development is the guiding concept in the effort to realize this ideal. It is the framework within which the whole plurality of priorities must be addressed, including climate and trade law rules and their interrelationships. Sustainable development can be seen a ‘conceptual bridge’ linking these priorities and the background against which accommodation, reconciliation and integration of diverse and sometimes conflicting interests need to be addressed. 18.2 Sustainable Development as a Legal Principle of Integration The most important aspect of sustainable development is integration. Integration in its legal sense means the simultaneous consideration of social, economic, and environmental aspects of a subject in a ‘normative continuum’, i.e. in the negotiation process, the provisions of the final treaty texts, their implementation and eventually in the decisions of international courts and tribunals. In the context of sustainable development, the integration of these diverse priorities needs to be carried out within the ultimate limits set by the resilience of essential natural (biotic and abiotic) processes. When accepting certain ecological thresholds a hierarchy of priorities arises. Sustainable development may serve as a norm in its own right where it requires and facilitates a balance and reconciliation between conflicting legal norms relating to environmental protection, social justice and economic



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development. As a general principle of law it can be invoked by courts and tribunals to interpret and even modify the application of other norms. The classification of sustainable development as a general principle is based on (i) its normative value, (ii) the collective interest in sustainable development supported by general acceptance by the international community – forming an opinio juris communis, and (iii) its capacity to facilitate interaction and integration between a set of diverse factors (i.e. economic, environmental, social). Moreover, its use in foro domestico and international jurisprudential practice supports the conclusion that sustainable development is a general principle of law. State practice and opinio juris would most likely support the claim of a customary manifestation of the principle. However, the application of the general principle of sustainable development as an ‘arbiter’ in conflicts between treaties is (widely) independent from a customary status. By serving the function of a conflict resolution tool it is applied as a principle for decision, rather than a principle for conduct. 18.3 Areas of Conflict between Climate Measures and WTO Law Due to the dynamism of the international climate system, it is difficult to clearly mark the exact points of normative conflict with the WTO legal system. To account for the climate regime’s dynamic element the analysis therefore looked at the possible scope of flexibility measures allowed under the Kyoto Protocol and their likely development. In spite of a general assumption that international emissions trading does not fall under the rules of the WTO, such result cannot be supported with absolute certainty. Excluding non-Kyoto Parties from trading might under certain circumstances therefore be considered an infringement of the market access and national treatment provisions of Articles II, XVI GATT. Where the design of emissions trading requires emission rights for the import of energy-related products (electricity or natural oil and gas), such requirement can amount to an infringement of substantive non-discrimination rules contained in GATT if no or few allowances are available on the emissions trading market. Similar WTO challenges arise with regard to the CDM. Eligibility to host a CDM project will be granted to developing countries only, while eligibility of a country to use Certified Emission Reductions (CERs) as a result of a successful CDM project requires the ratification of and compliance with the Kyoto Protocol. In other words, three types of service providers will be ineligible for transfer and acquisition of CERs: (1) non-authorized entities from non-

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Annex I countries that are not Parties to the Kyoto Protocol, (2) non-authorized entities from Annex I countries that are not Parties to the Kyoto Protocol, and (3) authorized project participants where the authorizing country is not in compliance with its eligibility requirements for participation in the flexibility mechanisms. The participation requirements in the CDM therefore establish absolute restrictions on services and service suppliers from these countries, which affect trade in services and thus could constitute less-favourable treatment than accorded to service suppliers authorized by complying Kyoto Parties. Existing WTO jurisprudence indicates that such discrimination under certain circumstances is likely to violate the general obligation of the Most Favoured Nation rule of Article II GATS. While exception clauses appear applicable to these situations, WTO jurisprudence suggests they might not remedy all infringements of WTO law. Where climate measures cannot be justified under Article XX GATT or Article XIV GATS a normative conflict exists. Uncertainty remains in particular with regard to the view of a panel or the Appellate Body on the necessity of such a measure under WTO law where alternatives include considerably higher administrative input or constitute a threat to the environmental integrity of the climate regime in general. In addition, it remains unclear how the importance of common interests or values incorporated into the design of IET and the CDM (and the accompanying impact on imports or export) would be balanced in the settlement of a dispute, in particular where concerns of competitiveness of members to the Kyoto Protocol are at stake. After all, while a panel or the Appellate Body could decide in favour of a trade-restrictive climate measure, there is no certainty as to whether it indeed would. The WTO dispute settlement body has so far failed to provide a consistent method of interpretation and application of the developed legal methods. This situation creates legal uncertainty as regards the specific requirements where trade and other rules must be balanced. This situation is further aggravated by: – the lack of a rule of precedence in the jurisprudence of the Appellate Body or panels, – inherent limitations to interpretations that may render it difficult, if not impossible, to widen the narrow ‘trade view’ that has so far been applied to the interpretation of WTO norms in order to include other non-trade objectives and respective values, – the political character of interpretation. In conclusion, a number of uncertainties can be said to exist as to how a panel or the Appellate Body would view a trade restrictive climate measure. This



