A new norm is emerging at the intersection of business, human rights, and environmental standards, increasingly endorsed by social groups, corporations, investors, and governments. Traditional free trade principles are facing significant challenges, with critics arguing that they neglect or even violate fundamental human rights and environmental values. Conversely, proponents of free trade contend that these emerging norms may undermine free trade principles and serve as a façade for protectionist agendas.
This tension is global, including in the Indo-Pacific region, where geoeconomic dynamics exacerbate conflicts. The China-U.S. rivalry has notably influenced trade, often foregrounding human rights concerns. The United States, with bipartisan support, regularly critiques China’s human rights record. Notable legislative actions, such as the Uyghur Forced Labor Prevention Act (UFLPA), strengthen U.S. customs law under Section 307 of the Tariff Act of 1930, which bans the importation of goods produced with forced labor. This effectively blocks imports linked to Xinjiang, including indirect imports from China. Similarly, the European Union (EU) has begun drafting and implementing measures against forced labor, including an upcoming regulation aimed at banning products produced under such conditions, though not explicitly targeting China.
The EU is also pursuing strategic autonomy amid rising geoeconomic competition, actively shaping global regulations. In addition to the forced labor initiative, the EU has introduced measures such as the Carbon Border Adjustment Mechanism (CBAM), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Deforestation Regulation. While these address human rights and environmental concerns, they have also sparked opposition, particularly from developing nations in the Global South. For instance, the deforestation regulation, which restricts imports of products from deforested areas, is viewed by some exporting countries as an unfair trade barrier.
The conflict between human rights and environmental standards and free trade is not merely technical; it is deeply political, intertwining national interests with geoeconomic competition.
Free trade has been upheld by the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) system, which establishes core trade principles among member states. Although the WTO currently faces challenges, including dysfunction in its Appellate Body for dispute resolution, its rules remain essential for assessing the compatibility of human rights and environmental norms with free trade. Key WTO principles include Most-Favored Nation (MFN) treatment (Article I of GATT 1994), national treatment (Article III of GATT 1994), and the prohibition of quantitative restrictions (Article XI of GATT 1994).
WTO members may also invoke exceptions under Article XX (General Exceptions) or Article XXI (Security Exceptions) of GATT 1994. A critical issue is determining how human rights and environmental regulations align with these principles and whether they can be justified under the scope of these exceptions when they conflict with the general free trade rules.
Like Products or Not
A key challenge in addressing human rights and environmental concerns lies in interpreting the concept of “like products” under GATT, particularly with regard to the principle of non-discrimination, which underpins both MFN and national treatment. Under GATT rules, member states must treat products as “like” if they fall within the same category. If products are deemed not “like,” they can be treated differently without violating GATT obligations.
Complications arise when laws differentiate products based on human rights or environmental factors – such as those sourced from Xinjiang or deforested areas – raising questions as to whether these products can be classified as non-“like” under GATT. WTO jurisprudence has identified four key criteria for determining whether products are “like”: (1) physical characteristics, (2) end-uses, (3) consumer tastes and habits, and (4) tariff classification. Despite these criteria, products linked to human rights or environmental issues are often still considered “like products,” complicating efforts to treat them differently under GATT rules.
The concept of Process and Production Methods (PPM) – referring to how products are produced, including the conditions under which they are manufactured – is generally not recognized as a legitimate basis for distinguishing between “like” and non-“like” products under GATT. However, many human rights and environmental concerns focus on the production process rather than the final product, creating tension between traditional free trade principles and the growing global emphasis on human rights and environmental standards.
General Exceptions
If products are recognized as “like,” the next step is to assess whether they qualify for the general exceptions provided under GATT Article XX. If these exceptions apply, products can be treated differently without violating WTO principles. GATT Article XX outlines several clauses that allow deviations from trade rules under specific circumstances. For human rights concerns, relevant clauses include Article XX(a), which covers measures “necessary to protect public morals,” and Article XX(b), addressing measures “necessary to protect human, animal, or plant life or health.” Article XX(e) also permits measures concerning “products of prison labor.”
