¹ For instance, the quote has been attributed to Kennedy, Robert F. Jr. (see, for example, Canadian House of Commons, Labelling of Genetically Modified Foods, June 12, 2000, 36^th Parliament, 2^nd Session, Edited Hansard No. 112 at 1205)Google Scholar, former US Senator Gaylord Nelson (see, for example, Partridge, Ernest, The State Religion, January 10, 2002, text available online at <http://www.coastal.crc.org.au/newsletters/fj_october_2000.html>).).>Google Scholar

² See generally Daily, Gretchen C., ed., Nature’s Services: Societal Dependence on Natural Ecosystems (San Francisco: 1997)Google Scholar. We have arguably exceeded this capacity in many cases to date.

³ See Hunter, David et al., International Environmental Law and Policy, 2nd ed. (Washington, DC: 2002).Google Scholar

⁴ Economic instruments are measures that directly influence the price of a product or an activity. Since producers and consumers generally choose the lowest-cost option, economic instruments can be used to affect behaviour by modifying price. The range of economic instruments that can be used to achieve an environmental policy goal is large. Economic instruments range from taxes, charges, and user-fees, to subsidies, tax breaks, and grants, to the creation of a new market for a good or service, such as tradable emission rights. See International Institute for Sustainable Development, Analysis of Ecological Fiscal Reform Activity in Canada (Winnipeg: 2000) at 4. See also Organization for Economic Co-operation and Development [hereinafter OECD], Environment Directorate, Environmentally Related Taxes in OECD Countries: Issues and Strategies (Paris:2001) (for a comprehensive discussion of environmental taxes).

⁵ See External Advisory Committee on Smart Regulation, Economic Instruments for Environmental Protection and Conservation: Lessons for Canada (Ottawa: 2003). See also Patterson, Charles D. III, “Environmental Taxes and Subsidies: What Is the Appropriate Fiscal Policy for Dealing with Modern Environmental Problems?” (2000) 24 Wm. & Mary Envtl. L. & Pol’y Rev. 121.Google Scholar

⁶ See Patterson, supra note 5, for a general discussion of environmental subsidies.

⁷ See Howatson, Allan, Conference Board of Canada, Ecological Fiscal Reform (Ottawa: 1996) at 1.Google Scholar

⁸ See National Round Table on the Environment and the Economy, Towards a Canadian Agenda for Ecological Fiscal Reform: First Steps (Ottawa: 2002). See also Barg, Stephen et al., International Institute for Sustainable Development, Analysis of Ecological Fiscal Reform Activity in Canada (Winnipeg: 2000) at 3.Google Scholar

⁹ See OECD, supra note 4 (for a general discussion of ecological, or green, tax reform).

¹⁰ See Schlegelmilch, Kai, Background Paper on Ecological Fiscal Reform Activities (Ottawa: 2000) at 13 Google Scholar. Two per cent of all taxes imposed in Germany between 1999 and 2003 will have an EFR component (Schlegelmilch at 13). See also OECD, supra note 4 at 52.

¹¹ See Ubachs, S. and Faure, M., “Environmental Taxation: A Dutch Treat?” in Environmental Taxation Conference Abstracts of a Conference Held June 2000 (Vancouver, BC: 2000)Google Scholar. The United States has instituted a number of EFR measures, including tax incentives for the development of energy-efficient technologies and a tax on ozone-depleting substances. See Anielski, Mark et al., Analysis of US EFR Activity (Ottawa: 2000) at 6–14.Google Scholar

¹² See, for example, Barg et al., supra note 8; Anielski et al., supra note 11; and Schlegelmilch, supra note 10.

¹³ See Marrakesh Agreement Establishing the World Trade Organization, Legal Instruments — Results of Uruguay Round, April 15, 1994, 33 I.L.M. 1125 (entered into force January 1, 1996) [hereinafter WTO Agreement]. The World Trade Organization [hereinafter WTO] was created in 1994 to be the institutional body governing the General Agreement on Tariffs and Trade, October 30, 1947, 58 U.N.T.S., Can. T.S. 1947 No. 27 (entered into force January 1, 1948) [hereinafter GATT 1947] and several other trade agreements that have been negotiated from the basis of the GATT. See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994, 33 I.L.M. 1125 (entered into force January 1, 1995); see also Jackson, John H., The World Trade Organization: Constitution and Jurisprudence (London: 1998) at 1. 147 countries are currently members of the WTOGoogle Scholar. See World Trade Organization, “About the WTO,” text is available online at <http://www.wto.org/english/thewto_e/thewto_e.htm>. Many countries are also signatories of bilateral and regional trade agreements, such as the North American Free Trade Agreement. North American Free Trade Agreement between the Government of Canada, the Government of Mexico and the Government of the United States, December 17, 1992, Can. T.S. 1994 No. 2, 32 I.L.M. 289 (entered into force January 1, 1994) [hereinafter NAFTA].

