Can GATT Article XX be invoked to justify emissions trading schemes that violate the SCM Agreement? This is from Ingrid Jegou and Luca Rubini in an ICTSD issues paper:
Four aspects should be noted regarding the SCM Agreement. First, as noted above, this instrument is directly connected to the GATT by ‘increasing and improving’ the disciplines of both Articles VI and XVI of GATT dealing with subsidies and countervailing measures. This should be set in the context of the fact that the WTO is a single undertaking and its provisions are part of an ‘integrated’ legal system. Second, there is no language in the SCM Agreement (or elsewhere) directly interfering with the application of Article XX of the GATT to subsidies. Third, as a general matter of interpretation, there is no need for an express reference to give way to the application of a provision, particularly if this has a general nature. Fourth and finally, there are no indications in the negotiating history of the SCM Agreement that Article XX of the GATT should not apply.
Up to the end of 1999 there were specific provisions (Articles 8 and 9 of the SCM Agreement) recognizing that certain subsidies, including certain environmental subsidies, were overall beneficial and hence were non-actionable as well as sheltered from countervailing duty action. The absence of an extension of these rules could be seen as a decision that exceptions should not exist under the SCM Agreement. However, one could equally argue that, with the expiry of this provisional category of subsidies, only the special discipline of exceptions of the SCM Agreement has disappeared, giving way to the applicability of the general exceptions of the GATT. The crux of this argument is that the general exceptions of the GATT should apply to rules that, as seen, find their origin within the GATT itself.
Another argument can be advanced. This counters the narrow scope of Article 8 of the SCM Agreement with respect to the environment. It could be contended that, even when Article 8 was in force, there was not really a common purpose and subject matter between the broad ‘environmental exceptions’ of Article XX and the confined remit of Article 8, with the result that Article XX could in principle have applied to subsidies not specifically permissible under the SCM Agreement. In other words, while it is clear that the SCM Agreement develops Articles VI and XVI of the GATT, it is not fully clear that Article 8 of the SCM Agreement was developing Article XX of the GATT in the context of subsidy discipline.
Whatever the merit of this argument, the expiry of Article 8 reinforces the legal and policy argument in favour of applying Article XX of the GATT to subsidies that are clearly contributing to tackling climate change. As noted above, the confirmation of the applicability of GATT Article XX to other WTO agreements via a judicial route may be politically troublesome; however, paired with the slow progression of negotiations in climate and trade, it may constitute the only alternative to tackle an undesirable lacuna in the system. The urgency of action is confirmed by recent developments in litigation.
