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New Zealand Journal of Environmental Law |
Last Updated: 14 February 2023
99
Unilateral Trade Measures to Combat Climate Change: A Biofuels Case Study
Kerry Puddle*
This paper examines compatibility between international trade rules and unilateral trade measures taken to mitigate climate change. This is conducted by way of a case study looking at whether New Zealand would be able to unilaterally ban the importation or use of unsustainably produced biofuels. The paper begins by briefly discussing the scope and nature of the issues surrounding unsustainably produced biofuels and why a country like New Zealand would want to take measures to restrict the access of such biofuels to its markets. The paper then outlines how a ban on the importation or use of unsustainably produced biofuels is likely to be a violation of New Zealand’s obligations under Articles III or XI of the General Agreement on Tariffs and Trade (“GATT”). The remainder of the paper consists of a detailed analysis of how trade measures taken to mitigate climate change could be justified under the Article XX exceptions to the GATT, specifically XX(b) “necessary to protect human, animal or plant life or health” and XX(g) “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”. The paper concludes by suggesting that the issue of sustainability in biofuel production would be best resolved through a multilateral agreement, as it is unlikely that a unilateral trade restriction on biofuels based on their methods of production would be justifiable under the GATT. However, it is likely that trade measures taken in
*BA (Hons), LLB (Hons) (Otago). This paper was completed in partial fulfilment of a LLB (Hons) at the University of Otago. I would like to thank my two supervisors, Dr Tracey Epps and Ceri Warnock, for their extremely helpful comments, guidance, and patience with my unending questions while I was writing this paper, although all errors remain my own.
accordance with a multilateral agreement could be justified under the GATT’s Article XX exceptions.
1. THE PROBLEM
1.1 Introduction
In October of 2007 the New Zealand Government introduced the Biofuel Bill, which would implement the Government’s proposed biofuel sales obligation.1 This sales obligation will require that New Zealand’s major fuel suppliers sell minimum quantities of biofuels along with regular petrol and diesel from 2008. It will be implemented gradually over a four-year period until 2012 when 3.4 per cent of transport-related fuel sales must consist of biofuel sales.2 In order to meet this sales quota, fuel suppliers will be able to source biofuels from both domestic and international producers and domestic and international feedstocks.3 At this point the New Zealand Government is proposing to source domestic biofuels from tallow and whey, both waste by-products of the meat and dairy industry, and from maize.4 This sales obligation is intended to help contribute to New Zealand’s international climate change obligations, increase environmental sustainability, and enhance energy security.5 The Government believes that by requiring the use of biofuels, even at these low percentages,6 over a million tonnes of CO2 emissions will be avoided over this four-year period.7 This is because when tallow is converted into biodiesel it can reduce greenhouse gas (“GHG”) emissions by 8 per cent compared with diesel. When
whey and maize are converted into ethanol they can have a 35–45 per cent reduction in GHG emissions in comparison to petrol.8
While New Zealand currently has the biomass to produce enough biofuels to meet the Government’s sales obligation,9 if consumer or industry demand were to increase or operate beyond domestic production rates, or if foreign-produced biofuels proved to be more cost-effective, New Zealand’s fuel companies may source biofuels overseas. This paper therefore assumes that New Zealand fuel companies will engage in some international trade in biofuels.
Internationally, biofuels are produced from a variety of feedstocks. The two most efficient feedstocks are sugarcane and palm oil, both of which grow in tropical and subtropical climates, where developing countries are primarily located.10 The developed countries in more temperate climates, which are heavily reliant on fuel sources, tend to lack the land or climate to produce a sufficient source of biofuels for their own use.11 Therefore, it is highly likely that international trade in biofuels will increase in the coming years with the developing countries in the tropics set to benefit the most. In light of this, some tropical countries, such as Indonesia and Malaysia, are developing a palm oil industry. Vast tracts of tropical rainforest have been cleared to make way for palm oil plantations, and more deforestation is planned.12 This deforestation poses problems for climate change.
Forests are both carbon “sinks” and “reservoirs”. This means they both absorb and store carbon. It is estimated that about 60 per cent of man-made GHG emissions are absorbed in “sinks” such as forests, soil, and the ocean.13 While, of these, the ocean absorbs the most atmospheric CO2, its capacity to absorb is only finite.14 On the other hand, the capacity of forests to absorb carbon in tree trunks, foliage, roots, and soil is theoretically limited only by their continued existence. Forests therefore can play a vital role in regulating
Opportunities and Constraints in the Creation of a Global Marketplace (International Food and Agricultural Trade Policy Council, 2006), 6.
global CO2 levels. However, when forests are converted for agricultural use or for palm oil plantations, many of the trees and plants may be burnt, releasing the carbon stored in them into the air. This deforestation can also accelerate the rate of decay of the dead wood, which can often decompose in less than ten years in tropical regions.15 Furthermore, the CO2 released from the forest is unlikely to be completely reabsorbed by the new use to which the land is converted. It takes many years for a forest sink to develop. A forest only becomes a sink when its carbon absorption exceeds that which is released by the soil.16 This means that even if the rainforests are allowed to regenerate they will still remain a source of CO2 for many years. Nor is deforestation a minor problem with climate change. The International Panel on Climate Change (“IPCC”) states that “during the 1980s more than 90% of the net release of carbon to the atmosphere was the result of land-use changes in the tropics”17 and “[o]f the major categories of land-use change, the clearing of forests for use as cropland accounted for the largest fraction of CO2 emissions from net land-use change”.18
Therefore, when New Zealand introduces its biofuels sales obligation it
would be undesirable from an environmental perspective to allow suppliers to purchase biofuels that have been produced on land that has been subject to deforestation. The effects of deforestation make it unlikely that such biofuels would have any positive effect on global atmospheric carbon levels, and could possibly be even worse for the climate than using the fossil fuels they are intended to replace. As such, it would be counterproductive and counterintu- itive if a country attempting to mitigate climate change was unable to prevent the use of fuels that might be worse for the climate than doing nothing at all. In light of this, some countries, such as the UK and the Netherlands,19 have adopted biofuel sustainability policies. New Zealand’s Biofuel Bill addresses this issue by allowing the Executive Council to disqualify certain biofuels from counting towards the biofuels sales obligation if they do not meet sustainability standards.20 However, no country has yet attempted to take trade measures to prevent the importation of unsustainably produced biofuels. This paper will
examine the possibility of whether New Zealand, given its looming biofuels sales obligation, might be able to ban either the importation or the use of bio- fuels that are produced in an unsustainable manner.
1.2 The International Climate Change Regime
As mentioned above, New Zealand would be implementing its biofuels sales obligation in furtherance of its international climate change commitments. These obligations stem from the United Nations Framework Convention on Climate Change21 (“the UNFCCC”) and the Kyoto Protocol to that Convention.22 The overriding purpose of this climate change regime is the stabilisation of GHG concentrations in the atmosphere at a level that would prevent danger to the climate system.23
Two aspects of the UNFCCC are relevant here. Firstly, the UNFCCC separ- ates its member parties into three groups: Annex I, Annex II, and non-Annex I countries. Annex I and II countries are developed countries, and New Zealand is included amongst them. Non-Annex I countries are developing countries. This separation is intended to reflect the principle of common but differen- tiated responsibility.24 This recognises that developed countries are the most responsible for the current state of affairs and have the technology and wealth to better address the problem of climate change. Therefore, when assigning obligations, developed countries can and should shoulder the greater share of the burden in mitigating climate change. Secondly, the UNFCCC imposes certain commitments on all parties. These are information- and data-collecting requirements, the formulation and implementation of “programmes” designed to mitigate climate change and climate change effects, the development and exchange of technology, and the promotion of sinks.25 Annex I parties have a further obligation to adopt national policies and to take corresponding meas- ures to mitigate climate change.26 The UNFCCC spells out these commitments only in general terms and requires no specific measures to be undertaken. The UNFCCC contains no concrete commitments capable of “enforcement” or any working enforcement provisions. It is instead a framework convention under which member States can negotiate binding emission reduction commitments. The Kyoto Protocol to the UNFCCC sets forth binding emission reduction
commitments for Annex I countries under the UNFCCC. Under the Protocol, New Zealand, by 2012, has to stabilise its GHG emissions at 1990 levels.27 Non-Annex I countries have no binding quantitative emission reduction obligations under the Protocol, only those obligations already present under the UNFCCC. The Kyoto Protocol, like the UNFCCC, contains no specificity as to what measures, internal regulations, or trade measures can or cannot be taken to achieve the Protocol’s emission reduction targets.28 It does, however, allow the use of new and renewable forms of energy as possible methods for GHG reduction, but it does not mandate their use.29
With regard to trade measures, neither the UNFCCC nor the Kyoto protocol authorise or allow, or could even be read to expressly permit, the use of trade restrictions to prevent carbon emissions in third-party States, or to prevent the importation of goods with high carbon-emitting production methods. The opposite is in fact the case. The UNFCCC states that “[m]easures 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”.30 The Kyoto Protocol states that any domestic measures should be implemented “in such a way as to minimise adverse effects ... on international trade”.31
This means that although New Zealand would be acting in accordance with its obligations under the climate change regime by implementing the biofuels sales obligation, an import or use restriction on unsustainably produced biofuels is not strictly justifiable under the climate change treaties. Furthermore, such a ban is likely to be contrary to New Zealand’s obligations as a member of the World Trade Organization (“WTO”).
