WTO and Ethical Trade
Another problem with eco-labels under WTO rules is that they distinguish between products on the basis of how they are produced as well as their consumption effects. Many eco-labels are based on life cycle analysis (LCA) which involves assessment of how a good is produced.
In WTO terms, this is a distinction on the basis of production and processing methods.
The debate on PPMs has emerged as a result of the decision of the WTO's Disputes Panels and the Appellate Body which adjudicate on trade-related disputes. For many years it was understood that discrimination on the basis of PPMs was not permitted. Indeed 'to date, WTO dispute settlement panels have always ultimately ruled against trade measures using PPM distinctions that discriminate against "like product" ' (Ruddell et al, 1999).
Much of the WTO and the multilateral trading system is based on two basic trade rules:
Most Favoured Nation ( GATT Article I)
All countries are equally 'most favoured'; any privilege or advantage granted to one member must be granted to all.
National treatment (GATT Article III)
The national treatment principle prohibits measures that discriminate between domestic and foreign products that are 'like' products. All imports must have no less favourable treatment than 'like' domestic goods (e.g. through taxes, regulations, product standards).
Products are 'like' if they have similar product characteristic and at the border they have no physical differences
Exceptions to MFN and NT relating to the environment are found in Article XX, specifically the chapeau (preamble) and sub-sections (b) and (g). Members are only allowed to introduce measures that contravene MFN or NT where it can be shown that the "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".
(b) permits any measure necessary to protect human, animal or plant life to contravene GATT rules
(g) focuses on measures relating to the conservation of exhaustible natural resources; trade measures are subject to three restrictions:
(Cosbey 1997).
The WTO does not allow Members to distinguish between goods on the basis of how they are produced. The interpretation of 'like' goods in the National Treatment principle is based on the physical characteristics of the goods. Discrimination is not allowed on the basis of production and processing methods (PPMs) where the PPM does not have an impact on the performance of the product in consumption. Recent analyses have attempted to distinguish between product-related and non-product-related PPMs (for example Caldwell, 1996).
It is argued that product-related PPMs are consistent with WTO trade rules whereas there may be problems with non-product related PPMs. Many environmentalists argue that the WTO should permit the differentiation between products on the non-product related PPMs. However, this position is opposed by most developing countries on the grounds that this would open the door for 'green protectionism' and would severely damage their trade. Traditional trade economics supports this view on the basis of the argument that PPMs should be decided on the basis of an economy's comparative advantage, including environmental endowments, and environmental preferences. To force a country to adopt PPM standards developed elsewhere and not on the basis of international agreement would lead to an inefficient, and potentially environmentally damaging, allocation of resources.
Further discussion of the PPMs issue and the definition of like products, can be found at http://iisd1.iisd.ca/trade/new.asp