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applies in particular where the design of an emissions trading system affects non-Kyoto Members’ sovereign interests. Even after the course of interpretation a certain friction between the two sets of norms remains. 18.4 Application of the Principle of Sustainable Development in the Context of Climate and Trade Law Conflicts An adequate solution, taking into account the collective interest in the protection of the climatic system, cannot be found by relying on the legal reasoning of text interpretation alone. Furthermore, there is a general conceptual inadequacy. By approaching the tension between climate measures and trade provisions via interpretation of trade law exceptions, environmental issues are forced to fit into the framework of trade law. The traditional approach leads to viewing the relationship through a ‘trade lens’. As a result, environmental concerns are not given comparable weight to those of trade. The limitations of interpretation demand openness towards other modes of legal reasoning. To give adequate weight to environmental concerns, a neutral balancing perspective is needed, where both environmental norms and international trade norms are equal and integrated parts. In the trade and environment nexus the most significant legal instrument in this regard is the principle of sustainable development, which seeks to link and balance environmental protection with economic and social interests and encompasses the concepts of intra- and intergenerational equity. The application of the principle is possible because of its explicit recognition in WTO law and as a principle of general international law. General international law is applicable to WTO law because of the presumption that general international law continues to apply to a treaty unless explicitly or implicitly contracted out. Although the WTO treaty has contracted out some parts of international law, it has not contracted out all of them. The applicable law, in general, includes all relevant norms of international law binding on the disputing parties, even if the jurisdiction of panels is limited to claims under the WTO covered agreements. The application of the principle entails a balancing of interests independently of WTO exceptions. It requires a ‘holistic’ approach to the resolution of conflicts by taking into account the ‘mass of matters’ and recognizing their integrated function rather than focusing on isolated narrow legal issues. From a systematic perspective, sustainable development essentially requires different streams of international law to be treated in an integrated manner. The difference with the present approach used by the dispute settlement system is that the purpose of sustainable development is included in the judicial

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reasoning. Necessity and proportionality need be determined against the objective of sustainable development. This thesis suggests the inclusion of the following components in the general framework of WTO law as provided by the principle of sustainable development: – The identification of affected interests, – Determination of the ‘primary sustainability’ of the trade-restrictive measure dependent on the type and strength of interests protected by the measure. In the context of climate measures this approach needs to take into account the following criteria: (i) the objective and purpose of the climate regime: to prevent dangerous anthropogenic interference with the climate system (Article 2 UNFCCC) and (ii) the commitments under the Kyoto Protocol, which are considered an affirmation of sustainable development in international law. – Determination of the ‘secondary sustainability’ including an assessment of the measure’ s impact on other interest, such as – Environmental interests – Social interests and – Economic interests – Proportionality of means and ends, and – Certain procedural requirements (e.g. SIA). This test can modify and supplement norms of multilateral trade where they do not account for common interests, such as the protection of a stable global climate system, thereby creating a level-playing field. From the perspective of sustainable development these interests must be given priority. This thesis therefore proposes the following understanding of sustainable development in a climate-trade context: The protection of the global climate system is a precondition for any development to be carried out in a sustainable manner. In case of conflict between climate and trade rules, the rule more favourable to the protection of the global climate, given its environmental integrity, shall prevail. The reasons for such an argumentation are based on the integral, nonreciprocal nature of climate obligations, which reflect a global responsibility for the protection of the climate system. Warming up of the atmosphere will adversely affect the global community of all states. It can therefore be assumed that taking measures to protect the global climate system is of the common interest of all states. In case of conflict between climate and trade rules, the application of the principle of sustainable development allows for a legal argument that the



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community interest in a stable global climate prevails over the economic and welfare interests of single states protected by the international trade regime. Moreover, the application of the principle in this sense might exert a ‘political chill’ to free riders and remedy unfair advantages of non-Kyoto Parties. It might in effect set aside the argument that no party can see its WTO rights diminished on the basis of a rule of international law by which it is not bound, e.g. Kyoto Protocol. By applying the principle of sustainable development, the non-WTO treaty becomes incorporated into the substantive law applied in the dispute settlement. Thereby it might as well provide a mode to unlock global climate negotiations and help overcome the obstacles of non-participation. A climate change mitigation measure must, however, satisfy certain criteria to pass the ‘sustainability test’, when such test is applied to a conflict between WTO norms and a trade restrictive climate change mitigation measure. The test can thereby help to ‘discipline’ climate measures. In our example, we showed that the Clean Development Mechanism and International Emissions Trading are not yet sufficiently robust to safeguard environmental effectiveness and thus the integrity of the global carbon market – despite their integration of environmental, social and economic considerations as mandated by sustainable development. Despite the fact that it is the stated goal of the CDM to assist non-Annex I countries to achieve sustainable development, the present regulatory framework remains somewhat rudimentary in identifying and standardizing essential substantial and procedural requirements for meeting this goal. Yet, confrontation with international trade rules and the application of the principle of sustainable development may demand a much stronger institutional guarantee for the CDM’s direct contribution to sustainable development. The rather pragmatic and fragmented approach taken so far to ensure the CDM’s environmental and sustainable integrity will need to be replaced by a stronger, harmonized regulatory framework. In a trade conflict, where the principle of sustainable development can be applied as a conflict tool, it will have to be shown that the CDM as a climate measure is systematically promoting sustainable development. Emissions trading may be having a trade-discriminatory effect. In case of conflict with WTO norms, it needs to be shown that emissions trading supports the objective of sustainable development by integrating environmental, social and economic considerations. A strong emissions cap and the ability of entities covered by emissions trading to stay within this cap is crucial for its environmental effectiveness, which, in itself, is a requirement for sustainable development and essential for passing the proposed ‘sustainability test’. Environmental effectiveness depends on environmental performance safeguards, such as monitoring, reporting requirements under the Kyoto Protocol,

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the requirement of supplementarity of ET, of avoidance of excessive allowances, and of supporting – and not impeding – the development of low-carbon technologies. Compliance with the cap is closely linked to accountability of the participants and the efficient functioning of registries at the heart of the system. It has been show that there remains potential for more robust environmental safeguards in the legal design of emissions trading. Not all facets of emissions trading are yet designed in a way that would defeat the circumvention of one or some of its environmental parameters. To survive a WTO claim, however, this is a quality they must exhibit. Finally, the application of the principle of sustainable development as a principle of ‘integration’ would have a harmonizing impact on the effects of fragmentation of international law, as exemplified here by climate rules and international trade norms. The principle of sustainable development needs first and foremost to be understood as giving priority to the protection of fundamental life-sustaining natural processes, such as those supporting a stable global climate system. When applied accordingly to dispute resolution, such a principle-based approach introduces a certain value hierarchy into the issue of resolving conflicts between treaties. The value aspect lies in respecting essential natural functions as supreme preconditions for economic development and international trade and human activity in general. In a more systematic perspective, such value hierarchy approach can be seen as a countertendency to fragmentation and as a modality to ensure systematic coherence in accordance with those same values. The principle, applied in this sense to the resolution of conflicts, would enhance the capacity of international law to become a coherent and purposive system to sustain human life, welfare and development, now and in the future.

