Whether free trade agreements (“FTAs”) can be used to promote trade-related environment concerns are widely debated. Since the North American Free Trade Agreement, the U.S. has strongly pushed its trading partners to sustainable trade liberalization without scarifying environment. Vessel-sourced pollution is a serious threat for global marine environment. The major international conventions to regulate vessel-sourced pollution are including the International Convention for the Prevention of Pollution from Ships and its Protocols (collectively “MARPOL 73/78”), and the UN Convention on the Law of the Sea (“UNCLOS”). Starting from 2006, the U.S. has incorporated MARPOL 73/78 into four of its bilateral FTAs and used trade law to combat vessel-sourced marine pollution (namely, the U.S.-Peru FTA, the U.S.-Colombia FTA, the U.S.-Panama FTA, and the U.S.-South Korea FTA.) The most recent U.S.-Mexico-Canada Agreement also incorporates MARPOL 73/78. Moreover, based on the U.S. proposal, with its successful conclusion in 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) becomes the first megaregional FTA to incorporate MARPOL 73/78 (see Art. 20.6). All these FTAs require its members to adopt, maintain, and implement laws, regulations, and all other measures to fulfil their obligations under MARPOL 73/78 (e.g., Art. 18.2 of the U.S.-Peru FTA, and Art. 18.2 of the U.S.-Colombia FTA.)
Besides MARPOL 73/78, the CPTPP and the U.S. FTAs that incorporates MARPOL 73/78 all expressly incorporate to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (hereinafter “CITES”) as well. However, CPTPP and longer-standing US FTA practice is good for enforcing environmental treaties like CITES but not quite so good for MARPOL 73/78. One important reason is that all these FTAs require the victim countries of a vessel-sourced pollution to demonstrate the pollution “affect[s] trade or investment between the parties”, but such requirement is not imposed to violations of CITES.
For violations of CITES, although members are encouraged to address any related disputes through CITES, a member’s failure to adopt, maintain and implement its laws and regulations incorporating CITES obligations allows other CPTPP members to bring a claim by utilising the CPTPP’s dispute resolution mechanism (Art. 20.17.2 and footnotes 23-24 of the CPTPP). Nevertheless, for MARPOL 73/78, a member’s failure to maintain its implementation laws and regulations does not allow other CPTPP members to bring a claim by utilising the same dispute resolution mechanism. The claimant needs to prove the non-implementation affected trade or investment between the parties (CPTPP, art. 20.5.1, art. 20.6, footnotes 5 and 8). Following this vein, commencing the CPTPP dispute settlement mechanism requires more than a violation of MARPOL 73/78; the violation must be (1) sustained and recurring and (2) affecting trade or investment between the parties (CPTPP, art. 20.3.4). Therefore, a MARPOL 73/78 violation is not a violation of the CPTPP unless it affects trade or investment between the parties.
In Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, the World Trade Organization (hereinafter “WTO”) Appellate Body laid down a test to determine whether a domestic measure affects trade between the parties:
“The analysis…requires a careful examination “grounded in close scrutiny of the ‘fundamental thrust and effect of the measure itself’”, including of the implications of the measure for the conditions of competition between imported and like domestic products. This analysis need not be based on empirical evidence as to the actual effects of the measure at issue in the internal market of the Member concerned. Of course, nothing precludes a panel from taking such evidence of actual effects into account.” (Para 129 of WT/DS371/AB/R.)
In other words, when imported and like domestic products are subject to a single regulatory regime, only the imported products must comply with additional requirements. This would imply that imported products are treated less favourably so the measure affects trade between the parties. Without requiring empirical evidence on negative trade effect, this test is favourable for environmental-related trade disputes.
Nevertheless, “[a]ffecting trade or investment between the Parties” may seriously impede an FTA’s efficacy to enhance the MARPOL 73/78 compliance. This can be demonstrated by the following example. Suppose, the Oceanside, a Panama-registered oil tanker, collided with a Hong Kong-registered bulk freighter. The tanker was sailing from Iran to South Korea to deliver tonnes of condensate, an ultralight crude oil which is highly volatile when exposed to air and water. The bulk freighter was carrying grain from the U.S. to China. The Oceanside caught fire as soon as it hit the freighter. Further suppose that the collision site is within the Zhoushan Fishing Ground which is one of the biggest in the East China Sea, particularly for mackerel and Atlantic croaker. After the collision, the Oceanside slowly drifted into Japan’s exclusive economic zone. It ultimately exploded and sank. If the large-scale spill occurs, it will be devastating to the marine life and fishery economy in the East China Sea. After examining the Oceanside shipwreck, the investigators concluded that had the Oceanside fully complied with the technical requirement for ship building under MARPOL 73/78, the collision would not lead to such a large-scale oil spill. This is largely due to the flag state failing to effectively require the Oceanside to comply with MARPOL 73/78.
The limitations of FTAs to enhance MARPOL 73/78 compliance can be found in the following three aspects.
First, FTAs generally have very limited membership, which often do not include flag of convenience (“FOC”) states that relax MARPOL 73/78 requirements in order to attract foreign registration. For example, in the Oceanside incident, Panama is not a CPTPP member and has not concluded an FTA with either with China or Japan.
Second, supposing that Panama is a CPTPP member, Japan would still carry the onus to prove causation between the spill and the harm to its trade or investment, and Panama’s failure to meet its obligations under the CPTPP. Although the spill occurred in Japan’s exclusive economic zone, this does not necessarily mean that the spill would harm trade or investment between Panama and Japan. Panama, like most of FOC states, does not have a large trading volume with Japan. In other words, the spill has done significant damage to the fishery resources in Japan’s economic zones and will impact on Japanese fishery trade, but not necessarily the trade between Japan and Panama.
Third, even if we broaden FTAs to include the WTO regime, in the case of the Oceanside, the victim coastal countries like China and Japan cannot seek the remedies through the WTO dispute settlement proceedings with any of the relevant parties. (Among the three relevant parties, Panama and Hong Kong are WTO Members while Iran is not.) In contrast, other WTO Members may withdraw their market commitments and stop the imports of seafood from these two countries for the sake of water pollution. Article XX(b) of the GATT and Article 2.1 of the Sanitary and Phytosanitary Agreement authorize WTO Members the right to take necessary measures to protect human, animal or plant life or health provided that such measures are not inconsistent with the provisions of this Agreement. In this regard, the prohibition of this seafood is allowable only if a WTO Member imposes it in conformity with relevant WTO rules. Therefore, it is ironical that, while the victim coastal states like China and Japan cannot seek remedies from the flag states like Panama in the Oceanside incident, they may even face the economic loss due to the polluted fishing industry.
Therefore, the requirement of “[a]ffecting trade or investment between the Parties” is designed to prevent parties from bringing disputes not related with trade and investment to the CPTPP dispute resolution mechanism.
However, in practice, this requirement can essentially keep most of MARPOL cases outside of the FTA dispute resolution mechanism. Arguably, the requirement of “[a]ffecting trade or investment between the Parties” should be deleted for MARPOL 73/78 violation as the CPTPP does for the CITES violation. In this way, FTAs, despite having been heavily criticised, might in fact protect the marine environment further (ie. raise the bar of environmental protection and not merely make sure that trade and investment liberalisation do not have negative impacts on the environment).
For further reading, see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3259734
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