1.3 The World Trade Organization
The WTO governs international trade between its members. The WTO comprises a network of treaties all aimed at deregulating world trade.32 One of the WTO’s central treaties is the GATT. The operation of the GATT is based on two principal obligations that prohibit discrimination in trade, specifically between imported and domestically produced goods. These principles are found
in Articles I and III of the GATT. Article XI of the GATT also operates to prohibit any quantitative restrictions on imports. In the WTO, if New Zealand were to ban unsustainably grown biofuels, a producer of those biofuels could bring New Zealand before a Disputes Settlement Understanding (“DSU”) Panel for a decision on rights and obligations under the WTO treaties.33 This is because any dispute arising out of the implementation of a trade measure falls under the exclusive jurisdiction of the DSU.34 If New Zealand were to attempt to restrict the importation or use of unsustainably produced biofuels, it would have to endeavour to make such a restriction compatible with the GATT.35 This paper considers some of the factors that New Zealand would have to take into account in drafting a regulation that would address the problem.
For the purposes of the following analysis, this paper will examine how two broad types of restrictions on biofuel production may fare in the GATT. One of these measures is a regulation of the amount of carbon that a fuel emits over the course of its lifetime, from crop to car. This will be referred to as the “carbon footprint” restriction. The other type of measure is a restriction on changes in the use of land that is used for producing biofuel feedstocks. This is referred to as a “land-use change” restriction. These are, of course, not the only types of regulation that policy-makers may devise. They have been chosen to show how the content of two different policy types may progress through the GATT rules.
2. GATT OBLIGATIONS
2.1 Article I
Article I of the GATT sets forth the “Most Favoured Nation” principle.36 This principle means that if a country is a member of the WTO, then it is auto- matically and unconditionally guaranteed the same trade terms with respect to a State as that State grants to all its other trading partners.37 Article I, in other words, prohibits a country from discriminating between products on the basis of their country of origin. This would therefore prohibit New Zealand from discriminating against biofuels simply because they were produced by specific countries, such as Indonesia or Malaysia.38 However, because there is nothing inherently disagreeable about Indonesian or Malaysian biofuels, only the way some of them are produced, it is unlikely that New Zealand would seek to discriminate against biofuels solely on the basis of their national origin. Any restriction on the importation of biofuels is therefore unlikely to be contrary to Article I of the GATT.
2.2 Article III
Article III of the GATT describes the “National Treatment” principle. This Article prohibits regulations that would unfavourably discriminate against im- ported products to the benefit of like products produced domestically. States are allowed to regulate the sale and use of products, but cannot regulate in a way that discriminates between imported or domestically produced goods. Two aspects of Article III are relevant here. Article III.1 prohibits domestic laws from affording protection to domestic production,39 and requires that States
provide “equality of competitive conditions for imported products in relation to domestic products”.40 Article III.4 requires that imported products “shall be accorded treatment no less favourable than that accorded to like products of national origin”.41 This covers “any laws or regulations which might adversely modify the conditions of competition between the domestic and imported products on the internal market”.42 The principle behind Article III.4 is to “prevent Members from applying internal taxes and regulations in a manner which affects the competitive relationship, in the marketplace, between the domestic and imported products involved, so as to afford protection to domestic production”.43
Article III.1 is intended to prevent regulations that would protect New Zealand’s domestic biofuels industry. Provided New Zealand did not apply regulations to imported biofuels that it did not equally apply to domestically produced biofuels, a measure aimed at prohibiting unsustainable production of biofuels is unlikely to be contrary to Article III.1. A little more contentious is whether such a regulation would be contrary to Article III.4. Article III.4 prohibits “less favourable” treatment between “like” products. The question therefore arises as to whether biofuels grown sustainably are “like” biofuels grown unsustainably. If they are unlike products, then discriminatory regulation is allowed. However, if sustainably and unsustainably produced biofuels are considered “like” products, then imported biofuels must be treated in a manner “no less favourable” than domestically produced biofuels.44
Whether two products are “like” or “unlike” can be a subject of contention in WTO jurisprudence. At issue is whether variations in methods of production can render two otherwise similar biofuels “unlike” when those methods of production have no bearing on the final product. Since the sustainability or otherwise of the method of growing a biofuel feedstock does not physically affect the resulting biofuel, New Zealand may not be able to argue that sustainably and unsustainably produced biofuels are “unlike” products. This can be contrasted with methods of production that have an effect on the physical
41 GATT 1994 (1994) 33 ILM 1154, Article III.4.
properties of the product. Where this is the case the products are considered “unlike” and can be discriminated against.45 For example, if New Zealand was to require that biofuels be of a certain degree of purity, then New Zealand could discriminate against biofuel products that had become contaminated during their production.
This distinction between these two types of process and production methods in WTO jurisprudence can be traced back to the US-Tuna cases.46 Those cases arose when the US tried to ban the importation of tuna harvested through the use of purse seine nets. The concern of the US was that purse seine net fishing resulted in a significant incidental by-catch of dolphins. Two GATT Panels disallowed this restriction, because “regulations governing the taking of dolphins incidental to the taking of tuna could not possibly affect tuna as a product”.47 As such, tuna caught in a dolphin-unfriendly way was to be considered “like” dolphin-friendly tuna because the actual tuna was in all relevant senses physically similar. This approach was further explained in the US-Gasoline case. There the Panel held that discrimination based on the characteristics of a producer is not allowed because to allow such discrimination would mean that “the treatment of imported and domestic goods concerned could no longer be assured on the objective basis of their likeness as products. Rather, imported goods would be exposed to a highly subjective and variable treatment accord- ing to extraneous factors.”48 Under this approach, any regulation affecting the sale or use of unsustainably grown biofuels would be contrary to Article III.4 of the GATT. This is because the sustainability or otherwise of the method of cultivation would be immaterial in determining likeness between physically similar biofuels.
More recent reports by the Appellate Body have, however, broadened the interpretation of “like” products and have embraced a more holistic approach rather than a test of mere physical similarity. The starting point of this broader approach is that any determination on the likeness of products should be made
on a case-by-case basis.49 In each case, “all of the pertinent evidence” must be examined when reaching a conclusion,50 and the relevant evidence will depend on the actual products being compared and the legal provision at issue. As a guideline in this case-by-case analysis, the Appellate Body has identified four general categories of characteristics51 which may assist in determining whether the products in question are “like” or “unlike”. These are: (i) the physical prop- erties of the products; (ii) the products’ end uses; (iii) “the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand”; and (iv) their tariff classification.52 The Appellate Body has stressed, however, that these criteria provide only a framework and are simply tools to be used in sorting and examining evidence, and that it is neither a closed list nor is it treaty mandated.53 In any case, the important factor to note is that under this more holistic approach physical characteristics are only one factor when determining if two products are “like”.54 This is, in other words, a more economic approach to determining “likeness”55 rather than a strict test of physical similarity.
On the basis of this more holistic test New Zealand might be able to argue that sustainable and unsustainable methods of production is a basis upon which to distinguish between biofuels. Firstly, consumer preferences can play a role in determining if two products are alike.56 Consumers perceive biofuels as emitting less CO2 than conventional fuels. If the methods of production ultimately render a type of biofuel to be of lesser or of similar efficiency as conventional fuels, then consumers may not perceive that type of biofuel as filling the same role as a more CO2-efficient biofuel. The fact that many consumers may not know the differences in the production of the biofuels appears to be irrelevant when
determining consumer preferences. In the EC-Asbestos case the Appellate Body appeared to consider consumer preferences in an idealised abstract marketplace where the consumers would know the difference between two products.57
Secondly, New Zealand could argue that the end uses of biofuels are differ- ent based on their methods of production. Biofuels are touted as an alternative to fossil fuels because they produce less CO2 emissions over their life cycles than fossil fuels.58 However, if a type of biofuel is produced in a way that results in massive net emissions of CO2, then it can be argued that that type of biofuel should not be considered “like” a biofuel that has low life-cycle emissions, as the former effectively negates its own reason for being. Furthermore, biofuels can be distinguished from tuna products because the end use of tuna is not to prevent dolphin deaths. It can therefore justifiably be said that an incidental by- catch of dolphins, while regrettable, does not affect tuna as a product. The end use of biofuels, however, is to reduce CO2 levels in the atmosphere. Therefore, any biofuel product that releases more or as much CO2 into the atmosphere as its conventional counterparts is unlike a biofuel that does not.