Table of Cases

PCIJ/ICJ

Aegean Sea Continental Shelf (Greece v. Turkey) ICJ Reports 1978, 1 Barcelona Traction, Light and Power Company Limited (Second Application) (Belgium v. Spain) ICJ Reports 1970, 3 Certain Phosphate Lands in Nauru (Nauru v. Australia) ICJ Reports 1992, 240 Chorzów Factory (Merits), (Germany v. Poland) PCIJ Series A, No. 17 (1928) Corfu Channel (UK v. Albania) (Merits) ICJ Reports 1949, 4 Eastern Greenland, 1933, PCIJ Series A/B. No. 53 Fisheries Jurisdiction (Spain v. Canada) ICJ Reports 1998, 432 Gabčikovo Nagymaros Project (Hungary v. Slovakia) ICJ Reports 1997, 7 Interpretation of Peace Treaties With Bulgaria, Hungary and Romania (Second Phase) Advisory Opinion, 1950, ICJ Reports 221 Kasikili/Sedudu Island (Botswana v. Namibia) ICJ Reports 1999 (II), 1045 Legal Consequences for States of the Continued Presence of South Africa in Namibia (Advisory Opinion), ICJ Reports 1971, 31 Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory (Advisory Opinion) A/ES-10/273 and Corr. 1, ILM, vol. 43 (2004), 1009 Legality of the Threat or Use of Nuclear Weapons (Advisory Opinion) July 8 1996, ICJ Reports 1996, 66 (request by WHO), 226 (request by the UN General Assembly) Lockerbie-Cases: Questions of Interpretation and Application of the 1971 Montreal Convention Arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v. US and UK), Provisional Measures, ICJ Reports 1992 Mavrommatis Palestine Concessions, PCIJ Series A, Nr.2 (1924) Mosul Boundary Case, PCIJ Series B, No. 12, 32 Nicaragua (Military and Paramilitary Activities In and Against Nicaragua) (Nicaragua v. United States) (Merits) ICJ Reports 1986, 14 North Sea Continental Shelf (Federal Republic of Germany v. Denmark) (Federal Republic of Germany v. Netherlands) ICJ Reports 1969, 3 Nuclear Tests (New Zealand v. France)/(Australia v. France) ICJ Reports 1974, 457/253 Oil Platforms (Iran v. US) (Merits) ICJ Reports 2003, 161

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Pulp Mills on the River Uruguay (Argentina v. Uruguay) 2006 (contentious) Right of Passage (Portugal v. India) (Preliminary Objection) ICJ Reports (1957), 142; (Merits) ICJ Reports 1960, 6 River Oder Commission (Territorial Jurisdiction of the International Commission of the River Oder) (Czechoslovakia, Denmark, France, Germany, Great Britain, Sweden, Poland) PCIJ Series A, No. 23, 27 (1929) South West African cases (Second Phase), ICJ Reports 1966, 5 (Ethiopia v South Africa; Liberia v. South Africa, ICJ Reports, 1966, 34) Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia v. Malaysia) ICJ Reports 2002, 625 SS Lotus (France v. Turkey) PCIJ Series A, No. 10 (Sept 7 1927) Territorial Dispute (Libyan Arab Jamahiriyal v. Chad) ICJ Reports 1994, 6

International Arbitral Awards

Amoco International Finance Corporation v. Iran, 1987-II, 15 Iran-US C.T.R. 222 Dispute Concerning Access to Information Under Art. 9 of the OSPAR Convention, Final Award (Ireland v. the United Kingdom) 2 July 2003, PCA, ILM vol. 42 (2003) Esphahanian v. Bank Tejarat, 1983-I, 2 Iran-US C.T.R. 157 Fabiani Case (896)10 RIAA 83 Gentini Case (Italy v. Venezuela) MCC 1903, Venice Arbitration La Bretagne Arbitration (1986) 90 RGDIP 716 Lac Lanoux Arbitration (France v. Spain) 24 ILR 101 (1957) Maritime Boundary Arbitration (Guinea-Bissau v. Senegal) (Award of 31 July 1989 [1990]) 83 ILR 1 MOX Plant (ITLOS), (Ireland v. United Kingdom) Arbitral Tribunal under Annex VIII of the Convention on the Law of the Sea, Case 10, Order on Provisional Measures (13. November 2001), (Merits) 3 December 2001, 5 MOX Plant (PCA), (Ireland v. United Kingdom) OSPAR Arbitral Tribunal Constituted Pursuant to Article 287, and Article 1 of Annex VII, of the United Nations Convention on the Law of the Sea for the Dispute Concerning the MOX Plant, International Movements of Radioactive Materials, and the Protection of the Marine Environment of the Irish Sea (Order No. 4, Further Suspension of Proceedings on Jurisdiction and Merits), 14 November 2003 Iran-United States (case 18), 1984-I, 5 Iran-US C.T.R. 251 Iron Rhine (“IJzeren Rijn”) Railway (Belgium v. Netherlands) PCA Arbitral Award, 24 May 2005 Island of Palmas Arbitration (Netherlands v. United States) (1928) 2 RIAA 831 Pious Funds of the Californias (The United States of America v. The Republic of Mexico) PCA Arbitral Award, 14. October 1902, 2 Am. J. Int’l L.€893 (1908)



