Environmentally Related Trade Disputes between the United States and Canada

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This article explores ten environmentally related trade disputes that have arisen between the United States and Canada since the implementation of the Free Trade Agreement in 1989. They fall into three broad categories: conservation regulations, recycling policies, and industrial goods and processes. Six of the disputes involve complaints by the United States against Canada and four involve Canadian allegations. We are interested in finding out if the use of environmental regulations can become nontariff barriers to trade. These ten cases reveal the broad range of regional and national environmental regulations that have become the focus of trade conflicts between these two countries.

Virtually every environmental regulation affects the relative costs and opportunities of producers. For such a regulation to have an impact on the rules governing trade, three additional factors are required. First, one or more of the producers adversely affected by the regulation must be located in another country. Second, those producers must turn to the political system to apply pressure to challenge the regulation which adversely affects them. Third, the aggrieved producers must claim that the foreign regulation which adversely affects them violates the terms of an international trade agreement or treaty.

The existence of a foreign, politically mobilized stakeholder transforms a national or regional regulatory standard or policy into a trade issue. But while every regulation which is challenged as an alleged nontariff barrier clearly disadvantages foreign producers, this may or may not be the reason why it was adopted. In some cases, there may be little or no gain to domestic producers while, in others, pressures from domestic producers may be the primary reason why the regulation was approved. However, the fact that a regulation confers a competitive advantage on a domestic producer does not by itself demonstrate that this domestic regulation is illegitimate, as it may nonetheless serve a legitimate public purpose. In fact, many trade disputes may stem from differences in national regulatory priorities and policies. Distinguishing between legitimate and inappropriate regulations that disadvantage foreign producers, therefore, is an important and ongoing challenge for governments which have entered into agreements to liberalize trade.

In this article we analyze each of the ten cases by looking for what has been called a "baptist-bootlegger" coalition. (1) During the U.S. prohibition era, Baptists were opposed to alcoholic consumption on moral grounds, while bootleggers actually benefitted from prohibition by the production and sale of illegal alcoholic beverages. Similarly, today there is often a coalition formed between domestic environmental groups in favor of environmental regulations on public good grounds and domestic producers who recognize an opportunity to erect entry barriers against rival foreign producers. The latter trade barriers occur only when the environmental regulations are administered in a discriminatory manner; that is, by an effective denial of the national treatment provisions which are available to most traders under the North American Free Trade Agreement. (2) National treatment can be denied directly by, for example, a regulation which expressly treats a foreign producer differently than a domestic producer. More subtle, however, are those regulations which appear to be nondiscriminatory but which, in effect, operate in a discriminatory manner against foreign producers. These are the focus of the case studies. In all but one of the following ten cases examined we find evidence of bootleggers.

1. Prohibition of Imports of Tuna and Tuna Products from Canada (GATT, 1982)

In 1979, Canada seized nineteen U.S. tuna boats fishing inside Canada's 200-mile fisheries zone. (3) The United States, acting under the 1976 Fishery Conservation and Management Act, retaliated by prohibiting the entry of all tuna and tuna products from Canada. …