Trade lawyers and environmentalists have long debated whether international trade rules under the General Agreement on Tariffs and Trade (“GATT”) and, since 1995, the World Trade Organization (“WTO”), permit imported goods to be regulated on the basis of the conditions under which they are made. The debate centers around so-called processes and production methods, or “PPMs.” While some trade law experts believe that GATT and WTO rules permit PPMs under certain circumstances, the weight of opinion seems to be on the side of those who believe they do not.

Current legislative proposals in the United States and the EU to regulate imported goods based on their “carbon footprints” are stirring up the old debate about the legality of PPMs under international trade rules. In the United States, the most prominent such proposal was introduced by Senators Lieberman and Warner as part of the America’s Climate Security Act of 2007 (“ACSA”). Under ACSA, importers of certain greenhouse gas (“GHG”)-intensive goods would be required to provide special international allowances to cover the emissions associated with the manufacture of the imported goods. EU leaders have discussed the possibility of imposing “carbon taxes” or comparable import measures, but to date no such similarly sweeping requirement has been formally proposed or introduced.

Notably, however, the EU’s recent Proposed Directive on the Promotion of the Use of Energy from Renewable Sources took a step in this direction by setting forth environmental sustainability criteria for biofuel that could create disincentives for the importation of biofuel produced under conditions that harm carbon sinks such as forests and grasslands.

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While U.S. and Chinese participants in the recently concluded second annual U.S. Clean Energy Trade Mission to China have lauded the commercial and environmental benefits of the mission to both countries, the mission also raised the profile of ongoing tensions related to China’s enforcement of the intellectual property (IP) rights of U.S. companies.

U.S. Assistant Secretary of Commerce David Bohigian, who led the mission, warned during a news conference that there have been “negative developments” in China’s IP enforcement efforts over the last year, exacerbated by problems in China’s efforts to enshrine the rule of law. Bohigian further noted that U.S. companies are declining to export their most innovative environmental technologies to China because they are concerned these technologies will not be protected.

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The U.S. Department of Commerce is leading a Clean Energy Trade Mission to China and India, on January 8-17, 2008, to promote a broad range of clean energy technologies such as renewable energy, biofuels, energy efficiency, clean coal, and distributed generation. The Mission is taking place in the context of the Asia-Pacific Partnership on Clean Development and Climate, and reflects growing dialogue between the United States and China on urgent environmental issues.

Media reports from China on the Mission (also known as the Sino-U.S. Clean Energy Dialogue) focused on the significant opportunities for U.S. and Chinese businesses that could be gained through collaboration, as well as the political and policy barriers that expanded trade in clean energy technologies may face.

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The ongoing World Trade Organization (WTO) Doha Round process includes negotiations toward an agreement that would reduce or eliminate tariff and non-tariff barriers to international trade in “environmental” good and services. While the mandate for these negotiations is the 2001 WTO Doha Declaration, the United States now views these negotiations as “complementing and supporting the objectives of and the process under” the UN Framework Convention on Climate Change process. The fundamental goal of a WTO agreement on trade in environmental goods and services is to harness trade liberalization to encourage the global distribution and deployment of environmentally friendly technologies that, among other things, help mitigate climate change.

As in other areas of the ongoing WTO Doha Round negotiations, substantial differences have emerged between developed and developing countries – and in particular, between the United States and the European Communities (EC), on the one hand, and Brazil, on the other.

Currently, one of the principal areas of contention is whether to include biofuels in the definition of “environmental” goods. Brazil argues that the inclusion of biofuels is critical in order to increase exports of environmental goods from developing countries. The United States and the EC have rejected Brazil’s proposal, contending that trade liberalization in biofuels should be negotiated as part of the separate WTO market access negotiations for agricultural goods. Further, in a recent joint proposal, the United States and the EC argue that the environmental goods and services negotiations should be divided into two phases – the first and more urgent phase addressing trade in goods and services directly linked to addressing climate change, and the second phase covering the remaining substantial body of environmental goods and services.

Negotiations are currently scheduled to resume in February 2008. It is widely accepted that Brazil and other developing countries will object strenuously to the recent joint US/EC proposal because it excludes biofuels, and it seems unlikely that it will be easy to bridge this divergence of views. Unlike other areas of the WTO Doha Round negotiations, it does not seem that these negotiations will soon advance to the stage of discussions based on a draft text for an agreement.

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Could global efforts to limit greenhouse gas emissions set off a serious international trade dispute due to competitiveness concerns and unequal compliance costs?

In a commentary published today at Forbes.com, Akin Gump Senior Advisor Greg Mastel analyzes how global climate policies, including the proposed Lieberman-Warner bill, could affect free trade.

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