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Southern Bluefin Tuna (New Zealand v. Japan) (Australia v. Japan), Arbitral Tribunal under Annex VIII of the Convention on the Law of the Sea, Order of August 27, 1999, Request for Provisional Measures, Award on Jurisdiction and Admissibility of 4 August 2000, 39 ILM 1359 (2000) Softwood Lumber (NAFTA): Opinion and Order of the Extraordinary Challenge Committee, In the Matter of Certain Softwood Lumber Products from Canada, Secretariat File No. ECC-2004-1904-01USA, 10 August 2005 Swordfish case: Case Concerning the Conservation and Sustainable Exploitation of Swordfish Stocks in the South-Eastern Pacific Ocean (Chile v. European Community), Arbitral Tribunal (ITLOS) under the Convention on the Law of the Sea, Special Chamber, Case No. 7 – ITLOS Order 2001/1 of 15 March 2001, and Order 2003/2 Trail Smelter Arbitration (United States v. Canada) 16 April 1938, 11 March 1941, 3 RIAA 1907 (1941)

Other Decisions

Al-Adsani v. UK, Judgment of 21 November 2001, ECHR, 2001-XI Fogarty v. UK, Judgment of 21 November 2001, ECHR 2001-XI Golder v. UK, Judgment of 21 February 1975, ECHR Series A no. 18, 14, 57 ILR 201 Hatton and Others v. UK (2003) 37 EHRR 28 (Application 36022/97) James and Others v. United Kingdom, ECHR Series A98 (1986) Länsman (Jouni) et al. v. Finland (1995) UNHRC, Communication No. 671, 3 IELR, 115–133 Loizidou v. Turkey (Merits) Judgment of 18 December 1996, ECHR 1996-VI McElhinney v. Ireland, Judgment of 21 November 2001, ECHR 2001-XI Ominayak and the Lubicon Lake Band v. Canada (1984) UNHRC, Communication No. 167, 3 IRLR, 26–61 Commission v. Ireland (MOX Plant) ECJ, C-459/03, 30 May 2006 Municipality of Almelo v. NV Energiebedrif Ijsselmij, ECJ, Case C-393/92, 1994 E.C.R. I–1477 (1994) Prosecutor v. Anto Furundćija (ICTY) Judgment of 10 December 1998, case no. IT95-17/1, Trial Chamber II; ILR vol. 121, 2002

GATT 1947 Panel Reports

Canada–Gold Coins: Canada – Measures Affecting the Sale of Gold Coins, Panel Report, L/5863, 1985 (not adopted) Canada/European Communities – Article XXVIII Rights, DS12/R, B.I.S.D 37S/80, 26 October 1990 (Arbitrators Award)

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Canada–Salmon: Canada – Measures Affecting Exports of Unprocessed Herring and Salmon, BISD 35S/98, adopted 22 March 1988 Italy–Agricultural Machinery: Italian Discrimination Against Imported Agricultural Machinery, 23 October 1958, GATT B.I.S.D., 1959 Thailand-Cigarettes: Thailand – Restrictions on Importation of and Internal Taxes on Cigarettes, GATT Panel Report, 7 November 1990, DS10/R US–Anti-Dumping Duties on Imports of Stainless Steel Plates from Sweden, GATT Panel Report, ADP 117, 24 February 1994 US–Auto Taxes, United States – Taxes on Automobiles, GATT Panel Report, 11 October 1994, DS31/R (unadopted) US–Hot-Rolled Lead: United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in France, Germany, and the UK, GATT Panel Report, SCM/185, 15 November 1994 US–Section 337: United States – Section 337 of the Tariff Act of 1930, BISD 36S/386, adopted 7 November 1989 US–Softwood Lumber: United States – Measures Affecting Imports of Softwood Lumber from Canada, 27, 28 October 1993, GATT, B.I.S.D. US–Superfund, United Sates – Taxes on Petroleum and Certain Imported Substances, 17 June 1987, GATT Panel report, B.I.S.D. 34S/136 US–Tuna I: United States – Restrictions on Imports of Tuna, 18 February 1992, GATT BISD 39S US–Tuna II, United States – Restrictions on Imports of Tuna, 16 June 1994, DS29/R

WTO Panel Reports and Reports of the Appellate Body

Argentina–Footwear: Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and other Items, WT/DS56/R, 25 November 1997, WT/DS56/AB/R, 27. March 1998 Argentina–Poultry: Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil, WT/DS241/R, adopted 19 May 2003 Argentina–Peaches: Argentina – Definitive Safeguard Measures on Imports of Preserved Peaches, WT/DS238/R, 14 February 2003 Australia–Subsidies (also: Australia–Leather): Australia – Subsidies Provided to Producers and Exporters of Automotive Leather, WT/DS126/R, 15 May 1999 Brazil–Coconut: Brazil – Measures Affecting Desiccated Coconut, WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I Brazil–Measures affecting Imports of Retreaded Tyres, WT/DS332/AB/R (3 December 2007)