Nevertheless, while there is an arguable case that the end uses of sustainably and unsustainably produced biofuels are different and that consumer preference may very well swing towards sustainability in fuel sources, the physical similarities between the products may still outweigh the other differences. There has yet to be a case where a Panel has allowed discrimination under Article
III.4 based on process and production methods that have not had a material effect on the end product. It is highly unlikely that a Panel would allow such discrimination. This is because there is nothing in Article III.4 that requires recourse to international standards when determining likeness. New Zealand and any other country could therefore unilaterally set their own requirements for distinguishing between production methods, and the stability and predictability of the multilateral trading system could be undermined. Instead, it is more likely that a distinction between the production methods of biofuels would succeed under an Article XX exception rather than under a strained interpretation of Article III.4, as Article XX has more stringent safeguards in implementing discriminatory measures than Article III.
Even though a Panel is likely to consider sustainably and unsustainably pro- duced biofuels “like” products, a regulation on unsustainably grown biofuels would still have to accord treatment less favourable to imported products as
a group over domestic products as a group to be contrary to Article III.4.59 In determining if treatment is “less favourable” it is how the products are actually treated in the marketplace that matters. If a regulation gives domestic products a competitive advantage in the marketplace over imported like products, then there is less favourable treatment.60 This means that while, generally speaking, imported goods and domestic goods can be treated differently, a country cannot apply internal regulations so as to protect or give a competitive advantage to domestic products.61 Moreover, in assessing if less favourable treatment exists, the presence of a detrimental effect on an imported product can not be used to imply that the detrimental treatment exists because the product was imported “if the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the product”.62
This means that a regulation that appears to favour New Zealand’s biofuel production techniques over foreign production techniques is likely to be con- trary to Article III.4.63 However, since a regulatory measure would not be aimed at banning the sale or use of imported biofuels as such, but rather the sale and use of unsustainably grown biofuels wherever they are produced, New Zealand could argue that provided the same restrictions are applied to both domestic and imported biofuels, the measure would not adversely affect imported biofuels as a group.
Therefore, a measure restricting unsustainably produced biofuels that did not have the effect of favouring domestically produced biofuels over imported biofuels may succeed here. However, in practice a regulation that avoided discrimination along these lines may be more difficult to implement than it appears. For example, if biofuels were regulated on a land-use change basis, such a regulation could be to the detriment of foreign-produced biofuels. This is because New Zealand is planning on sourcing its biofuels in part from dairy by- products, and so would require minimal land-use change for biofuel production.
Furthermore, New Zealand has already cleared vast portions of its forests over the last two centuries, and so whatever land it converts to biofuel production is unlikely to affect the climate. The same can not be said for tropical countries, in which, it must be remembered, biofuel feedstocks grow most efficiently. Therefore it is likely that a regulation based on land-use change may have the effect of favouring New Zealand-based production techniques.
There exists less of a problem if New Zealand were to adopt a carbon footprint approach in its regulation. It is clear that under this approach New Zealand would not be able to take into account any carbon emissions that relate specifically to a biofuel’s foreign origin — for example, the carbon emitted while transporting the biofuel to New Zealand — but that should not pose too much of a concern. New Zealand should also resort to an internationally accepted standard when calculating life-cycle carbon emissions to avoid adopting a method of accounting that may favour New Zealand production techniques. However, there may be a practical problem arising from a carbon footprint approach. New Zealand is currently planning on sourcing biodiesel from tallow, which emits only 8 per cent less carbon over its life cycle than conventional diesel. Since New Zealand would not be able to favour domestic production techniques, the carbon footprint for imported biodiesel would have to be similar to that sourced from domestic tallow. However, requiring only an 8 per cent improvement in carbon emissions may not have any effect on preventing deforestation at all. It is, after all, entirely possible that, depending on the method of carbon accounting used, palm oil grown on deforested land could have 8 per cent lower carbon emissions over its lifetime than diesel. This may mean that if New Zealand continued with its plans to source biodiesel from tallow, a carbon footprint approach may not prevent the importation of unsus- tainably produced biofuels at all.
Therefore, because a Panel is likely to consider unsustainably and sustain- ably grown biofuels “like” products, and because any regulation that would be effective in barring biofuels produced from rainforest deforestation is likely to treat imported biofuels less favourably than domestic biofuels, if New Zealand tried to regulate against the use of unsustainably grown biofuels it would be acting contrary to its Article III.4 obligations.64
2.3 Article XI
Along with the above two principles of non-discrimination there is also a general ban on the use of quantitative restrictions. This is found in Article XI of the GATT,65 which prohibits anything that results in border restrictions. New Zealand would act contrary to Article XI if it banned all palm oil products. Likewise, New Zealand would act contrary to Article XI if it banned the importation of biofuels that are not produced in a sustainable manner.66 Article XI would also apply to any regulation that created a de facto import ban, such as a ban on the use of unsustainably grown biofuels.67
New Zealand would therefore have to avoid a regulatory measure that would result in a quantitative restriction and also have to avoid a regulation that had the effect of a de facto ban. This could be achieved in two ways. New Zealand could relate any import ban solely to the Ministry of Transport’s proposal to add biofuels to fuel supplies for vehicle use. This would make sustainability a requirement only in fuels offered for sale for use in vehicles. This would not result in a complete de facto ban, as fuel for industrial use could still incorporate unsustainably grown biofuels. Alternatively, New Zealand could allow unsustainably produced biofuels to be imported, but not allow such fuels to count towards the biofuels sales obligation.68 However, since the vast majority of fuel goes into the transport sector, and since it is unlikely that fuel companies would sell biofuels that would not count towards the obligation, restrictions of this sort are likely to amount to a de facto ban on imports. As such, any regulation is likely to be contrary to Article XI as well as Article III.
Therefore, if New Zealand were to attempt to regulate biofuels to help in mitigating the adverse effects of climate change, it is likely that New Zealand would be acting contrary to its primary trade obligations under the GATT. Nonetheless, the GATT allows exceptions to be made to Articles III and XI. These exceptions are found in Article XX.
3. ENVIRONMENTAL AND HEALTH EXCEPTIONS TO THE GATT
3.1 Article XX Exceptions
Article XX of the GATT allows exceptions to be made to GATT obligations in a limited number of circumstances, as outlined in paragraphs (a) to (j). To justify a trade measure under Article XX the DSU has adopted a two-tiered analysis. The first step is to determine if the measure has provisional justification by coming under one of the specific exceptions. The second step is to see if that measure conforms to the introductory paragraph known as the chapeau.69 The two Article XX exceptions that are the most relevant here are subsections (b) “necessary to protect human, animal or plant life or health” and (g) “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”. While New Zealand would arguably be acting in furtherance of the international climate change regime, neither of these exceptions explicitly allows automatic justification for measures taken under or in furtherance of obligations found in other treaties.70 Also, no trade dispute has so far required a Panel to examine whether an action taken under an environmental treaty is justifiable under Article XX. A couple of Appellate Body reports, however, have introduced techniques of treaty interpretation into the body of WTO jurisprudence that may assist in reconciling the climate change and trade regimes. In the US-Gasoline case the Appellate Body stated that the GATT should not be interpreted in clinical isolation from the rest of international law.71 In the US-Shrimp case the Appellate Body incorporated the use of the evolutionary principle of treaty interpretation that had been used in a number of International Court of Justice cases.72 Both of these approaches allow a Panel to examine other areas of contemporary international law when interpreting the language of the GATT. This could assist New Zealand in its attempt to justify a trade measure that aims to mitigate climate change.
It is worth noting here, however, that it is unlikely that the Vienna Con-
vention will assist in reconciling New Zealand’s obligations under the trade and climate change regimes. The two relevant Articles of the Vienna Convention are Articles 30 and 31. Article 30 provides that successive treaties dealing with the same subject matter should be interpreted with preference given to the latter treaty in time.73 This Article is unlikely to be applicable because it would be a stretch to argue that either the Kyoto Protocol or the UNFCCC deal with the same subject matter as the GATT. The GATT, in its broadest interpretation, deals with international trade. The UNFCCC deals with the stabilisation of GHG levels in the atmosphere,74 and the Kyoto Protocol deals with specific GHG emission targets for developed countries.75 Where trade is mentioned in either of the climate treaties, it is not mentioned in a way that could result in a conflict of interpretation. This can be contrasted with other treaties, such as the Protocol on Substances that Deplete the Ozone Layer. This treaty has provisions expressly prohibiting trade, and so a State’s obligations under them are in direct conflict with obligations under the GATT.76 Furthermore, in this treaty the trade-restrictive provisions are mandatory. In the Kyoto Protocol and UNFCCC, however, all trade measures are permissive. Therefore, Article 30 is unlikely to assist in interpreting Article XX of the GATT.
