Environment, trade, and investment are fundamentally linked. The environment provides many basic inputs of economic activity – water, forests, fisheries, metals, minerals – as well as the energy used to process those resources. Trade and investment, in turn, are affected by environmental concerns, as producers and investors must comply with environmental regulations and markets must respond to the growing demand for greener goods and services. Incorporating environmental provisions in trade deals levels the playing field for U.S. producers and markets.
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The Legal Structure for Trade, Investment and the Environment
Aside from these physical and economic connections, there are legal institutions governing trade, investment and the environment. Institutions such as the World Trade Organization (WTO), and regional and bilateral trade agreements provide the framework for trade and investment rules. Multilateral environmental agreements, regional agreements, and national and sub-national regulations encompass environmental law.
The legal structure for world-wide trade governance today dates back more than 50 years to redevelopment efforts after World War II, beginning with the General Agreement on Tariffs and Trade (GATT). When the WTO was created in 1995, it incorporated and extended the GATT. The United States is a member of the WTO, which sets trade rules for goods for over 130 participating countries. Similarly, the WTO sets rules for trade in services, including environmental services, with the General Agreement on Trade in Services, or GATS.
The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably. Two noteworthy health and environment provisions in the WTO are found in the GATT’s Preamble and in the General Exceptions Article, Article XX. The WTO Preamble affirms the guiding principle of sustainable development:
“[R]elations in the field of trade and economic endeavor should be conducted with a view to raising standards of living...seeking both to protect and preserve the environment and to enhance the means for doing so...”
Two provisions in the GATT Article XX on General Exceptions apply to health and environment, enforcement, and conservation measures. They allow, under certain conditions, some actions that would otherwise be prohibited under WTO obligations:
“Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures...(b) necessary to protect human, animal or plant life or health...(d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement,... (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption...”
These exceptions mean that if a health, environmental, enforcement, or conservation measure were found to violate the trade rules, a panel is allowed to make an exception to the application of those rules if the measure meets the tests outlined above in Article XX. The WTO also provides a forum for settling trade disputes, and for countries to agree to liberalize trade.
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Free Trade Agreements and the Environment
Countries enter into Free Trade Agreements (FTAs) and may do so whether or not they are WTO members. These agreements with one other country, or with several other countries, contain obligations governing tariffs and non-tariff barriers to trade. In cases where both countries are WTO members, they often undertake obligations that go beyond those undertaken in the WTO. These bilateral and multilateral agreements are reviewed for consistency with WTO rules by the WTO Committee on Regional Trade Agreements.
Agreements are also reviewed by the WTO Committee on Trade and Environment (CTE). The purpose of the CTE is to bring environmental and sustainable development issues into the mainstream of the WTO’s work, and part of its mandate is to identify the relationship between trade measures and environmental measures in order to promote sustainable development.
At the 4th WTO Ministerial Conference in Doha, Qatar in 2001, the role of the CTE was strengthened, as member countries succeeded in securing a package of environmental elements that demonstrates the WTO’s commitment to sustainable development and to simultaneously advancing economic, trade, environment, and development interests.
The Doha Mandates allow U.S. negotiators to pursue an affirmative agenda focusing on reducing/eliminating various environmentally harmful subsidies, improving market access for environmental goods and services, encouraging capacity building for developing country members, and promoting environmental reviews of trade agreements. In addition, the CTE will enhance cooperation between the Secretariats of the WTO and Multilateral Environmental Agreements, and further explore the relationship between the agreements.
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Background on Free Trade Agreements and the United States
In 1994, the United States became a party to the North American Free Trade Agreement (NAFTA), a trilateral preferential trading and investment arrangement with Canada and Mexico. In parallel, NAFTA parties negotiated the North American Agreement on Environmental Cooperation (NAAEC) which entered into force in 1993. In 2020, the United States became a party to the United States-Mexico-Canada (USMCA) Agreement, which replaced the NAFTA as of July 1, 2020. In 2001, the U.S. government charted further progress in incorporating environmental concerns into U.S. trade policy. The U.S.-Jordan Free Trade Agreement was the first free trade accord to include enforceable environmental obligations, which aim to level the playing field for U.S. producers, in the body of the agreement. Important components of the WTO, the USMCA, and other FTAs are dispute settlement provisions that permit member governments to challenge measures by members that they believe violate trade rules.
In addition to being party to the WTO and the USMCA, the United States also entered into free trade agreements with eighteen other countries, all of which have enforceable obligations. The United States is also a party to over 30 Bilateral Investment Treaties (BITs) that govern the treatment of foreign investors and their investments in the United States, as well as the treatment of U.S. investments and investors in other countries. The Office of the U.S. Trade Representative (USTR) leads the U.S. interagency team in the WTO and other trade and investment agreement discussions and negotiations.
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Trade and Multilateral Environmental Agreements (MEAs)
Over 200 Multilateral Environmental Agreements (MEAs) have been established globally, some of which are treaties to which any country may become a party. The United States is a party to a number of these agreements, such as the Convention on International Trade in Endangered Species (CITES).
MEAs, along with numerous bilateral agreements and national and local environmental regulations, form a structure for international environmental management that responds to an array of interests and issues. Both positive and negative environmental effects can result from increased trade liberalization. As such, environmental agreements and regulations are especially important to ensure that international trade and investment rules support high levels of environmental protection and U.S. producers do not face unfair competition.
Environmental agreements are tools to help address the concern that increased global trade and investment could lead to patterns of unsustainable economic growth and development. Alongside effective national environmental policies, environmental agreements help to decrease the possibility that the pursuit of economic advancement might lead countries to relax their health, safety or environmental standards to attract international investment or gain competitive advantage.
The following links provide additional information on the connection between the environment and trade and investment, as well as access to other sites with an environment and trade focus:
For additional information on EPA's International Trade efforts, contact:
U.S. Environmental Protection Agency
Office of International and Tribal Affairs (2660R)
1200 Pennsylvania Ave., NW
Washington, DC 20460