¹⁴ The main analyses are Fauchald, Ole Kristian, Environmental Taxes and Trade Discrimination (New York: 1998)Google Scholar; McDonald, Jan, “Environmental Taxes and International Competitiveness: Do WTO Rules Constrain Policy Choices?” Critical Issues in Environmental Taxation II” (forthcoming in 2004)Google Scholar; and Barrett, John A. Jr., “The Global Environment and Free Trade: A Vexing Problem and a Taxing Solution” (2001) 76 Ind. L.J. 829.Google Scholar

¹⁵ The border tax adjustment provisions of the WTO can be important in addressing competitiveness concerns. See Fauchald, supra note 14.

¹⁶ See WTO, Committee on Trade and Environment, CTE Agenda Part 3, text available online at <http://www.wto.org/english/tratop_e/envir_e/cteo3_e.htm>.

¹⁷ See ibid.

¹⁸ One article that considers this interaction is a forthcoming publication on the trade legality of incentives proposed under the Kyoto Implementation Plan in Canada from a US perspective. Forcese, C., “The Kyoto Rift: Trade Law Implications of Canada’s Kyoto Implementation Strategy in an Era of Canadian-U.S. Environmental Divergence” (forthcoming in 2004).Google Scholar

¹⁹ See Fauchald, supra note 14 at 32 (noting that environmental taxes are primarily used to restrict pollution and that there are few examples of taxes on the use of exhaustible natural resources). See von Moltke, Konrad, “Environmental Protection and Competitiveness,” in Muñoz, Heraldo and Rosenberg, Robin, eds., Difficult Liaison — Trade and the Environment in the Americas (Miami: 1993) 5 at 7–10 Google Scholar (noting that little trade and environment research considers natural resources issues). See also Wackernagel, Mathis, “Can Trade Promote an Ecologically Secure World? The Global Economy from an Ecological Footprint Perspective” (1998) Buff. Envt’l L.J. 179 at 184 (noting that most of the trade and environment literature focuses on pollution issues).Google Scholar

²⁰ See Agreement on Subsidies and Countervailing Measures, April 15, 1994, in WTO Agreement, supra note 13 [hereinafter SCM Agreement].

²¹ This forest heritage includes one-third of the world’s boreal forest and one-quarter of the world’s temperate coastal forest. See World Wildlife Fund, Canada’s Commitment to Forest Protected Areas (Toronto: 2000) at 2.

²² See Global Forest Watch, Canada at a Crossroads (Washington, DC: 2000) at 13,31.

²³ See Daily, supra note 2 at 215–35.

²⁴ See World Wildlife Fund, supra note 21 at 2.

²⁵ See Natural Resources Canada, The State of Canada’s Forests 2002–2003 (Ottawa: 2003) at 26 (describing direct employment and exports attributed to the forest industry). See also Canadian Council of Forest Ministers, Compendium of Canadian Forestry Statistics (Ottawa: 2000).

²⁶ See Natural Resources Canada, supra note 25 at 26.

²⁷ See Forest Products Association of Canada, The Forest Industry in Canada 2002 (Ottawa: 3003) at ii.

²⁸ One study estimates that wildlife-based activities in Canada contribute $6 billion to the gross domestic product. See Pricewaterhouse Coopers, Effect of Tax Legislation in Canada on the Sustainability of the Private Woodlot Sector (Ottawa: 1998) at 8.

²⁹ See Natural Resources Canada, supra note 25 at 66 (describing Canada’s new National Forest Strategy, which has sustainable forest management as a core tenet).

³⁰ Canada’s senior governments committed to completing a representative network of protected areas by the year 2000 in the 1992 Tri-Council Statement of Commitment. Despite the commitment, only half of Canada’s forested natural regions are even moderately represented by protected areas. See World Wildlife Fund, Endangered Spaces (Toronto: 2001) at 17.

³¹ Ninety four per cent of the forests in Canada are publicly owned, 71 per cent provincially, and 23 per cent federally. See Natural Resources Canada, supra note 25 at 18.

³² Over 220 million hectares of Canada’s forests are held under commercial license agreements. See Global Forest Watch, supra note 22 at 44.

³³ The legislation ranges from provincial forest management laws, such as the Forest Practices Code of British Columbia Act, R.S.B.C. 1996, c. 159 and the Ontario Crown Forests Sustainability Act 1994, S.O. 1994, c. 25, to the federal Fisheries Act, R.S. 1985, c. F-14, and the Canadian Environmental Assessment Act, R.S. 1992, c. 37.