Article 31 of the Vienna Convention states that treaties should be interpreted in good faith and their words should be given their ordinary meaning in their context and in light of the object and purpose of the treaty.77 This aspect of Article 31 is applicable in interpreting Article XX as it is the standard approach to interpreting treaties. However, Article 31(3)(c) states that, together with the context, any relevant rule of international law applicable to the relationship between the parties shall be taken into account in interpreting a treaty. In the EC-Biotech case the Panel examined what Article 31 meant in relation to the WTO DSU. The Panel concluded that while the relevant rules of international law encompass both treaties and international customary law, in order for a provision in a treaty other than the GATT to be a relevant rule “between the parties” under Article 31(3)(c) of the Vienna Convention, it has to be a treaty to which all GATT members are a party.78 Nonetheless, despite this ruling the
EC-Biotech Panel still allowed terms and provisions in other treaties to “aid a treaty interpreter in establishing, or confirming, the ordinary meaning of treaty terms in the specific context in which they are used”.79 This means that a Panel can resort to the climate change treaties and other international agreements to resolve ambiguities in the GATT even if all members of the WTO are not members of those treaties.
3.2 Article XX(b) “necessary to protect human, animal, or plant life or health”
To achieve provisional justification under Article XX(b) a regulation must meet two tests. Firstly, the measure must be for the protection of “human, animal, or plant life or health”. Secondly, the measure must be “necessary” to protect against that risk.80
“Protection” implies the existence of a risk, and so there must be first of all a risk to human, animal, or plant life or health before a trade restriction can be justified under Article XX(b). While it is uncertain what the required level of risk has to be and how much proof is required to demonstrate that a risk exists,81 the nature of the risk has to be assessed in the context of the real world.82 Nonetheless, once a risk has been identified “it is undisputed that WTO members have the right to determine the level of protection of health that they consider appropriate in a given situation”.83
This means that to justify a restriction on unsustainably produced biofuels under Article XX(b) New Zealand would have to show that there is a risk to human, animal, or plant life or health posed by atmospheric carbon emissions. This threat would have to be the potential threat related to climate change. The
international law. Therefore, we need not, and do not, take a position on whether in such a situation we would be entitled to take the relevant other rules of international law into account.” EC-Biotech, para 7.72.
National Institute of Water and Atmospheric Research (“NIWA”) summary of the IPCC Fourth Assessment Report highlights the impacts that climate change will have on New Zealand in the coming century. These include a “virtually certain” increase in heat waves and fire risks; a “very likely” increase in floods, landslides, droughts, and storm surges; an increased probability of species extinction and a degrading of natural ecosystems; and the increased susceptibility to the establishment of new horticultural pests.84 These events will almost certainly have an adverse effect on human, animal, or plant life or health, so New Zealand should have no trouble convincing a Panel that climate change poses a risk to be protected against.
There may be a problem, however, in that the risk posed by climate change is an uncertain risk. While there is no obligation under Article XX(b) to quantify the risk to human life or health,85 the cases that have so far succeeded with provisional justification under Article XX(b) have dealt with matters that were a direct and measurable threat to health. In the EC-Asbestos case the health risk came from asbestos fibres, which are widely known to have carcinogenic properties. The Thai-Cigarettes case concerned the serious health risk posed by cigarettes.86 The Brazil-Tyres case concerned the threat of the accumulation of waste tyres as mosquito breeding grounds and toxic fire hazards. Even though, in that case, Brazil did not need to prove that there was a particular risk to Brazil posed by tyre fires, as it was enough for them to point to a similar risk in other States and seek to avoid it, Brazil still needed to show a risk existed. Since climate change is unprecedented it would be impossible for New Zealand to do that.
However, given the level of scientific consensus that the IPCC requires in its reports,87 it is unlikely that a Panel would decline to find that climate change poses a risk to human, animal, or plant life or health. Nevertheless, the recognition of a threat to life or health is not enough for provisional justification under Article XX(b) as the regulation also needs to be “necessary” to protect against that risk.
The meaning of “necessary” in the Article XX exceptions88 has been discussed in a number of WTO cases and the test appears to be fairly well established.89 A measure cannot be considered necessary “if a WTO-consistent alternative measure, or less WTO-inconsistent measure, is ‘reasonably available’ that would achieve the same end”.90 If there is no GATT-consistent alternative reasonably available, then the State must take the measure which is least inconsistent with GATT provisions.91 In determining if an alternative is reasonably available the measure in question is put through a balancing test and then compared with possible alternatives. In the balancing test the importance of the common interests or values, the extent to which the measure contributes to the desired ends, and the restrictive effects on international commerce are weighed up.92 In the US-Gambling case the Appellate Body also said that an alternative measure is not reasonably available if it is “merely theoretical in nature” and “imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties”.93
A further element may be relevant to this balancing test when dealing with- in the realm of climate change. This is the so-called precautionary principle. Under the UNFCCC parties are encouraged to take precautionary measures to minimise the risk of climate change. Article 3.3 states that “Parties should take precautionary measures to anticipate, prevent or minimise 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.”94 While the application of this principle is dependent on there being a risk of “serious or irreversible damage”, in the New Zealand context it should not be difficult to argue that, for example, heat waves, floods, and species extinctions would be serious damage.95 As such, the
precautionary principle may be applicable if New Zealand were to try to justify an action as being necessary to protect life or health despite not having full scientific certainty about the exact nature of the risk to life or health.
Unfortunately, the status of the precautionary principle in WTO jurispru- dence is currently unclear. The EC has invoked the precautionary principle as justification for trade restrictions in two cases and failed both times. In EC-Hormones the Appellate Body agreed with a Panel’s finding that the precautionary principle does not override the explicit wording in the Agree- ment on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”). They also declined to rule on whether or not, in the abstract, the precautionary principle was a part of customary international law, but noted that the principle itself was lacking an authoritative formulation.96 In EC-Biotech the EC again tried to invoke the precautionary principle to override terms in the SPS Agreement. The Panel there considered it unnecessary to express a view on whether or not the principle was a matter of international customary law. Instead it held that under Article 31(1) of the Vienna Convention, the Panel would only need to refer to the precautionary principle to assist in interpreting rules, and if no assistance were required, then there would be no need to refer to it.97 It is useful to note though that the US in its submissions agreed that the precautionary principle would be useful for interpreting treaty provisions, but it could not override unambiguous treaty terms.98
Therefore, while it is highly unlikely that New Zealand could invoke the precautionary principle in lieu of the balancing test, there is nothing in Article XX(b) that is inconsistent with an appeal to the principle as part of the test. The actual text of Article XX(b) does not require substantive scientific justification,99 so a precautionary regulation to protect life or health would not be prohibited by the treaty language. There is also nothing in the existing case law that would prohibit New Zealand from appealing to the principle. This can be seen in EC-Asbestos where the absence of scientific certainty did not undermine France’s ban on asbestos,100 nor did the Appellate Body require the following of “majority scientific opinion”.101 Thus, it appears that while an appeal to the precautionary principle will not by itself enable New Zealand to justify an action as being necessary, it could be incorporated into the “necessary” balancing test.
101 Ibid, para 178; and Elizabeth Fisher, Judith Jones and Reneì von Schomberg, Implementing the Precautionary Principle: Perspectives and Prospects (Edward Elgar Publishing, 2006) 173.
The following analysis, which looks at each of the factors to be weighed and balanced, proceeds on that basis.
In the Korea-Beef case the Appellate Body held that the “more vital or important [the] common interests or values” pursued, the more likely it is that a regulation to achieve those ends would be seen as “necessary”.102 It is clear that human, animal, or plant life or health is an important common interest, but it appears from the case law that it is the severity of the actual threat to life or health that provides the weight in this part of the test. In the Brazil-Tyres case the Panel held that protecting human health against life-threatening diseases was “both vital and important in the highest degree”,103 but held that protecting animal and plant life and health “should also be considered important”.104 Likewise, in EC-Asbestos the Appellate Body mentioned that the risk being protected against there was not merely to human life and health, but the protection of human life and health from life-threatening health risks.105 From this it could be argued that appealing to a mere threat to human, animal, or plant life or health, despite being an important consideration, will not by itself greatly influence this part of the weighing test. Instead, New Zealand probably would have to appeal to the severity of the risk posed to life or health.
As stated above, climate change might adversely affect New Zealand through changing rainfall patterns, causing more frequent droughts and floods, and an increase in heat waves, pests, and soil erosion. This could potentially affect human life and health and would also have an adverse effect on plant and animal life and health in New Zealand and, specifically, affect New Zealand’s agriculture, horticulture, and forestry industries, which comprise its major export markets.106 While the threat climate change poses to human health and life in New Zealand is unlikely to be as severe as the threat posed by known carcinogenic substances or life-threatening diseases, it is unlikely that a Panel will not take it into account. The absence of a specific or identifiable threat may just go to the weight given to this factor in the balancing test.107 However, because of the potentially severe impacts on New Zealand’s economy relating to
threats to animal and plant life or health, New Zealand could argue that a Panel should give this great weight as it is a common interest of high importance.108
There may be an issue, however, in that the risks posed by climate change are uncertain risks, and this uncertainty makes it difficult to weigh up the severity of the risk. New Zealand could appeal to the precautionary principle here by arguing that although there is no absolute scientific certainty that the damage will occur, this should not prevent New Zealand from taking steps to prevent a risk that will have severe consequences. In any event, New Zealand should be able to argue that the protection of human, animal, or plant life or health is a vital common interest, especially considering the importance of the agricultural industry in New Zealand, and the potential consequences if that is adversely affected.