Table of Cases

385

Canada–Aircraft: Canada – Measures Affecting the Export of Civilian Aircraft (Complaint by Brazil), WT/DS70; Panel and Appellate Body reports on Implementation (DSU Art. 21.5) WT/DS70/RW, adopted 4 August 2000 Canada–Automotive Industry: Canada – Certain Measures Affecting the Automotive Industry WT/DS139/R and WT/DS142/R, 19 June 2000, WT/DS139/AB/R, WT/ DS142/AB/R, 31. Mai 2000 Chile–Alcoholic Beverages (also Chile–Taxes): Chile – Taxes on Alcoholic Beverages, WT/DS87/R, 15 June 1999; WT/DS87/AB/R, 13 December 1999 Chile–Swordfish: Chile – Measures Affecting the Transit and Importation of Swordfish, (Complaint by the EC) WT/DS 193, panel established at the DSB meeting of 12 December 2000, proceedings suspended on 23 March 2001 EC–Asbestos: European Communities – Measures Affecting Asbestos and AsbestosContaining Products, WT/DS135/R, WT/DS135/AB/R, 12. March 2001, adopted 5 April 2001 EC–Bananas: EC – Regime for the Importation, Sale and Distribution of Bananas (Complaint by the US) WT/DS27/R/USA; (Complaint by Ecuador) WT/DS27/R/ ECU, 22 May 1997; WT/DS27/AB/R, 9 September 1997, adopted 25 September 1997; Panel report on Implementation, Art. 21.5 DSU (requested by Ecuador) WT/ DS27/RW/ECU (EC–Bananas II) EC–Bananas III: EC – Regime for the Importation, Sale and Distribution of Bananas, Recourse to Arbitration by the EC under Art. 22.6 of the DSU, Decisions by the Arbitrators on Suspension of Concessions, WT/DS27/ARB/ECU, 24 May 2000 and WT/ DS27/ARB/US, 9 April 1999 EC–Biotech: EC – Measures Affecting the Approval and Marketing of Biotech Products, WT/DS 291–293, INTERIM, 7 February 2006 EC–Export Subsidies on Sugar, Report of the Appellate Body, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, 28 April 2005 EC–Hormones: EC – Measures Concerning Meat and Meat Products (Complaint by Canada) WT/DS48/R, 18 August 1997, WT/DS48/AB/R, adopted 13 February 1998 EC–Hormones: EC – Measures Concerning Meat and Meat Products (Complaint by the US) WT/DS26/R, 18 August 1997, WT/DS26/AB/R, adopted 13 February 1998 EC–Sardines: EC – Trade Description of Sardines, WT/DS231/AB/R, 26 September 2002 India–Patent: India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS79/R, 24 August 1998 (no appeal) India–Patent (Complaint by the US): India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/R; WT/DS50/AB/R, 19 December 1997, adopted 16 January 1989 Japan–Apples: Japan – Measures Affecting Agricultural Products (Apples), WT/ DS76/R, 27 October 1998; WT/DS76/AB/R, 22 February 1999

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Japan–Film: Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, 31 March 1998 Japan–Alcoholic Beverages (also: Japan–Taxes): Japan – Customs Duties, Taxes, and Labelling Practices on Imported Wines and Alcoholic Beverages (Complaint by the EC) WT/DS8/R, WT/DS8/AB/R; (Complaint by Canada) WT/DS10/R WT/ DS10/AB/R; (Complaint by the US) WT/DS11/R WT/DS11/AB/R, 4 October 1996, adopted 1 November 1996 Korea–Beef: Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, (Complaint by the US) WT/DS161/R, WR/DS161/AB/R; (Complaint by Australia) WT/DS169/R; WT/DS169/AB/R, 11 December 2000, adopted 10 January 2001 Korea–Dairy: Korea – Definitive Safeguard Measures on Imports of Certain Dairy Products, WT/DS98/R, WT/DS98/AB/R, 14 December 1999 Korea–Government Procurement: Korea – Measures Affecting Government Procurement, WT/DS163/R, 1 May 2000, adopted 19 June 2000 US–Offset Act (Byrd Amendment): United States of America – Continued Dumping and Subsidy Offset Act (Byrd Amendment) 2000, WT/DS/217/R/ WT/DS234/R, (16 September 2002); WT/DS217/AB/R and WT/DS234/AB/R, 16 January 2003; US–Certain Products: United States – Import Measures on Certain Products from the European Communities (Complaint by the EC), WT/DS165/R, WT/DS165/AB/R, adopted 10 January 2001 US–Cotton Yarn: United States – Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan, WT/DS192/R, WT/DS192/AB/R, 8 October 2001, adopted 5 November 2001 US–FSC: United States – Tax Treatment for ‘Foreign Sales Corporations (FSC), WT/ DS108/R, WT/DS108/AB/R, 2 February 2000, adopted 20 March 2000 US–(Reformulated)Gasoline: United States – Standards for Reformulated and Conventional Gasoline 1996 (Complaint by Venezuela) WT/DS/2/R, WT/DS2/AB/R (Complaint by Brazil) WT/DS4/R, WT/DS4/AB/R, 29 April 1996, adopted 20 May 1996 US–Hot-Rolled Steel: United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan WT/DS184/R, WT/DS184/AB/R, 24 July 2001, adopted 23 August 2001 US–Meat: United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia, WT/DS177/R, WT/DS178/R, 21 December 2000, WT/DS177/AB/R, WT/DS178/AB/R, 16 May 2001 US–Section 301: United States – Sections 301–310 of the Trade Act of 1974, WT/ DS152/R, 22 December 1999, adopted 27 January 2000 (no appeal) US–Softwood Lumber: United States – Preliminary Determinations with Respect to Certain Measures Affecting Imports of Softwood Lumber from Canada, WT/DS236/R, adopted 1 November 2002



Table of Cases

387

US–Softwood Lumber: United States – Investigation of the International Trade Commission in Softwood Lumber from Canada, Recourse to Article 21.5 of the DSU by Canada, WT/DS277/RW (circulated on 15 November 2005), WT/DS277/AB/RW (circulated 13 April 2006) US–Steel Plate: United States – Anti-Dumping and Countervailing Duty Measures on Steel Plate form India, WT/DS206/R, adopted 29 July 2002 US–Underwear: United States – Restrictions on Imports of Cotton and Man-made Fiber Underwear, WT/DS24/R, 8 November 1996, WT/DS24/AB/R; 10 February 1994, adopted 25 February 1997 US–Wheat: United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/R, 31 July 2000, WT/DS166/AB/R, 22 December 2000, adopted 19 January 2001 US–Shrimp: United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/R, 15 May 1998, WT/DS58/AB/R, 12. October 1998, adopted 6 November 1998 US–Shrimp (Art. 21.5) (also: US–Shrimp II): United States – Import Prohibition of Certain Shrimp and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia, WT/DS58/RW, WT/DS58/AB/RW, adopted 7 November 2001

National Courts 1. India:

Narmada Bachao Andolan v. Union of India, 2000 (10) SCC 664, AIR 2000 SC 3751, (Supreme Court of India – SC) Vallore Citizens Welfare Forum v. Union of India & Others, JT 1996(7) SC, 375–95 M.C. Mehta v. Union of India (Taj Trapezium) AIR 1997 SC 734 State of Himachal Pradesh v. Ganesh Wood Products AIR 1996 SC 149 Indian Council for Enviro-Legal Action v. Union of India (CRZ Notification case) 1996, 5 SCC 281

2. New Zealand:

Aqua Marine Limited v. Southland Regional Council; C-126/97 (Environment Court – EC) North Shore City Council v. Auckland Regional Council (1997) NZRMA 59 (EC) NZ Rail Limited v. Marlborough District Council (1993) 2 NZRMA 449; (1994) NZRMA 70 (HC) Marlborough District Council v. Southern Ocean Seafoods Ltd (1995) NZRMA 220 Independent News v. Manukau City Council, A103/2003 (EC)

388

Sustainable Development as a Principle of International Law

Ngati Rangi Trust v. Manawatu-Wanganui Regional Council, A067/2004 (EC) Genesis Power Limited v. Franklin District Council, No. A148/2005, NZRMA 541 (EC)

3. Sri Lanka:

Bulankulama v. Ministry of Indus. Dev., Sup. Ct. Application No 884/99 (FR) (Sri Lanka 2000) (Eppawala case) available at M.M. Ariyaratna and five others v. M.K. Sashidaran, 1(4) S. Asian Env’l L. Rep. 151 (1994)

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___, Willis, M. and Guli, M., ‘Carbon Contracts, Structuring Transactions: Practical Experiences’ in D. Freestone and C. Streck (eds.) Legal Aspects of Implementing the Kyoto Protocol Mechanisms: Making Kyoto Work (Oxford: Oxford University Press, 2005b) 295–311 Wilkins, H., ‘What’s New in the CDM?’ (2002) 11:2 RECIEL, 145 Wilkinson, D., Ferguson, M. and ten Brink, P., Sustainability Impact Assessment: Background Paper (London: Institute for European Environmental Policy, 2002) Winkler, M., Der Treibhausgas-Emissionsrechtehandel im Umweltvölkerrecht, Arbeitspapiere aus dem Institut für Wirtschaftsrecht, Universität Halle-Wittenberg, Oktober 2002 Winter, G., ‘The GATT and Environmental Protection: Problems of Construction’ (2003) 15:2 Journal of Environmental Law, 113–140 ___, ‘Reconciling the GATT and WTO with Multilateral Environmental Agreements: Can we have our cake and Eat it Too?’ (2000) 11:1 Colorado Journal of International Environmental Law and Policy, 223–255 Wiser, G., ‘Frontiers in Trade: The Clean Development Mechanism and the General Agreement on Trade in Services’ (2002) 2:3,4 International Journal for Global Environmental Issues, 288–309 Wittneben, B. et al., In from the Cold: The Climate Conference in Montreal Breathes New Life into the Kyoto Protocol (Berlin: Wuppertal Institute for Climate, Environment and Energy, 2006) Wolfrum R. and V. Röben (eds.) Developments of International Law in Treaty Making (Berlin: Springer, 2005) ___, and Matz, N., Conflicts in International Environmental Law (Berlin/Heidelberg: Springer and GmbH & Co. K, 2003) ___, (ed.) Enforcing Environmental Standards: Economic Mechanisms as Viable Means? (Berlin: Springer, 1996) Worika, I.L., Brown, M. and Vinogradov, S., ‘Contractual Aspects of Implementing the CDM and other Flexibility Mechanisms Under the Kyoto Protocol’ in W.B. Chambers (ed.) Inter-linkages: The Kyoto Protocol and the International Trade and Investment Regimes (Tokyo: United Nations University, 2001) 215–246 World Bank/The International Bank for Reconstruction and Development, Where is the Wealth of Nations? Measuring Capital for the XXI Century, 2005 ___, Sustainable Development Reference Guide, 2005a ___, Operational Policy 4.01 on Environmental Assessment (1999, revised 2004) World Commission on Environment and Development (WCED) Our Common Future (Oxford: Oxford University Press, 1987) World Economic Forum, The Global Competitiveness Report (New York: Oxford University Press, 2000) World Trade Organization, Secretariat (WTO Secretariat) A Handbook on the WTO Dispute Settlement System (Geneva: WTO Secretariat, 2004)

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Index A

Applicable Law; see Conflictâ•… B

Brown-Weiss, Edithâ•… 52, 126 C

Carbon Leakageâ•… 223, 298, 337, 343, 359

Clean Development Mechanism (CDM)â•… Additionalityâ•… 73, 83f., 111, 235, 243, 251, 342f. Adverse Policy Incentivesâ•… 343 Art. XIV GATSâ•… 248-254, 339, 376 CCS-Projectsâ•… 349 Environmental Integrityâ•… 74f., 83f., 106-112, 217, 249, 250, 257, 333, 342343, 352-363, 376 Environmental Performanceâ•… 109, 348, 371, 379 Forest Conservationâ•… 349-350 Participantsâ•… 81-82, 233, 239, 243-254, 352, 354, 380 HFC-23 Projectsâ•… 349f. Host State Sovereigntyâ•… 255-257, 343f., 355f., Investment Opportunitiesâ•… 80f., 100f., 234, 238, 242-247, 342, 347, 351 National Development Priorities of Host Countriesâ•… 255f. Public Consultationâ•… 355f. Services under GATSâ•… 235-239 Service Clustersâ•… 239-241 Stakeholder Involvementâ•… 356 Unilateral CDMâ•… 234, 245 Climate Change 2°C Targetâ•… 42, 60, 104, 224 Climate Stabilityâ•… 42f, 97, 104, 226, 332, 342, 359, 373 Differentiationâ•… 96f., 222 Impactsâ•… 1, 15, 42f., 60, 97, 100, 220, 227f., 296, 338 IPCCâ•… 42, 59-60, 113, 227