³⁴ See generally Viana, Virgilio M. et al., eds., Certification of Forest Products: Issues and Perspectives (Washington, DC: 1996).Google Scholar

³⁵ See Kimmins, Hamish, Balancing Act: Environmental Issues in Forestry, 2 ^nd ed. (Vancouver: 1997) at 3–13.Google Scholar

³⁶ See Sedjo, Roger A. and Lyon, Kenneth S., The Long-Term Adequacy of World Timber Supply (Washington, DC: 1990) at 55–56.Google Scholar

³⁷ The Forest Products Association of Canada (which represents 75 per cent of the Canadian forest industry) has made it a condition of membership that companies have all of their woodlands certified by one of three independent certification systems by 2006. See Forest Products Association of Canada, Canada’s Boreal Forest (Ottawa: 2003) at 2.

³⁸ The forest company Tembec, for example, has made numerous efforts to implement sustainable forestry practices and was recently recognized for its efforts by the Rainforest Alliance with a Lifetime Achievement Award. See “While Its President Receives the Rainforest Alliance Lifetime Achievement Award, Tembec Is Recognized as a Corporate Sustainable Standard-Setter by the Rainforest Alliance,” press release (May 20, 2004), text available online <http://www.tembec.com/DynamicPortal?key=web&lng=en-US&page=tpl_press&crit=press_layout&ID_NEWS= 1349>.

³⁹ See generally National Round Table on the Environment and the Economy, supra note 8 at 8. See also Barg et al., supra note 8, for an overview of EFR in Canada.

⁴⁰ See OECD, supra note 4 at 51–69. Fauchald posits that Norway may be the most advanced, as it is considering taxes on uses of nature that negatively impact biodiversity. See Fauchald, supra note 14 at 17.

⁴¹ Income Tax Act, R.S.C. 1985 (5^th Supp.), c. 1.

⁴² See Barg et al., supra note 8 at 22.

⁴³ See International Institute for Sustainable Development, Government Budgets, Replenishing the Prairies: A Canadian Permanent Cover Program, text is available online at <http://iisd1.iisd.ca/greenbud/replen.htm>.

⁴⁴ See International Institute for Sustainable Development, Green Budget Reform: The Tax for Fuel Conservation in Ontario, text is available online at <http://www.iisd.org/greenbud/taxfuel.htm.>.

⁴⁵ See ibid.

⁴⁶ See Sawicki, J., “Tax Shifting in B.C. — Stories from the Front Lines,” in Second Annual Global Conference on Environmental Taxation Issues, Experience and Potential (Vancouver: 2000) at 144.Google Scholar

⁴⁷ See Centre for a Sustainable Economy, Tax News Summary, Forest Tax News, text available online at <http://www.sustainableeconomy.org/seu/>.

⁴⁸ See ibid.

⁴⁹ See ibid.

⁵⁰ See Olewiler, N. et al., “The Beehive Burner Operating Permit Fee Tax Shift Pilot Project,” in Second Annual Global Conference on Environmental Taxation Issues, Experience and Potential (Vancouver: 2000) at 50.Google Scholar

⁵¹ See Drescher, Jim, The Economics of Ecoforestry (Toronto: 1996) at 232.Google Scholar

⁵² The government of Canada’s National Forest Strategy has a goal of managing “Canada’s natural forest using an ecosystem-based approach that maintains forest health, structure, functions, composition and biodiversity.” See National Forest Strategy Coalition, National Forest Strategy 2003–2008 (Ottawa: 2003) at 10.

⁵³ See generally Kimmins, supra note 35.

⁵⁴ See Dresher, supra note 51 at 56.

⁵⁵ The Canadian forest industry paid an estimated $3.5 billion in taxes in 2002. See Forest Products Association of Canada, supra note 27 at 11.

⁵⁶ See Carson, Richard, “Taxation and Accounting Issues,” in Understanding Forestry Taxation in British Columbia (Canadian Tax Foundation Conference Series, Vancouver: 1998) at 6.Google Scholar

⁵⁷ See Global Forest Watch, supra note 22 at 11.

⁵⁸ See May, Elizabeth, At the Cutting Edge: The Crisis in Canada’s Forests (Ottawa: 1998) at 27.Google Scholar

⁵⁹ See ibid. at 27.

⁶⁰ See Kimmins, supra note 35 at 227.

⁶¹ Companies manufacture smaller and lighter logging equipment, designed in particular to allow mechanized selection cuts. Central tire inflation is a mechanism used to reduce ground pressure. See May, supra note 58 at 31.

