EU ETS and International Trade Law - Some scholarly analysis finally!

The IELP Blog  had references to scholarly analysis of the EU ETS Scheme by Lorand Bartels, Robert Howse and Henri Joel Nkuepo. I have blogged about this issue (with my limited understanding) ad nauseum here, here, here and here. They were "generalist" blog pieces which had not deep dived into the legal ramifications of scheme in the context of WTO Agreements. Finally some scholarly analysis of the EU ETS scheme is available. Does the EU ETS Scheme contravene WTO Agreements, especially the GATT and GATS obligations?

Lorand Bartels' study titled  " The Inclusion of Aviation in the EU ETS - WTO Law considerations" and Robert Howses' comments analyse threadbare the scheme in the light of the GATT and GATS provisions. Lorand Bartels comes to the conclusion that though the Scheme may violate provisions mainly related to Article XI 1 (being a quantitative restriction) and Article I 1 (Most Favoured Nation treatment), the exceptions provided in Article XX (b) and (g) of GATT related to protection of human, animal and plant life and conservation of exhaustible natural resource justified the scheme. Detailing the applicability  of the Chapeau in Article XX of GATT, the piece provides a glimpse of the complexity of interpretation of the provision in relation to discrimination and regulation. As regards GATS obligation it concludes that assuming that the Scheme is covered by GATS and is justiciable it would be most likely to be justified under Article XIV (b) of GATS related to environmental exceptions.

Robert Howse in his commentary agrees with the above analysis and states:

" The WTO is the one international regime that has addressed specifically in its jurisprudence the legality of unilateral measures to protect the environmental commons. In the landmark Shrimp/Turtle ruling the Appellate landmark Shrimp/Turtle ruling the Appellate Body held that such measures are in principle compatible with the legal framework of the World Trade Organization; in practice, to be legal, they must be applied in a non arbit- rary, non-discriminatory and non-protectionist manner. Thus, I cannot but agree with the ultimate conclusion of Dr. Bartels’ article that the coverage of non-European carriers under the ETS is compatible with WTO law, assuming that its application to those carriers is operated in an even-handed and non-protectionist fashion."

 Henri Joel Nkuepo strikes a slightly divergent note in his working paper "EU ETS Aviation Discriminates Against Developing Countries" where he argues that by treating the airlines of developed and developing countries on the same footing, the EU ETS Directive actually discriminates against the developing countries. Though Article XX of GATT allows for environmental concerns it cannot be discriminatory or arbitrary. Henri argues that the Scheme by not recognising the differences in circumstances of the developing and developed world in terms of their technological capabilities in the aviation sector has in fact discriminated against the developing countries of the WTO. Treating unequals on an equal footing is also discrimination.

The two papers and comment offer interesting, contrasting insights into the complex nature of EU ETS obligations in the context of international trade law. To what extent can the concerns of the environment "distort" trade? What measures can be considered adequate, reasonable and not being restrictive of international trade? Who decides this crucial question? Is it within the realm of WTO jurisprudence at all? Is it the preserve of domestic decision making? As long as the measure is not discriminatory and arbitrary, can it be justified on the grounds of the environment? Is this principle extendable to other non-trade issues - labour rights, human rights, democracy? For example, if a few developed countries, hypothetically, impose a tax on imported goods not complying with certain labour standards (equally applicable to local goods, hence non-discriminatory) which in effect cannot be complied with in the developing world or if complied with will lead to the imported good being non-competitive or inefficient, would this be justifiable under the Article XX exception of "public morals"? Is it opening the window to "disguised" protectionism? Are non-discrimination, non-arbitrariness and reasonableness the only tests to justify the measure? How should one interpret the Chapeau text of Article XX, GATT - "unjustifiable discrimination between countries where the same conditions prevail (emphasis added)"? Does it imply that when there are different conditions (including working conditions, technological advancement, cultural mores) a measure in a country, even on grounds of public morals or safety to human health, will be considered unjustifiably discriminatory? As Simon Lester said these are extremely complex issues and would, in all probability, require, a WTO dispute to get resolved!