In the Korea-Beef case the Appellate Body held that “necessary” is to be judged more towards the pole of “indispensable” than the pole of “making a contribution to”.109 In the Brazil-Tyres case the Panel described the test as being “primarily an analysis of the pertinence and relevance of the chosen means for the achievement of the aim pursued”.110 This suggests that the relation- ship between the means and the ends should be fairly tangible. It is here that New Zealand may run into problems, as the extent to which the regulation of unsustainably produced biofuels would mitigate the risk that climate change poses to human, animal, or plant life or health in New Zealand is likely to fall more towards the “making a contribution to” end of the spectrum than the “indispensable” end.
Using the example regulations set out earlier, it can be seen that on the one hand New Zealand should not have a problem with arguing that a measure aimed at preventing land-use change has a connection with mitigating the health threats posed by climate change. As stated above, land-use change is a major cause of net carbon dioxide emissions, and increased carbon dioxide in the atmosphere is a cause of climate change. The same can be said for regulations on life-cycle carbon emissions, as such regulations would be aimed at reducing the net amount of carbon emitted into the atmosphere. New Zealand could also argue that since climate change has many causes, any measure that attempts
to mitigate the adverse effects of climate change will always only contribute to the solution rather than be indispensable to it. As such, while the individual steps may not make much difference, each small step in tackling climate change forms part of an indispensable whole.
On the other hand, the link between regulating biofuel production and protecting life and health in New Zealand is not a particularly strong one. Firstly, while the predicted effects of climate change would adversely affect life and health in New Zealand, there is still a good deal of scientific uncertainty regarding the probability and extent of those effects. Nonetheless, New Zealand could argue that a precautionary approach may be appropriate in this situation. Because the risks posed by climate change are predicted to be severe, New Zealand could argue that this severity should allow a country to take precautionary measures to prevent those effects despite the lack of scientific certainty.
Secondly, in EC-Asbestos and Brazil-Tyres the items that were subject to the import ban were items that were causing a direct or indirect threat to life and health in France and Brazil. With biofuels it is not the actual biofuels that would be threatening life and health, but the method of their production, which occurs entirely in another State. This makes the connection between an import ban on unsustainably produced biofuels and life and health in New Zealand somewhat more tenuous than if the biofuels themselves were inherently dangerous. It also means that New Zealand’s measure will only be effective if biofuel-exporting States decide to exercise their trade rights with New Zealand. Moreover, if other biofuel-importing States do not regulate biofuel production in a similar manner, then New Zealand’s measure would be almost entirely ineffectual.
Thirdly, and related to the previous point, a unilateral import ban of un- sustainably produced biofuels by New Zealand would not be a huge step in mitigating the harmful consequences of climate change. At present New Zealand will only be mandating that a minimum 3.4 per cent of all fuel sales be biofuels, and that is by the year 2012. The predicted savings of carbon emissions is between 1.08 and 1.12 million tonnes of carbon over a four-year period.111 New Zealand is also likely to have a substantial domestic biofuels industry from which to source fuels.112 This means that the quantity of biofuels that New Zealand would import is likely to be small.
Therefore, while there is a link between the methods of production of biofuels and human, animal, or plant life or health in New Zealand, this connection is slight and a Panel is likely to see it as making more of a con- tribution to the mitigation of climate change, than being indispensable in preventing it.
This part of the balancing test is wholly dependent on the type of measure implemented. If New Zealand implemented a complete import ban on unsustainably produced biofuels then this would have severe impacts on trade. While a complete ban is not enough in itself to deny provisional justification, as in EC-Asbestos a total import ban obtained provisional justification, it would be a considerable counterbalance to the importance of the common interest that New Zealand has in preventing climate change. However, if New Zealand implemented a use restriction on unsustainably produced biofuels the effects on trade would be less severe.
While a Panel will not consider a trade measure as necessary under Article XX(b) if there is a less WTO-inconsistent alternative reasonably available, it is for the complaining party to put forward an alternative to the proposed measure.113 It would then be for New Zealand to demonstrate that its regulation is necessary in relation to the proposed alternative or why the proposed alterna- tive is not reasonably available.114 In EC-Asbestos the Appellate Body held that in determining if an alternative was reasonably available the following should be taken into account: the difficulty of implementation; whether the alternative achieves the health policy objectives; and the elements of the balancing test set out above. The Appellate Body also noted that it would be unreasonable for a country to introduce a measure that continued the very risk that the ban sought to halt,115 and the Panel in that case held that a ban on one substance does not need to be justified by showing that other products are less dangerous.116
If a biofuel exporter were to challenge a measure that New Zealand took, then the following may be relevant in the assessment of whether an alternative to a biofuels import ban is reasonably available. As stated above, more than 50 per cent of New Zealand’s fleet cannot take more than a 3 per cent biofuel blend. This means that New Zealand is limited in how it can reduce its transport- related carbon emissions. It is likewise unreasonable to ban all fossil fuels, and may be considered unreasonable to impose restrictions on vehicle use. How- ever, the actual application of this part of the “necessary” test is dependent on a proposed alternative measure, and so is beyond the scope of this paper.
Therefore, while it is arguable that a New Zealand regulation could be considered “necessary” for the protection of human, animal, or plant life or
health, such an assessment is entirely dependent on any less WTO-inconsistent alternative being put forward. Nonetheless, although the common interest that New Zealand is seeking to protect is of great importance to New Zealand, a regulation on unsustainably produced biofuels would only contribute to protection against the risk of climate change, rather than be indispensable in that protection. Therefore, it is likely that if a complaining party did propose an alternative measure, New Zealand’s proposal might not seem “necessary” when compared to it.
3.3 Article XX(g) “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”
In order to obtain provisional justification under Article XX(g) there has to be an exhaustible natural resource which New Zealand is trying to conserve, and the regulation has to relate to that conservation and exist alongside similar domestic restrictions.
Possibly the biggest obstacle that New Zealand would face in achieving pro- visional justification under Article XX(g) would be determining what the exhaustible natural resource is that New Zealand aims at conserving. Numer- ous trade cases have extended the meaning of the phrase “exhaustible natural resources” beyond the original intended meaning of raw materials or minerals,117 and it has to date been applied to sea turtles, salmon fisheries, and clean air.118 The natural resource that New Zealand is attempting to conserve by regulating biofuels would have to be the global climate system. Unfortunately, the climate system does not neatly fit within any conventional definition of “resource”, but New Zealand might be able to rely on the reasoning in two WTO cases to support the idea that the climate is an exhaustible natural resource.
In the US-Gasoline case the Panel found that “clean air” was an exhaustible natural resource, because it has value, is natural, and could be depleted.119 In the
US-Shrimp case the Appellate Body found that sea turtles, despite being living creatures, were an exhaustible natural resource. The Appellate Body said that although the GATT treaty was drafted in the 1940s, it “must be read by a treaty interpreter in the light of contemporary concerns of the community of nations about the protection of the environment”120 and that the term “natural resource” is not “static”, but “by definition evolutionary”.121 The Appellate Body then noted that modern international conventions refer to “natural resources” as embracing both living and non-living resources and concluded that sea turtles were thereby a natural resource.122
On the basis of these cases New Zealand could argue that the climate is a natural resource. The climate is undoubtedly natural. The point of possible contention is whether or not it is a resource. The problem is that the climate is a result of a balance of chemicals in the atmosphere, rather than an actual thing in itself. However, New Zealand could argue that the correct balance of those chemicals is a resource. Under the approach in US-Gasoline, New Zealand could argue that the climate is a resource because, as it is an essential condition that sustains all life on Earth, it has great value. Under the approach in US- Shrimp an appeal can be made to the climate change regime as representing the “contemporary concerns of the community of nations about the protection of the environment”, meaning that the climate system should be regarded as a “natural resource”. Also, while the climate is not defined as a “natural resource” in any treaty,123 “air” has been included amongst the natural resources of the Earth in the Declaration of the UN Conference on the Human Environment (“Stockholm Declaration”).124 The World Charter for Nature also makes reference to “atmos- pheric resources” in Article 1.4.125 While this can be distinguished from the approach in US-Shrimp where the Appellate Body used other treaties as evidence that living creatures were defined specifically as “natural resources” and extended this to the GATT, New Zealand could draw an analogy between “air” and the “climate”. In any case, given the Appellate Body’s remark in US-
Shrimp that the GATT should be interpreted in light of the concerns of the community of nations, it is unlikely that a Panel would decline to acknowledge the international climate change regime. Hence, it is likely that the climate would be considered a “natural resource” for the purposes of Article XX(g).