Irreversible Environmental Harmâ•… 42, 45, 47, 63, 104-105, 338 Scientific Uncertaintyâ•… 37, 45, 47-48, 63, 105, 231, 338

Collective Interest(s)â•… 4, 143, 198, 229, 282, 371, 375, 377

Common but Differentiated Responsibilitiesâ•… 37, 62f., 70, 90, 97-99, 105, 334, 373 Common Concern of Humankindâ•… 57, 62, 90, 97, 104, 326, 330f. Commission on Sustainable Development (CSD)â•… 18 Competitivenessâ•… 2, 21, 190, 223, 249, 253f., 257, 298, 337, 351, 359, 376

Conflict Applicable Lawâ•… 185, 257, 285, 294, 307-309, 323, 368, 371, 377 Conflict Clauses (also: Savings Clauses)â•… 141, 198, 293-295, 299, 325 Conflict Resolutionâ•… 3, 204, 263f., 292, 293f., 339 Jus cogensâ•… 195, 281, 283 Lex posteriorâ•… 197, 201, 286, 299, 301-303 Lex specialisâ•… 197, 201, 286, 299-301, 312 Lex superiorâ•… 195, 284 Normative Hierarchyâ•… 161, 175 Normative (also: Conflict of Norms)â•… 1, 3, 115, 145, 152, 194, 195-204, 232, 257, 263, 266, 272, 291, 295, 304, 315, 320, 325, 375-376 Same Subject Matterâ•… 198, 299-302 Specialityâ•… 300 Resolution Principlesâ•… 3, 265, 292, 293-304, 339 Rule of Presumptionâ•… 154, 306, 314, 377 Cordonier Segger, Marie Claireâ•… 48, 161, 327, 330, 335, 338 Customary Lawâ•… 147-150, 157-162, 167, 179, 195, 282-288, 302, 310f., 375

424 D

Dynamismâ•…

Sustainable Development as a Principle of International Law

107, 164, 274f., 375

E

Ecological Functions (also: Natural Functions)â•… 5, 40, 41, 47-50, 54, 128, 143, 184, 186, 272, 317, 319, 328, 330, 332f., 360, 380 Ecosystem Servicesâ•… 39, 47

Emissions Trading Allocationâ•… 106-108, 175-177, 211, 221-223, 365-369 Aviationâ•… 214 Electricityâ•… 192, 209, 216f., 256, 358, 375 Energy Productsâ•… 193, 216f., 357, 359 Environmental Integrity of (also: Environmental Effectiveness of)â•… 74, 79, 106, 108f., 217, 249, 255-257, 333, 359-365, 376, 378 EU ETSâ•… 76-78, 214, 365-369 Global Carbon Marketâ•… 76f., 353, 372, 379 ‘Free Rider’â•… 297, 336, 379 International Emissions Tradingâ•… 74f., 207f., 234, 244, 249, 254, 360, 366, 368, 372, 375, 379 Liabilityâ•… 108-109, 368f. Linkingâ•… 76f., 369 National Registriesâ•… 74, 77, 86, 249, 368-369 New Entrantsâ•… 221-222, 366-367 Private Participationâ•… 74f., 210â•… Protectionismâ•… 222, 255, 279, 321, 337 Sovereign Exchangesâ•… 75, 208f. Supplementarityâ•… 79f., 212, 254, 363f., 380 Tradable Allowances (also:â•… 71, 106, 108, 190, 207, 212, Tradable Emission Units)â•… 229, 251, 353, 358, 365 Technological Innovationâ•… 367f.

Ethicsâ•… 4, 50-51, 183 F

Fragmentationâ•… 152, 195f., 280f., 380

Future Generationsâ•… 14, 23, 50f., 58, 66, 93, 104f., 178f., 274, 330

G

General Principles; see Principles H

Higgins, Rosalynâ•…

146, 285

I

International Law Associationâ•… 28f., 35, 328

Interpretation Interpretation contra legemâ•… 271 Limitationâ•… 263f., 303, 309, 325, 371, 377 Principlesâ•… 136, 266f.â•… Evolutionary Interpretationâ•… 136, 142, 225, 273f., 289 Dynamic Interpretationâ•… 267 Outside Norms; Art. 31.3.c VCLTâ•… 124, 276, 280f. Systemic Integrationâ•… 281-290 Teleological Interpretationâ•… 267, 275, 277f. Textual Interpretationâ•… 267, 270f.

Integration Absolute Limits (also: Ultimate Limits)â•… 3, 5, 9, 14, 38f., 47, 49, 50, 60-61, 91, 186, 323, 374 Creating Coherenceâ•… 25, 91f., 151, 199, 201, 265, 279, 280, 285, 289, 325f., 380 Ecological (also: Environmental Integrity)â•… 51-53, 74, 79, 83-84, 106, 108f., 111-112, 180, 191, 217, 249, 251, 257, 333, 342f., 352-354, 359-363, 372, 376, 378, 379 Framework forâ•… 1f., 32, 39f., 46, 49, 133, 142f., 152, 162, 169, 184, 197-198, 326, 328f., 374 Integrityâ•… 39, 46 J

Johannesburg Plan of Implementationâ•… 25-26 Johannesburg Declarationâ•…

25

Justiceâ•… 3f., 23, 50f., 58, 62, 98, 103f., 147-151, 157, 162



Index

L

Opinio juris communisâ•… 157-160, 167, 183, 186, 375 Provenanceâ•… 153f. State Practiceâ•… 23, 147, 149, 156, 160, 375

Legal Reasoningâ•… 59, 148f., 159, 164, 317, 328, 334, 374 Lowe, Vaughanâ•…

162, 166-171, 185, 320

M

Market Based Instruments (also: Market Mechanisms)â•… 1, 37, 73, 83, 190, 249 Cost Effectivenessâ•… 63f., 70, 106, 112, 248 Flexibilityâ•… 70f., 106f., 137, 248, 375 Internalization of costsâ•… 250, 297, 354, 359