For environmental concerns, Article XX(a) and XX(b) are applicable, along with Article XX(g), which allows measures “relating to the conservation of exhaustible natural resources.” The chapeau of Article XX plays a critical role in determining whether the measures can be applied lawfully, as it ensures that measures are not applied in a manner that constitutes arbitrary or unjustifiable discrimination or a disguised restriction on international trade. The chapeau of Article XX serves as a crucial final test for the legality of measures. In previous cases, it has been instrumental in determining outcomes, often overriding initial assessments that seemed to align with specific exceptions.
When analyzing the U.S. UFLPA or the EU deforestation regulations – assuming the products in question are still classified as “like” – the key question is whether these measures can be justified under the relevant clauses of Article XX and pass the chapeau test. For example, while Article XX(a) refers to “public morals,” it is often unclear whether the import of such products inherently raises moral concerns. The definition of “morals” remains ambiguous, and proving that such measures are necessary or essential to protect moral values poses significant challenges.
Security Exceptions
Another relevant exception is the “security exception” under GATT Article XXI, which allows WTO members to take measures necessary to protect essential security interests, thus granting them relatively broad discretion. However, the potential for a broad interpretation of “national security” raises concerns, particularly given the current trend of justifying various measures under laws such as Section 232 of the Trade Expansion Act of 1962. In cases such as the United States’ UFLPA, where allegations of genocide are present, one could argue that the situation qualifies as an “emergency” under GATT Article XXI(b). However, whether such circumstances genuinely meet this standard and relate to national security is likely to remain contested.
Extraterritoriality
Extraterritoriality is another key issue when applying general exceptions or considering PPM. Some exceptions, depending on their framing, can have inevitable impacts on other countries. For example, Article XX(b) may protect individuals in exporting countries. In the context of the UFLPA, one might argue that the measure seeks to protect individuals in Xinjiang, outside the United States. Similarly, the EU’s deforestation measures could be justified as protecting “animals or plants” in exporting nations such as Indonesia or Brazil.
PPM considerations inherently involve external countries, and jurisprudence has acknowledged that such policies or regulations can be highly interventionist. The extent to which this extraterritorial influence is permissible remains contentious. Furthermore, from a broader perspective, the effectiveness of trade restrictions in influencing human rights and environmental policies in other countries warrants reassessment.
A Path Forward for Compatibility
Navigating the clash between human rights, environmental standards, and free trade requires a nuanced approach. Outright rejection of PPM is unrealistic; however, fully allowing for PPM consideration is equally inappropriate. A middle ground is necessary to determine what level of processes or production methods should be deemed relevant for trade measures.
Definitions and interpretations of each general exception clause are often vague, and the necessary tests to evaluate objectives, necessity, and effectiveness are not uniformly applied. Additionally, there is a risk that the national security exception may be interpreted too broadly, potentially leading to misuse for protectionist purposes. While extraterritoriality cannot be completely eliminated, this issue must be addressed through discussions on PPM and updates to relevant clauses.
Historically, the WTO has avoided labor issues, as highlighted by the Singapore Ministerial Declaration of 1996. However, with increasing emphasis on human rights and environmental protections, the WTO can no longer afford to ignore these global concerns. While judicial activism within the WTO dispute settlement system is often criticized, clearer and updated rules are essential for maintaining the credibility of free trade amid evolving global trends.
Geoeconomic and political agendas are increasingly penetrating core free trade principles, with human rights and environmental issues invoked both for legitimate reasons and, at times, as tools for protectionism. If the WTO and GATT fail to adapt to these changes while clinging to traditional principles, they risk becoming irrelevant, ultimately undermining the broader rules-based order.
Achieving consensus among all WTO members remains a significant challenge. A pragmatic solution may involve plurilateral agreements or the expansion of existing free trade agreements and regional accords that already incorporate, or attempt to incorporate, high standards for human rights and environmental protections alongside effective dispute settlement mechanisms. Building on successful efforts in these areas could provide valuable guidance for the next generation of WTO and GATT reforms.
The clash between human rights and environmental standards versus free trade is now more salient than ever; this is not merely a technical issue but one of significant importance, as the compatibility of these elements is crucial for the integrity of the rules-based order as a whole.
This article is partially based on the author’s recent research conducted in both Canada and Japan.