In the US-Gasoline case the Panel addressed the issue of exhaustibility. It noted that the fact that only a quality of the air, its cleanness, was being depleted was not decisive as to whether or not something was exhaustible, nor was the fact that the resource was renewable.126 In the US-Shrimp case, sea turtles were held to be exhaustible because they were threatened with extinction, as evidenced by the fact that they were listed in Appendix 1 of the Convention on International Trade in Endangered Species of Wild Flora and Fauna (“CITES”) treaty.127 This may indicate that a level of consensus could be required for a resource to be considered exhaustible. However, this can be contrasted with the Canada-Herring case where fish stocks that were not even remotely endangered were held to be exhaustible natural resources.128 Based on these cases, there is room for New Zealand to argue that the climate is “exhaustible”. The current condition of the climate is being depleted through CO2 emissions, so follow- ing US-Gasoline the climate is exhaustible. This change is also recognised in international treaties such as the UNFCCC, so there is a level of consensus that it is happening. So, if previous cases are followed on this point, it is likely that a Panel would consider the climate exhaustible.
There, however, exists a further issue when considering whether the climate is an exhaustible natural resource. This issue concerns not so much what the climate is, but where it is located. It is reasonably clear that the climate cannot be assimilated with territorial airspace,129 but instead it has to be regarded as part of the global commons, as evidenced by the phrase “common concern of human/mankind”.130 This means that if New Zealand regulated to conserve the climate, it would necessarily be regulating to conserve a resource that exists in part beyond its territorial jurisdiction. The WTO and GATT cases that have dealt
with the issue of extraterritorial jurisdiction under Article XX have so far been indeterminate as to whether a State is or is not allowed to regulate to protect a resource outside of its own jurisdictional limits. Nonetheless, this is unlikely to pose a problem for New Zealand.
Firstly, there is nothing in the actual text of Article XX that confines its application to only resources found within the regulating State. Some Article XX exceptions even have an explicit extra-jurisdictional focus, such as Article XX(e) for prison labour, and XX(f ) for national treasures.131 Secondly, while the case law on this issue is unclear and at times contradictory, what has been said can be read in New Zealand’s favour. Three cases have so far dealt with this issue under both Article XX(b) and XX(g). These were the two US-Tuna cases and US-Shrimp; and all three cases dealt with an attempt at protecting migratory species in the global commons.
The GATT Panel in US-Tuna I held that Article XX(g) could not have an extra-jurisdictional application. The Panel’s reasoning centred on two points. One was the coercive effects that such measures would have if WTO members “could unilaterally determine the conservation policies from which other contracting parties could not deviate without jeopardising their rights under the General Agreement”.132 The other was that the second part of Article XX(g) requires that restrictions must be made effective in conjunction with restric- tions on domestic production or consumption. The Panel held that since a State can only effectively control production or consumption of a resource under its own jurisdiction, this indicated that Article XX(g) was only meant to apply to resources within a State’s own jurisdiction.133
The GATT Panel in US-Tuna II came to an altogether different conclusion. They held that there was nothing in the text that mandated an interpretation one way or another.134 Nor was a State’s regulation of resources outside its jurisdiction contrary to general international law.135 As such, the Panel con- cluded that there was no reason to limit the application of Article XX(g) to resources found within the regulating State.136 Nonetheless, the Panel held that Article XX(g) could not be used to allow trade measures that operated in a way that forced other WTO members to change their policies in their own jurisdiction.137
In the US-Shrimp case the Appellate Body dodged the issue. The Appellate Body granted provisional justification to a measure for conserving migratory
sea turtles, because in the specific circumstances of the case there was a “suffic- ient nexus” between the resource and the State invoking the measure.138 In doing this the Appellate Body explicitly declined to rule on whether or not there was an implied jurisdictional limitation in Article XX(g), and if there was, what the nature and extent of that limitation could be.139 The Appellate Body also did not comment on what would or would not make a sufficient nexus. It is significant, however, that the Appellate Body overturned the Panel’s ruling in that case which forbade the US’s measure because of its unilateral character.140 This indicates that the fixation that the GATT Panels had in the Tuna cases with the coercive effect of extra-jurisdictional regulation is no longer a relevant factor under Article XX(g).
So, using the case law as a guide, it is very arguable that there is a suffic- ient nexus between New Zealand and the climate. Firstly, and most obviously, New Zealand exists within the climate, and so there is a significant geographic overlap. Secondly, it has been internationally recognised that “change in the Earth’s climate and its adverse effects are a common concern of humankind”.141 While it is unclear what the phrase “common concern” means, it could imply an erga omnes right which would justify New Zealand protecting the climate without having to allege that it is uniquely affected.142 Thirdly, certain international treaties, such as the Stockholm Declaration,143 the UNFCCC,144 and the Kyoto Protocol, have the effect of legitimising the protection of the climate, so New Zealand would not be running foul of international law by doing so. Fourthly, climate change is a global problem and its effects will pay no attention to jurisdictional boundaries, so imposing arbitrary jurisdictional limits upon its protection might be considered misguided. Therefore, because climate change will inevitably have some kind of effect upon New Zealand, and there is no law forbidding it from taking action, New Zealand should be entitled to take steps to protect the climate.
The counterargument is that because New Zealand would be regulating to protect the climate in a way that would be regulating what other countries can do within their own borders and with their own natural resources, the regulation
will be ultimately coercive, and thus, on the reasoning of the Tuna cases, not permitted under Article XX(g). However, given the development of the jurisprudence of Article XX since the US-Tuna cases, this potentially coercive effect is more likely to be dealt with under the chapeau of Article XX.
New Zealand would arguably be entitled to take measures to protect a resource that is a global commons, here the global climate system.
In the US-Shrimp case the Appellate Body said that when determining what “relating to” means “the treaty interpreter essentially looks into the relationship between the measure at stake and the legitimate policy of conserving exhaustible natural resources”.145 As such, the general structure and design of the measure is examined to see if it relates to the policy goal it purports to serve,146 and if the means reasonably relate to the ends.147 Also, the Appellate Body held that even if a measure was designed to influence the adoption of specific technology and policies, it would still relate to conservation if it were not disproportionate in its scope and reach.148
It is unlikely that a regulation on the production methods of biofuels, if structured correctly, would fall at this hurdle. Reducing carbon emissions is a way of mitigating climate change, and a regulation that was structured to prevent excess emissions would be one that is not disproportionate in its reach or scope. Likewise, land-use change is a major contributor to carbon emissions, so such a regulation would also be proportionate in reach. The fact that regulations focus on the process and production methods of biofuels should also not be an obstacle as the Appellate Body in US-Shrimp granted a regulation of process and production methods provisional justification under Article XX(g). As such, it would be only if New Zealand were to impose a blanket ban on all biofuels, regardless of how they were produced, or some similar restriction, that the regulation would fail to “relate to” conservation.
The Appellate Body has stated that the requirement that the regulation be “made effective in conjunction with restrictions on domestic production or consumption” is a test of “even-handedness”.149 This is because a lack of domestic restrictions in the face of restrictions on foreign producers would not be accepted as “primarily or even substantially designed for implementing conservationist goals”.150
This means that any restrictions New Zealand applied to the production of imported biofuels would have to be applied to a similar extent in New Zealand. It is at this stage that the nature of the regulation imposed is relevant. If New Zealand were to impose a carbon footprint regulation, the same footprint would have to be applicable across all producers, both domestic and foreign. This means that if New Zealand were to persist with its plan to utilise tallow, which only has an 8 per cent carbon emission reduction over conventional diesel, it may effectively set the bar so low that the regulation may not “relate to” the conservation of the climate at all. New Zealand would therefore either have to abandon its plan to use tallow, or grant the same low standards to foreign producers. Likewise, with a land-use change restriction, New Zealand may have a problem since it is estimated that 13,000 to 45,600 hectares151 may be required for maize growing to meet New Zealand’s biofuels sales obligation. If New Zealand were to impose a land-use change restriction on foreign countries, then the land which New Zealand would be able to convert to maize crops would have to meet the same criteria that New Zealand would require of other countries. However, this is more of an issue to take into account in the drafting of a regulation than an obstacle in its implementation.
Therefore, because it is arguable that the climate is a natural resource which is exhaustible and has a sufficient nexus with New Zealand, and because an appropriately drafted regulation would be proportionate in its scope and reach and apply the same restrictions to New Zealand as to the rest of the world, a Panel is likely to grant a measure regulating unsustainably produced biofuels provisional justification by way of Article XX(g).
