Lecture 11 ib 404 institutional framework for international business

Lecture 11 Environment Law

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WTO AGREEMENTS

Environment Law


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• Virtually all human activity alters the environment in some way. The central problem of environmental law is determining which activities alter the environment to an unacceptable degree.

• All things being equal, most people favor a clean and aesthetic environment. But all things are not equal. Poorer nations tend to oppose extensive international environmental regulation because it impairs their ability to profit from less-sophisticated production procedures.

•Understanding the reasons for differences in environmental views between nations is critical to understanding the dynamics of traditional and emerging legal remedies.

Environment Law


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1. The cost–benefit analysis as to any environmental modification often varies from country to country.

▫ A country with an opportunity to profit from a sulphur-belching power plant is more likely to think that the plant’s modification of the environment is acceptable than a neighbor nation, which does not profit from the plant but suffers from its acid rain.

2. Countries that are happy with the economic status quo are more inclined to favor environmental measures.

▫ Wealthy nations tend to have more laws to reduce pollution from industrial processes than countries plagued with malnutrition.

3. Some nations lack the technological infrastructure to produce goods without pollution.

4. Some governments permit officials to profit from environmental modifications. Thus, a nation may be lax in regulating hazardous waste disposal if the families of government officials greatly profit from the activity.

Differences in Environment Regulatory Schemes


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• Investors may prefer to locate their facilities in countries with fewer environmental restrictions.

• Investors must consider the risk that the host country’s less-restrictive environmental laws will be changed through international action. This risk can be substantial. Installing anti-pollution devices after a plant is built, for example, can be vastly more expensive than including them during construction. In many circumstances, the better choice for the risk-averse investor is to build on the assumption that local environmental laws will evolve to First World standards.

Consequence of Differences in Environment Regulatory Schemes


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•Nature does not recognize political boundaries, European nations’ compliance with international global warming will not reverse the upward trend in temperatures if China and India vastly increase their productive capacity.

• The environmental regulations of the conservation-minded nations will make their products more expensive, placing them at a competitive disadvantage vis-à-vis countries less concerned about the environment. To level the playing field, conservationists have sought legal relief through international dispute resolution, import bans, and multilateral treaties.

Concern for Environment Laws


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•“Environmentally responsible” nations often enact strict local environmental laws not so much to save the environment as to prevent foreign competition.▫ The EU has been accused of doing this to protect its meat and dairy products

industries, which have been battered by foreign competition. In 1993, the EU traced an outbreak of hoof and mouth disease in Italian livestock to Croatia. Rather than banning Italian meat or Croatian meat, the Union banned meat from the entire former Eastern bloc. Eastern bloc meat was, however, cheaper.

▫ The United States has also been accused of using environmentally disguised trade barriers. In the mid-1990s, the United States enacted Corporate Average Fuel Efficiency (CAFE) standards and “gasguzzler” surtaxes. These measures were ostensibly enacted to encourage fuel conservation and reduce air pollution. European autos. European automakers pay about 90 percent of the combined gas-guzzler taxes, luxury taxes, and CAFE fines, although they hold only about 4 percent of the U.S. automobile market.

Environmental Law as an Anticompetitive Tool


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• “

▫An amusing example of alleged “environmental” anticompetitive behavior occurred in the French resort town of Grenoble. The city’s leaders banned Bermuda shorts in public pools and encouraged bathers to wear bikinis and other skimpy traditional French bathing suits. They argued that the added material in the Bermuda shorts polluted their pools. Interestingly, all Bermuda shorts were foreign made

Environmental Law as an Anticompetitive Tool


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• In the absence of an agreement, the only way a country may address its neighbor’s environmental pollution is through the dispute resolution mechanisms available under international law.

•Binding adjudication has not been common.

The Polluter Pays: Responsibility for Pollution


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• Because international binding arbitration of environmental disputes is rare, a more frequent method for counterattack is for the conservation-minded nation to enact domestic legislation outlawing import of the offending product.1. These regulations are imposed against a product for two reasons: 2. The product itself violates environmental norms in the regulating

country• It is manufactured through a process that is environmentally

objectionable. This type of domestic counterattack is somewhat restricted by the General Agreement on Tariffs and Trade (GATT), but GATT restrictions do not prevent nations from excluding products that are environmentally offensive by their very nature.

Regulation of Products that Violate Environmental Objectives


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• Litigation Against Polluters in an Affected Country▫If the polluting foreign investor is subject to the

jurisdiction of the conservationist nation’s courts, it might be haled into court there.

• Litigation Against Polluters in Polluter’s Home▫Another approach to obtaining relief against a polluter

is to sue it in its home jurisdiction. In many countries, this approach is not practical. The local judges would be disinclined to rule against a significant local enterprise.

Litigation


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• Existing international remedies can be effective in specific instances, but they are unlikely to be effective in transforming the international environmental legal system.

• International arbitration can proceed only if both parties have consented. Such consent is infrequent in the environmental context, because a nation usually does not voluntarily subject itself to a proceeding about pollution generated on its own territory.

• Trade sanctions must be couched in product defects. However, most environmental damage is caused by manufacturing processes and such processes are largely exempt from regulation under GATT.

Inadequacies of the Traditional International Pollution-Control System


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• National constraints on exports• Environmental treaties▫ Under the NAFTA Treaty, the United States, Canada, and Mexico also

agreed to finance jointly a variety of border wastewater and water pollution projects. Further, NAFTA creates permanent committees for Standards-Related Measures and for SPS Measures to harmonize the environmental laws of the three nations.

• Initiatives by multilateral agencies▫Multilateral agencies have advanced the effort by applying uniform

environmental standards to projects that they finance. The World Bank, for example, has published a 460-page volume of

environmental guidelines for its personnel to use in evaluating the adequacy and effectiveness of pollution control measures for industrial projects.

Actions to control environmental harms


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• The World Trade Organization▫The GATT affirmatively prevents a conservationist nation from

imposing its environmental policies on others through trade law. Environmentalists are working hard to reverse this.

• Global ban of toxic substances▫Domestic legislation may ban certain toxic substances

domestically, and somewhat limited their circulation abroad.• Basel Convention on Transboundary Movements of

Hazardous Wastes and Their Disposal• The Convention on International Trade in Endangered

Species of Wild Fauna and Flora (CITES)

Global Solutions


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•Montreal Protocol on Substances That Deplete the Ozone Layer. ▫The Montreal Protocol called for a gradual reduction of

substances feared to damage the ozone layer by imposing a freeze on consumption.

•U.N. Framework Convention on Climate Change. ▫CFCs and halons make life somewhat easier—they

facilitate the functioning of certain appliances and machines—but are not critical to industrial development.

Global Solutions


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• UN Rio Conference (1992) on Environment and Development, the world community took its first tentative step toward a multilateral resolution of this problem with the Framework Convention on Climate Change. The Convention did not resolve any of the foregoing disputes or require any measures from its parties. Rather, it established a framework for later discussions leading to more specific treaties on the issue.

• The Convention identified two areas to address in the future: harmonization of national regulation and disguised discrimination against imports. In 1997, the Kyoto Protocol to the Convention went a step further, setting quantitative targets for the reduction of greenhouse gases to 5% below 1990 levels.

Global Solutions

Lecture 11 ib 404 institutional framework for international business

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