Millennium Development Goalsâ•… 24-25 Millennium Ecosystem Assessmentâ•… 47

Multilateral Environmental Agreements (MEAs)â•… 121, 131, 189-190, 202, 229, 253, 271 N

Natural Lawâ•… 148, 160 P

Pauwelyn, Joostâ•…

200, 209, 276, 303, 310

Polluter Pays Principleâ•… Positivismâ•…

143, 149

37

Precautionary Principleâ•… 37, 47-48, 63, 101, 105, 141, 311-312, 338, 373

Principles Civilized Nationsâ•… 148f., 155, 157, 159 Foro domesticoâ•… 155-157, 160, 178f., 375 General Principles of Lawâ•… 147, 148f., 281f., 286 General Principles of Law in WTO Lawâ•… 312f. Indeterminacyâ•… 18, 150f., 160 Sourcesâ•… 145f., 156, 167 De lege ferendaâ•… 142, 164 De lege lataâ•… 164 Lacunaâ•… 286 Lex posteriorâ•… 197, 201, 286, 299, 301f. Lex specialisâ•… 197, 201, 286, 299f. Natual Lawâ•… 148, 160 Non Liquetâ•… 292

425

Priority Ruleâ•… 3, 40, 46, 54, 170, 285, 286, 290, 293f., 302-304, 305f., 323, 339, 371, 378, 380 R

Rawls, Johnâ•…

53

Resilience Ecologicalâ•… 43, 47, 168, 225, 374 S

Sustainable Development: Basic Needsâ•… 13, 53 Differentiationâ•… 96f., 198 Ecological Functions (also: Natural Functions)â•… 5, 40, 41, 47-50, 54, 128, 143, 184, 186, 272, 317, 319, 328, 330, 332f., 360, 380 Ecological Thresholdsâ•… 5, 38f., 42f., 47, 59f., 374 Indeterminacyâ•… 18, 112, 162f. Intergenerational Justice; see also Intergenerational Equityâ•… 52, 58, 89, 104f., 331, 377 Intragenerational Justice; see also Intragenerational Equityâ•… 52, 58, 89, 96f., 103 Legal Test ofâ•… 327f. Legal Theory; Legal Statusâ•… 1, 50, 145f., 169, 174f. Originsâ•… 11f. Judicial Activismâ•… 321f. As a Principle of Justiceâ•… 53 Principle of Sustainable Developmentâ•… Affected Interestsâ•… 325f., 341f., 359f., 378 Applicabilityâ•… 317f. Applicationâ•… 124, 142-144, 165, 172, 185, 260, 265, 317f., 325f., 371, 378f. Legal Effectâ•… 62, 318, 339f. Legitimacyâ•… 177f., 326, 332 Normative Force (also: Normativity)â•… 162f., 319, 375

426

Sustainable Development as a Principle of International Law

Norm Creating Characterâ•… 166, 168 Primary Sustainabilityâ•… 330, 331f., 342, 378 Procedural Functionâ•… 337f. Proportionalityâ•… 153, 260, 330, 335f., 352f., 361, 378 Substantial Functionâ•… 169f. Sustainabilityâ•… 3f., 47, 51f., 60, 65, 93, 110, 133, 140, 184, 260, 323, 330f., 374 Sustainability Impact Assessmentâ•… 141, 332, 355 Sustainable Justiceâ•… 328 Transgenerational Justiceâ•… 50f. U

Ultimate Limits; see: Integration

Wider Sustainabilityâ•… 330, 332f., 378 UNCEDâ•…

16f., 25

UNFCCC Art. 2 (also: Ultimate Objective)â•… 40, 59f., 80, 93f., 102, 104, 112, 120, 188, 213, 224, 284, 297, 342, 353, 378 V

Value Hierarchyâ•… 360, 380 W

World Commission on Environment and Development (WCED)â•… 14f., 25, 46, 181, 346

World Summit on Sustainable Development (WSSD)â•… 18f., 24f., 90, 298 Weeramantry, Christoffer, G.â•… 168f., 183f., 327

11, 161,

World Trade Organization (WTO) Covered Agreementsâ•… 75, 116, 128, 136, 142-144, 204, 225, 234, 269, 271, 288, 294f., 307f., 317, 377 Exception Clausesâ•… 121f., 145, 223f., 247f., 279, 329, 339, 376 Global Governanceâ•… 130 ‘like Products’â•… 117f., 210, 205f., 215f., 221 Most-Favoured Nation Ruleâ•… 117f., 191, 212f., 241f., 376 National Treatment Ruleâ•… 119f., 212f., 219f., 238f., 256f., 375 Preambular Reference to Sustainable Developmentâ•… 127f., 132, 134, 135f., 143, 205, 225, 276f., 298f., 317f. Preferential Treatmentâ•… 98, 255, 347 ‘Regulatory Chill’ (also: Chilling Effect)â•… 119, 121, 194, 204, 231, 379 Savings Clausesâ•… 141, 293f., 297, 299 ‘Self-Contained Regime’â•… 196f., 305, 314f. stare decisis (also: Rule of Precedence)â•… 259, 376 ‘Trade Lens’â•… 144, 259, 377 Trade Restrictive Measures (also: Trade Restrictions)â•… 2, 121, 131, 190, 209, 228f., 253f., 279f., 296, 327f., 376, 378

Legal Aspects of Sustainable Development General Editor: David Freestone

1. K. Bastmeijer and T. Koivurova (eds), Theory and Practice of Transboundary Environmental Impact Assessment. 2008 ISBN 978 90 04 16479 6 2. C. Voigt, Sustainable Development as a Principle of International Law: Resolving Conflicts between Climate Measures and WTO Law. 2009 ISBN 978 90 04 16697 4