If a Panel were to grant provisional justification to the regulation, the next step is getting the measure through the chapeau of Article XX. The chapeau
deals with how the measure is actually applied,152 and the policy content of the measure cannot be brought into play when applying the chapeau.153 The chapeau has three tests that have to be met. The regulation cannot be, in its application, arbitrarily discriminatory, unjustifiably discriminatory, or constitute a disguised restriction on trade. There are two potential difficulties here. Firstly, the Appellate Body in the US-Shrimp case said that applying the chapeau is a balancing exercise, which is to be done on a case-by-case basis after taking into account the measures at stake and the specific facts relating to the issue at hand.154 The second problem is that because the chapeau deals with the application of the measure, and not the content, it is difficult to analyse the application of a hypothetical regulation in the abstract. Nonetheless, lessons can be learnt from past cases as to what specific factors may be relevant and what to avoid when applying Article XX exceptions.
Regardless of the type of regulation implemented, it is likely that it would have to include some kind of certification or registration scheme whereby shipments of biofuels, or biofuel producers, are certified as using sustainable techniques. This would be required because without such a scheme New Zealand would not be able to realistically assess how biofuels are produced in another country, and so would not be able to distinguish between them. A certification scheme would also be required because biofuels, being liquids, are easily mixed. Therefore, fuels from sustainable and unsustainable sources can be combined in one tanker, and without a certification scheme there would be no way of knowing this had happened. Under the chapeau the application of this certification scheme would have to be neither unjustifiably nor arbitrarily discriminatory, nor a disguised restriction on international trade.
To violate the first two tests in the chapeau, the application of the regulation has to result in discrimination between countries where the same conditions prevail,155 and that discrimination has to be either unjustifiable or arbitrary. This discrimination has to be that which is over and above discrimination that
would result from a breach of Articles I, III, or XI.156 The discrimination can be between different foreign producers and/or between domestic and foreign producers.157 Therefore, the first thing New Zealand should do is to ensure that the regulation is not applied in a way that is discriminatory between itself and importers, and between different importers. This may, in itself, be impossible. This is because, whichever type of regulation that New Zealand were to employ, some form of discrimination is bound to occur. For example, under a land- use change restriction, there would be discrimination between developed Northern countries that already have an abundance of cleared land, and less- developed tropical countries that still have much forested land. Under a carbon footprint restriction, there would be discrimination between countries with more developed and cleaner technology at their disposal and those without. It may also give a competitive advantage to those countries that have the research capac- ities to further decrease the carbon footprints of their products. This means that some form of discrimination is inevitable. The key for New Zealand, therefore, is to do its best to make the discrimination neither unjustified nor arbitrary.
There is no set rule as to what would make a form of discrimination unjustifi- able. In Brazil-Tyres the Panel held that, for a discriminatory measure to be justifiable, a State needs to be able to “‘defend’ or convincingly explain the rationale for any discrimination in the application of the measure”.158 Three cases have shown how a measure that passed provisional justification was applied in an unjustifiably discriminatory manner. These are US-Shrimp, US- Gasoline, and Brazil-Tyres.
In the US-Gasoline case the Appellate Body found that foreseeable discrimination that was not “merely inadvertent or unavoidable” is unjus- tifiable.159 In Brazil-Tyres the Panel found that, despite an import ban, Brazil was importing tyres in a discriminatory fashion to such an extent that it undermined Brazil’s stated objective. This was unjustifiable.160 Following this case law, New Zealand would have to avoid any foreseeable and avoidable discrimination, and not apply the restriction in a way that would undermine the objective of protecting the climate or life and health in New Zealand. The Appellate Body, however, dealt with the issue of unjustifiable discrimination in the US-Shrimp case more thoroughly. There it found that the measure in question was applied in an unjustifiably discriminatory manner because of the cumulative effects of a
number of factors. The US negotiated with some of its trading partners to find a solution to the problem of turtle conservation, but did not do so with others.161 The measure would have forced a rigid and inflexible application of the same law to all countries without regard to differences in local circumstances.162 Also, the US granted some countries more favourable phase-in periods than others and shared technology differently between trading partners.163 Although the relative weight given to these factors was not stressed, the “intended and actual coercive effect on the specific policy decisions made by foreign governments” was considered the measure’s most conspicuous flaw.164 These factors are explained in more depth below.
In the US-Shrimp case the manner in which the US implemented its regulation effectively required that all other countries adopt a policy that was identical to that which the US required of its own fleet.165 The Appellate Body saw this as being discriminatory as it required that the same comprehensive regulatory programme be applied across all countries, but did not take into account or even allow for any inquiry as to the appropriateness of the measure to the con- ditions in other countries.166 This discrimination was also unjustifiable because it was a “single, rigid and unbending requirement”167 and was more concerned with influencing WTO members to adopt the same regulatory regime that the US applied to its own fleet than the protection of sea turtles.168 In US-Shrimp II the Appellate Body endorsed a regulation that required measures to be “comparable in effectiveness”169 rather than “essentially the same”. Such a measure would allow the exporting party latitude with respect to the programme it institutes to achieve that level of effectiveness and to suit its regulations to local conditions.170
New Zealand should implement its regulation in a manner focusing on specific end goals and be flexible as to the particular means of getting there.
The ends here are, of course, a transport fuel policy that has a reduced impact on climate change through restrictions on unsustainably grown biofuels. This means that New Zealand would not be able to apply “sustainability” to exporting countries in the same way that it would be applied in New Zealand without taking into account differences in the conditions in those exporting States. Instead, New Zealand would have to allow exporting countries to implement their own definition of “sustainability” or require an international standard to be implemented. Obviously, this criterion of sustainability would have to take into account carbon emissions, or otherwise the purpose of the regulation would be defeated.
There are, however, two further issues with regard to the possible coercive effect of the measure. In implementing a sustainability requirement for biofuels, New Zealand is likely to be regulating the use of resources within developing States. Such States tend to be granted special privileges on the international stage due to their developing status. This can be seen in the Declaration of the UN Conference on Environment and Development (“Rio Declaration”),171 the Stockholm Declaration,172 and the UNFCCC173 and its Kyoto Protocol.174 This appears to suggest that not only do developing countries have different prevailing conditions than developed countries, but also that in the climate change regime the international consensus is that climate change mitigation and development go hand in hand. Since any restriction that New Zealand would implement would effectively limit developing States from developing a biofuels industry through the exploitation of their own resources, it would run counter to this right of development. A Panel may take this factor into account. New Zealand could argue that the right to develop is not an unfettered right, as it is qualified by reference to an avoidance of transboundary harm, a preference for sustain- able development,175 and the aim of the stabilisation of GHG concentrations in the atmosphere.176 However, because none of these environmental treaties expressly allow these qualifications to be enforced through trade sanctions, it is highly unlikely that New Zealand could justify a trade measure by this route.
A Panel may also view New Zealand’s measure as not just being coercive with respect to the exploitation of natural resources, but also coercive with
respect to national CO2 emission reductions. This is relevant because, under the international climate change regime, developing countries have no specific emission reductions. New Zealand’s measure would thus have the effect of forc- ing some countries to reduce emissions when the international consensus in negotiating the climate change regime was that that was not required of them.
Therefore, while New Zealand would be operating within international law by protecting an interest beyond its own jurisdiction, and is arguably obligated, along with all other States, to do so, it is unlikely that a Panel would allow the protection of such interests or the enforcement of such obligations through trade measures.177 This would apply even though New Zealand has an interest in mitigating climate change, as all countries do, and despite the fact that other countries are obligated to take measures to mitigate the effects of climate change. A Panel may see any regulation that purported to force another country to adopt a specific policy and resulted in discrimination as being unjustifiable discrimination.
In the US-Shrimp case the US, when enforcing a measure that related to the protection and conservation of a resource that existed in the territory of many different countries, negotiated with some of its trading partners, but not with others.178 The Appellate Body, quite unsurprisingly, found that this approach was discriminatory.179 This discrimination was also unjustifiable because, firstly, the US had managed to successfully negotiate a multilateral treaty for the protection of sea turtles with its Atlantic trading partners, but did not attempt to negotiate a similar treaty with Pacific and Indian Ocean trading partners. Secondly, the Appellate Body noted that numerous multilateral treaties stress that “as far as possible” environmental measures which concern international or transbound- ary matters should be based upon consensus and co-operation,180 but that the US’s attempt at sea turtle conservation in relation to the Pacific and Indian Oceans was entirely unilateral.181 Thirdly, the relevant US law actually required the US to enter into negotiation with its trading partners.