⁶² For example, a single grip harvester may cost almost twice as much as a regular forwarder. Removable bridges, which are more environmentally benign than permanent bridges, are also more costly. Personal communication with Paul Krabbe, chief economist, Tembec, August 30, 2001.

⁶³ Class 24 and 27 allow for an allowance of 25 per cent for the year of acquisition, then 50 per cent in year 2, and then the balance in year 3, on a straight line basis to the capital cost of the asset. There is also a special depreciation class for energy conservation equipment (class 34 and 43.1), which also creates this three-year write-off. See Canadian Central Revenue Agency [hereinafter CCRA], “Capital Cost Allowance — Pollution Control Property,” Interpretation Tax Bulletin IT-336R (1985). See also Canadian Tax Master Guide, 56_th ed. (Ottawa: 2001) at 304.

⁶⁴ See Center for a Sustainable Economy, supra note 47 at October 5, 1999.

⁶⁵ See, for example, Fern, , Behind the Logo: An Environmental and Sodai Assessment of Forest Certification Schemes (Boskoop, the Netherlands: 2001)Google Scholar; Elliott, Chris and Hackman, Arlin, Current Issues in Forest Certification in Canada (Toronto: 1996)Google Scholar. See Forest Stewardship Council, International Centre, text available online at <http://www.fscoax.org/.>.

⁶⁶ For example, there is a two-year learning curve for operators to learn how to use cut-to-length systems. Personal communications with Paul Krabbe, chief economist, Tembec, August 30, 2001.

⁶⁷ See GATT/WTO, Activities on Trade and Environment 1994–95, Document PRESS/TE 002, May 8, 1995, at 5.

⁶⁸ See Department of Foreign Affairs and International Trade, Softwood Lumber, text available online at <http://www.dfait-maeci.gc.ca/eicb/softwood/menu-en.asp>.

⁶⁹ See, for example, United States — Preliminary Determinations with Respect to Certain Softwood Lumber from Canada (June 2002), WTO Doc. WT/DS236 (Panel Report); Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada (Canada v. United States) (January 2004), WTO Doc. AB/2003–6 (Appellate Body Report). See also generally Department of Foreign Affairs and International Trade, Softwood Lumber — Canada’s Legal Challenges, text available online at <http://www.dfait-maeci.gc.ca/eicb/softwood/legal_action-en.asp>; and NAFTA, supra note 13.

⁷⁰ For instance, the British Columbia Lumber Trade Council estimates that 15,000 logging and sawmill jobs have been lost in the province’s coastal area and that job losses will likely reach 30,000. See “B.C. Industry Braces for More Cuts,” CBC News (March 22, 2002), text available online at <www.cbc.ca>.

⁷¹ Agreement on Interpretation and Application of the Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade, (1980) 26 BISD 56; 31 U.S.T. 513; T.I.A.S. No. 9619.

⁷² GATT 1947, supra note 13.

⁷³ There are some exceptions to this rule. Agricultural products, for instance, are not subject to the same stringent rules. Forest products, however, are not considered agricultural products under the WTO. See SCM Agreement, supra note 20 at Article 3. See also Jackson, supra note 13 at 293–300 (explaining subsidies and countervailing duties under the WTO).

⁷⁴ See generally SCM Agreement, supra note 20 at Part III.

⁷⁵ See ibid. at Articles VI and XVI. There are some exceptions to the restrictions on subsidies. Agricultural commodities, which have remained outside the ambit of the GATT for much of its existence, were brought into the fold in the Uruguay Round, but the restrictions on subsidies are not as stringent for agricultural goods. See Jackson, supra note 13 at 292, 313.

⁷⁶ See SCM Agreement, supra note 20 at Article 8. However, the provisions for allowable subsidies have expired under the SCM Agreement. See later in the article for further discussion.

⁷⁷ None of the measures are contingent upon export or upon the use of domestic over imported goods, which are both triggers for finding a subsidy prohibited.

⁷⁸ SCM Agreement, supra note 20 at ss. 1.1 (a) (1).

⁷⁹ Ibid. at ss. 1.1(b).

⁸⁰ Ibid.

⁸¹ See United States — Tax Treatment for “Foreign Sales Corporations” (Complaint by the European Community) (2001), WTO Doc. WT/DS108/RW (Panel Report) [hereinafter United States — FSC panel report].

⁸² See ibid. at paras. 7.41 to 7.48.

⁸³ See ibid. at para. 7.43.

