Introduction

The trade-environment policy debate has taken place in a number of settings. This chapter analyzes the institutional responses to the four categories of policy issues set out in the previous chapter. The starting point is the earliest participant in the debate, the OECD, and in particular its Polluter Pays Principle. The PPP dates back to 1972 and is the most durable and arguably the most important bridge between trade and environment policy. This is followed by an examination of trade-environment within the GATT/WTO system. The chapter concludes with a discussion of trade-environment policy within two formal regional economic integration institutions, the European Union and the North American Free Trade Agreement.

The OECD and the Polluter Pays Principle

For over 25 years the OECD's “Guiding Principles” were the only explicit, internationally agreed-upon rules spanning trade and environmental policies. Of these, the PPP has been the centerpiece. One might think that durability and prominence would have led to clarity. It has not. Interpretations of the PPP are more varied today than in the 1970s, and ambiguities remain.

The PPP as originally adopted by the OECD was a simple cost-allocation principle, designed to improve efficiency. In its original formulation, the PPP can be interpreted as a “no subsidization” principle. Environmental protection costs incurred in the private sector should not be offset by government subsidies. This formulation serves two efficiency objectives.