However, this Appellate Body ruling should not be used to read an obliga- tion to negotiate into the chapeau. Past cases have dealt with unilateral import bans and required no prior negotiation. For example, France in the EC-Asbestos case was able to unilaterally ban the importation of asbestos without having to negotiate with any other party. The pertinent lesson from US-Shrimp is that the Appellate Body held that international matters should, where possible, be dealt with through consensus and co-operation.182 This means that since New Zealand would be endeavouring to protect a global common, it would probably have to attempt negotiations with trading partners before instituting a discriminatory unilateral import ban. The Appellate Body in US-Shrimp II laid out what such negotiations should entail. New Zealand would have to give all trading partners a similar opportunity to negotiate,183 and the efforts have to be in good faith and comparable from one forum to another, although there is no requirement that negotiations be identical.184 Although, despite this obligation to enter into nego- tiations, the Appellate Body expressly stated that there is no requirement that the negotiations have to result in an agreement.185
Two issues may arise here. Firstly, there already exist two multilateral treaties aimed at mitigating climate change, and New Zealand is arguably taking measures in furtherance of those treaties. As such, New Zealand could try to argue that it is giving effect to what the international community has already agreed upon as the appropriate cause of action. This argument is likely to be un- successful, though, as a Panel is unlikely to see a unilateral measure that directly affects other States, but which relates only peripherally to a multilateral treaty, as being a measure that can be justifiably instituted without prior negotiation with the affected States.
The second issue is that such negotiations have to be feasible.186 The cost and time to New Zealand to open discussions with all potential biofuel exporters might be more than a little onerous considering the amount of biofuels New Zealand is likely to import. A better approach, since a number of countries appear to be concerned over this issue, is for potential and concerned biofuel importers to group together and pool resources to negotiate a solution. This may in fact be the inevitable solution to this problem as it is highly unlikely that New Zealand would be able to introduce a unilateral import ban without first entering into negotiations with affected States.
In US-Shrimp the US was more willing to share technology with some of its trading partners than with others, and allowed the regulation to be phased in differently between its trading partners. This was discriminatory and unjus- tifiable.187 To avoid this problem New Zealand would have to extend the same sustainability requirements to all countries at the same time. If the regulation was of the carbon footprint type, New Zealand, if it had access to specialised technology that assisted in the calculation of life-cycle carbon emissions, would have to share this technology equally between all of its trading partners. To do so unequally would be discriminatory and also, following US-Shrimp, arbitrary. Likewise, the regulation would have to apply across all countries at the same time, unless there was very good reason to do otherwise.
Like “unjustifiable discrimination”, there are again no set criteria as to what would make a regulation’s application arbitrary. Our only guidance is that in US- Shrimp II the Panel found that arbitrary should be given its ordinary meaning of capricious, unpredictable, or inconsistent.188 The US-Shrimp case also held that the US measure was applied in an arbitrarily discriminatory manner because in its application there was a lack of basic due-process requirements and its application was rigid and unbending. These two factors are now discussed.
(a) Rigid and unbending policy
The US measure was arbitrary because it required other countries to adopt essentially the same programme as the US “without inquiring into the appro- priateness of that program for the conditions prevailing in the exporting countries”.189 This rigidity and inflexibility made the application of the measure arbitrarily as well as unjustifiably discriminatory. To avoid this, New Zealand would have to take the same precautions as set out above.
(b) Due-process considerations
In the US-Shrimp case the US certification system lacked a transparent and predictable process. There was no opportunity to be heard or to argue one’s case. There were no formal written decisions, nor was there an appeals process.
Countries that were denied importing rights were neither told of the refusal nor given the reasons for the refusal. The whole process was informal and casual.190 This resulted in arbitrary discrimination between those countries that were granted certification and those that were not. The arbitrariness of the discrimination was underscored by Article X.3 of the GATT, which requires due- process standards for any measure that is in compliance with GATT obligations. The Appellate Body held that the same standards should be required of any measure purporting to be an exception to those obligations.191 As such, New Zealand should make its requirements open and transparent and incorporate all relevant due-process considerations.
The final test in the chapeau is that the application of the regulation cannot constitute a disguised restriction on international trade. This test has not been given much attention by the Appellate Body, except in US-Gasoline where it held that a measure that was arbitrarily or unjustifiably discriminatory was likely to also be a disguised restriction on international trade.192 The Panel in Brazil-Tyres, however, made a finding on this point. In that case the Panel found that although Brazil was attempting to ban the importation of retreaded tyres to prevent risks to health posed by waste tyres, they still allowed used tyres to be imported. Since this had the effect of benefiting the Brazilian tyre retreading industry and because the used tyres were imported “in such quantities as to seriously undermine the achievement of the stated objective of avoiding the further accumulation of waste tyres” the Panel found that Brazil had applied its measure in a way that was a disguised restriction on international trade.193 Therefore, New Zealand would have to avoid applying the regulation in a way that would have the effect of benefiting the New Zealand biofuels industry and undermining the intended policy goal behind the regulation.
Therefore, if New Zealand cannot make the application of its regulation non-discriminatory, it should make the application as flexible as possible and design it so that it is focused on ends rather than the means of achieving those ends. Before instituting any measure, New Zealand would probably have to enter into serious good-faith negotiations with all possible trading partners, but would not be obliged to conclude agreements with any of them. Any technology that New Zealand was to share or other concessions that it was to make would have to be applied equally, and the application of the measure would have to
conform to basic due-process standards. Finally, New Zealand should not apply the measure in a way that would favour its own biofuels industry to an extent that would undermine the goal of mitigating climate change.
4. CONCLUSION
As can be seen from the above, very few of the issues canvassed in this paper are free of contention. If New Zealand were to unilaterally ban the importation or use of unsustainably produced biofuels it could argue that such a ban was not in violation of Article III.4 because sustainably and unsustainably produced biofuels are not “like”. If New Zealand structured its regulation correctly it could also argue that foreign-produced biofuels would be afforded no less favour- able treatment because similar restrictions would also apply to unsustainably produced domestic biofuels. Similarly, New Zealand could attempt to structure a regulation that does not amount to a quantitative restriction under Article XI. However, it is unlikely that a Panel would find that a regulation banning the importation or use of unsustainably produced biofuels is consistent with Articles III and XI of the GATT. Unsustainably produced and sustainably produced biofuels are likely to be considered “like” products, so New Zealand would not be able to discriminate against them under Article III.4. Any restriction on the use of unsustainably produced biofuels would amount to a de facto importation ban and so be contrary to Article XI.
In that case, New Zealand has a strong argument that such a regulation would be justifiable under one of the Article XX exceptions. New Zealand could justify a regulation under either Article XX(b) or (g), but would be more likely to succeed under XX(g). This is because New Zealand would probably have difficulty justifying a unilateral ban on biofuels as being “necessary” to protect against the risks to health posed by climate change. New Zealand should not have as much difficulty in justifying that such a regulation would relate to the conservation of the climate system. However, there may be difficulty in ensuring that the application of the regulation is not discriminatory, and that that discrimination is not unjustifiable or arbitrary. The biggest problem that New Zealand may face is that a Panel would probably view climate change as being something that should be addressed on a multilateral basis, and not through unilateral trade measures. If New Zealand did not negotiate with all its potential biofuel trading partners before instituting a trade restriction, and if this lack of negotiation resulted in discrimination, then it is likely that this will be viewed as unjustifiable. A Panel may also see the application of a regulation on biofuel production in third countries as being inherently coercive, and would probably regard this coerciveness as being unjustifiable. Therefore, if a biofuel-exporting country took New Zealand to the WTO, it is unlikely that a trade restriction
on unsustainably produced biofuels could be justified under Article XX of the GATT.
However, considering the uncertainty in the foregoing, this paper concludes that New Zealand should ban the importation or use of unsustainably produced biofuels. While the New Zealand Government is right to include provisions in the Biofuel Bill allowing for types of biofuels to be excluded from the biofuels sales obligation, merely disallowing the biofuels to count towards the sales obligation may not be enough. The use and corresponding trade of biofuels is likely to increase in the coming years. Unless there is a move to regulate this emerging global industry it could result in catastrophic and irreversible envir- onmental damage. Since there has yet to be a global initiative to tackle this problem multilaterally, New Zealand should take interim unilateral measures to prevent the proposed use of biofuels from contributing to the problem of climate change. While New Zealand may lose a trade case if a biofuel-exporting country decided to challenge such a restriction, a case before the WTO would force the issue to be addressed at a global level. New Zealand would also be protected against any allegations that it is blatantly flouting its GATT obligations by the uncertainties in the application of the GATT to climate change measures, which are outlined above. Since the ideal solution to this issue is some sort of multilateral agreement, a test case in the trade sphere may provide the impetus to begin negotiations on a level that is currently impractical for New Zealand to undertake. This potential agreement could take the form of a comprehen- sive biofuels treaty, a change or improvement in the flexible mechanisms in the Kyoto Protocol, or the development of a new forestry treaty. In any case, while this treaty is being negotiated, the New Zealand Government’s proposal to introduce biofuels to help mitigate the adverse effects of climate change would be in no risk of being worse for the environment than if the Government took no action at all.
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URL: http://www.nzlii.org/nz/journals/NZJlEnvLaw/2007/5.html