Multilateral environmental agreements in the WTO: Silence speaks volumes

• Date: 01 March 2014
• DOI: http://doi.org/10.1111/ijet.12033
• Author: Henrik Horn,Petros C. Mavroidis
• Published date: 01 March 2014

doi: 10.1111/ijet.12033

Multilateral environmental agreements in the WTO: Silence

speaks volumes

Henrik Horn∗and Petros C. Mavroidis†

This study contributes to the debate concerning the appropriaterole of multilateral environmen-

tal agreements (MEAs) in WTOdispute settlement. It seeks to address this relationship in light of

the reason why the parties have chosen to separate their obligations into twobodies of law with-

out providing an explicit nexus between them. The basic conclusion is that legislators’ silence

concerning this relationship should speak volumes to WTO adjudicating bodies: MEAs should

not be automatically understood as imposing legally binding obligations on WTOmembers, but

could be used as sources of factual information.

Key wor ds WTO, disputesettlement, environmental agreements

JEL classif‌ication F13, K32, K33, Q56

Accepted 4 September 2013

1 Introduction

The members of the WorldTrade Organization (WTO) Agreement arelegally bound to respect nego-

tiated reductions of barriers to trade. At the same time, many of these countries are also members of

multilateral environmental agreements (MEAs) that often impose rights or obligations for members

to restrict trade. The relationship between these two bodies of law has created signif‌icant controversy,

since neither the WTO Agreement, nor typically the MEAs, clarify the relationship between these

sometimes, at least seemingly, contradictory undertakings. As will be explained in more detail below,

in the few cases relating to this issue that have gone through the WTO dispute settlement process,

judges have been hesitant or unwilling to accept MEAs as relevant to the WTO adjudication. This

position has been criticized by environmental lobby groups, as well as by many legal scholars.

The purpose of this paper is to contribute to the debate on the role that MEAs should play

in WTO dispute settlement. The distinguishing feature of the study is that it seeks to address the

relationship between MEAs and WTO lawin lig ht of the possibilities that countries have for bringing

MEAs into the WTO legal order, and in light of the reason(s) why the parties have chosen not to

use existing possibilities, but to separate their obligations into two bodies of law. The approach of

the paper is based on the belief that, absent an understanding of the forces that drive separation,

∗Research Institute of Industrial Economics (IFN), Stockholm, Sweden; Bruegel, Brussels, Belgium; and Centre for Eco-

nomic Policy Research,London, England. Email: henr ik.horn@ifn.se

†European UniversityInstitute, Florence, Italy; Columbia Law School, New York, USA.

Weare grateful to KyleBagwell, Eyal Benvenisti, Jaime Demelo, Giovanni Distefano,Sven-Olof Fridolfsson, TrevorHouser,

Robert L. Howse, Alan Sykes, Thomas Tanger˚

as, Joel Trachtman,and Er ik Wijkstromfor discussions and comments on

previous drafts, and an anonymous referee who provided very detailed and helpful comments. Wehave also benef‌ited

from interactions with the Entwined Research Group,and the Entwined Board. Financial suppor t fromMistra, and from

Riksbankens Jubileumsfond, is gratefully acknowledged.

International Journal of Economic Theory 10 (2014) 147–165 © IAET 147

International Journal of Economic Theory

MEAs in the WTO Henrik Horn and Petros C. Mavroidis

recommendations concerning the relationship between the agreements may not adequately ref‌lect

the factual situation at hand.

Section 2 explores the legal possibilities for integrating MEAs into the WTO Agreement. The

general conclusions that emerge are that there are indeed a number of ways in which MEAs could

have been integrated into WTO law, both through legislative means, and through adjudication. But

WTO members as well as WTO judges, be it panels or the Appellate Body (AB), have nevertheless

almost entirely refrained from using these possibilities.

In Sections 3 and 4 we turn to an economic analysis of the reasons why WTOmember countries

have chosen to keep their commitments in the trade area separate from those in the environment

area. Section 3 points to several reasons why WTOmembers could have benef‌ited from coordinating

their commitments in the two areas; for instance, this would have allowed them to save f‌ixed costs,

to materialize deeper cooperation by making it possible to exchange concessions across the trade

and the environment areas, and to enhance the ability to enforcecommitments in the environmental

area.

The fact that it would havebeen both possible and benef‌icial for countries to coordinate their trade

and environmental commitments raises a fundamental question for the discussion concerning the

appropriate role for MEAsin WTO dispute settlement: why have WTO members refrainedfrom using

the possibility of bringing MEAs into WTO law? Section 4 highlights what we believe is the major

reason for separation: the costs associated with negotiating complex agreements. These “contracting

costs” can take several forms, for example, administrative resources(labor time in particular) that are

required to prepare and conduct the negotiations; the time to implement cooperation; and possibly

also a higher risk of breakdown of negotiations. These costs serve as strong incentives for the parties

to simplify negotiations, and one means of doing this is to conduct separate negotiations on trade

and on the environment.

In Section 5 we turn to the normative question of how WTO adjudicators should treat MEAsin

the WTO, in light of what we believe are the reasons for the current separation of the two sets of

agreements. Our main conclusion, which stands in contrast to much of legal academic writing on

the issue, is that MEAs should not be interpreted as imposing rights or obligations in the WTO legal

order: if WTO members have abstained from working out the desirable relationship between their

obligations in the two policy areas, it is highly unlikely that WTO judges can f‌ill the gaps in these

international agreements. This does not require closing the door to MEAs completely,however, since

MEAs can still provide a useful source of factual information for WTO judges.

2 Bringing MEAs into the WTO

This section brief‌ly describes the legal avenues through which MEAs could be brought intothe WTO

and how these opportunities have largely been unexploited.

2.1 The legislators’ silence

The two primary ways for WTO legislators to express their views on the role of MEAs in the WTOis

through the agreement itself, and/or through “secondary law,” for example, through a decision by a

WTO Committee or Council.

2.1.1 MEAs are not covered agreements

Appendix 1 of the WTO Agreement lists exhaustivelythe covered agreements , that is, the agreements

that constitute the WTO sources of law, the law that WTO members must respect as a result of their

148 International Journal of Economic Theory 10 (2014) 147–165 © IAET