⁸⁴ See United States — Tax Treatment for “Foreign Sales Corporations” (Complaint by the European Community) (2002), WTO Doc. WT/DS108/AB/R (Appellate Body Report) [hereinafter United States —FSC Appellate Body report].

⁸⁵ See ibid. at paras. 90 to 92.

⁸⁶ See ibid.

⁸⁷ See Canada — Measures Affecting the Export of Civilian Aircraft (Complaint by Brazil), (1999), WTO Doc. WT/DS70/AB/R (Appellate Body Report) [hereinafter Canada — Aircraft case].

⁸⁸ See ibid. at para. 47.

⁸⁹ See United States — FSC panel report, supra note 81; US — FSC Appellate Body report, supra note 84 at para. 7.99.

⁹⁰ See SCM Agreement, supra note 20 atArticle 1.1 (b).

⁹¹ See Canada — Aircraft case, supra note 87.

⁹² See ibid. at paras. 155–61.

⁹³ See ibid at para. 153.

⁹⁴ See ibid at para. 154.

⁹⁵ See ibid at para. 157.

⁹⁶ See ibid.

⁹⁷ See Canada — Aircraft case, supra note 87 at para. 157.

⁹⁸ See ibid.

⁹⁹ See United States — Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom (Complaint by European Community) (1999), WTO Doc. WT/DS138/R [hereinafter United States — British Steel case].

¹⁰⁰ See ibid. at para. 56.

¹⁰¹ See ibid. at para. 6.78.

¹⁰² See Canada — Aircraft case, supra note 87 at para. 157.

¹⁰³ See WTO, Subsidies and Countervailing Measures Overview, text available online at <http://www.wto.org/english/tratop_e/scm_e/subs_e.htm>.

¹⁰⁴ See SCM Agreement, supra note 20 at Article 2.3. Article 3 of SCM Agreement prohibits the use of such subsidies, except as provided in the Agreement on Agriculture, Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, signed at Marrakesh, April 15, 1994, 33. I.L.M. 1125.

¹⁰⁵ See SCM Agreement, supra note 20 at Article 2.

¹⁰⁶ Several WTO decisions have considered Article 3 of the SCM Agreement. See, for example, Canada — Certain Measures Affecting the Automotive Industry (Complaint by Japan), WTO Doc. WT/DS139/AB/R (Appellate Body Report).

¹⁰⁷ See United States — Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada (Complaint by Canada) (2003) WTO Doc. WT/DS257/R [hereinafter United States — Softwood Lumber].

¹⁰⁸ See ibid. at para. 7.116.

¹⁰⁹ See ibid. at para. 7.120.

¹¹⁰ See ibid. at para. 7.122.

¹¹¹ See ibid. at para. 7.121.

¹¹² The revised depreciation classes could still provide specific examples of equipment that would qualify as environmentally sensitive and therefore for the accelerated depreciation rate as long as the examples included equipment from a variety of sectors.

¹¹³ SCM Agreement, supra note 20 at Article 5. Serious prejudice is deemed to exist in the case of:

(a) the total ad valorem subsidization of a product exceeding 5 percent;

(b) subsidies to cover operating losses sustained by an industry;

(c) subsidies to cover operating losses sustained by an industry, other than onetime measures that are non-recurrent and cannot be repeated for that enterprise, and which are given merely to provide time for the development of long-term solutions and to avoid acute social problems.

See ibid. at Article 6.

¹¹⁴ See ibid. at Article 11.

¹¹⁵ See, for example, ibid. at Articles 6 and 15. The requirement for finding injury before imposing countervailing measures is found in Article 19.1 of the SCM Agreement.

¹¹⁶ See, for example, United States — Softwood Lumber, supra note 107 at 108.

¹¹⁷ This means that a WTO member who can demonstrate that its domestic industry has suffered a material injury as a result of the importation into its market of products that have benefited from such subsidies can apply a countervailing duty on the imported products.

¹¹⁸ See SCM Agreement, supra note 20 at Article 8. Article 8 also states that subsidies that are not specific within the meaning of Article 2 are non-actionable (see Article 8.2). The exception of assistance to promote adaptation of facilities to new environmental regulations was enacted in response to environmental concerns about competitiveness. The provision allows governments to fund or subsidize up to 20 per cent of a one-time capital investment required to satisfy new environmental rules without another country being able to impose a countervailing duty (see Article 8.2.)

¹¹⁹ Article 31 of the SCM Agreement, ibid., provided for the provisional five-year application of the allowable subsidies categories. See WTO, Subsidies and Countervailing Measures Overview, text available online at <http://www.wto.org/english/tratop_e/scm_e/subs_e.htm>.

¹²⁰ See generally Faucald, supra note 14; and McDonald, supra note 14.