Bridges Weekly Trade News DigestVolume 15Number 26 • 13th July 2011

WTO Environment Committee Puts the Spotlight on Climate Change

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The trade dimension of border measures - one of the more challenging issues at the trade and climate change nexus - took centre stage at last week’s meeting of the WTO’s Committee on Trade and Environment (CTE). Members discussed a proposal, tabled by Singapore, which stressed the importance of the multilateral trading system and environmental protection. The submission emphasised the need for these two fields to be mutually supportive for the sake of promoting sustainable development.

The submission, entitled “Promoting Mutual Supportiveness between Trade and Climate Change Mitigation Actions: Carbon-related Border Tax Adjustments,” argues that trade liberalisation is crucial for environmental protection.

“Trade Policy and the WTO can and should play a role in supporting environmental protection,” the submission reads, suggesting the liberalisation of Environmental Goods and Services as a “concrete way” of achieving this aim. “Aside from environmental benefits, EGS liberalisation will also have trade-led development benefits.”

Singapore added that the use of trade restrictions, “albeit for the purposes of combating climate change,” would counteract any benefits coming from that liberalisation.

The Singapore document refers to a list of 35 environmental goods that it has submitted to the CTE Special Session (JOB/TE/5) and says that trade policy - particularly the liberalisation of climate friendly goods, services and technologies - will complement UN Framework Convention on Climate Change (UNFCCC) efforts to combat climate change.

The WTO-UNFCCC nexus

Article 3.5 of the UNFCCC requires members to ensure that the domestic actions they take to combat climate change are non-discriminatory and are not used as disguised trade barriers.

International trade law contains similar requirements. Because WTO members may adopt domestic carbon price mechanisms, such as cap-and-trade or carbon taxes, to mitigate climate change, some consider implementing border measures - or border tax adjustments (BTAs) - to address trade competitiveness and carbon leakage issues that may result.

The global trading body allows, under certain conditions, the use of border measures. It is, however, unclear whether all measures on imports would track with international trade rules. Even if such measures are permitted, they could potentially be the subject of abuse; in its submission, Singapore cites anti-dumping and safeguard measures as instances where WTO sanctioned measures have been misused in the past.

In addition, BTAs could conflict with the UNFCCC-recognised need for policy flexibility in this field, given the range of conditions that prevail in different countries - i.e. the principle of common but differentiated responsibilities. Not all countries have the capacity to develop alternative energy sources, especially given that identifying the energy or carbon content embodied in traded products can be a cumbersome process.

According to Singapore’s submission, if a future global agreement on climate change does include text on trade, members should “ensure that it is consistent with their rights and obligations in the UNFCCC and the WTO.”

Singapore requested that the WTO Secretariat prepare a compilation of existing studies on the role that these measures can have in resolving concerns over trade competitiveness and carbon leakage, so that measures can be applied in a WTO-consistent manner. The studies should also examine the possibility of developing multilaterally agreed guidelines for pre-empting the abuse of BTAs.

Other members did not support this request, as they consider the 2009 study on trade and climate change conducted by the WTO and the UN Environment Programme to be sufficient, according to sources close to the talks. The same members reportedly say there is no room for BTAs to be permitted under WTO rules. Despite this pushback, members generally favoured further discussion of the measures in the CTE; in that regard, the submission reached its objective of raising awareness on the issue.

UNFCCC updates members on climate negotiations

Other climate issues were also featured at the CTE meeting, when a UNFCCC secretariat representative briefed members on the progress of the climate change negotiations. A few emerging economy members reiterated that the CTE might not be the right place to discuss climate change, as they would prefer to have the freedom to first reach a climate change agreement under the UNFCCC and afterwards discuss the trade implications.

Most other members reportedly responded positively to the presentation, remarking that it is useful to be aware of developments in the climate talks.

There was particular interest in a “forum on response measures” under the UNFCCC, which would look into ways to address the negative consequences on developing countries of efforts to mitigate greenhouse gas emissions. For example, border taxes, free allowances in emissions trading schemes, and access to climate-friendly goods and technology could have adverse effects on international trade.

While there is currently no ongoing forum to discuss and address these trade-related climate issues, UNFCCC members last December in Cancun, Mexico agreed to devote time and space to these response measures during the Bonn and Durban climate talks this year. Although there was a forum held on the subject at the Bonn talks, which were held from 6-17 June, questions remain about whether such a forum will convene during the upcoming Durban talks (see Bridges Weekly, 22 June 2011).

Eco-labelling and carbon footprinting

An exchange of information on eco-labelling and carbon footprinting schemes continued with Chile introducing a study on carbon footprint in Chile, suggesting that the production of processed food was the most carbon intensive part of the life cycle and not its international transport.  Members also raised a number of concerns related to the trade impact of carbon footprint schemes, including: the importance of evaluating the impact on market access of carbon footprinting and labelling schemes; the lack of transparency; the proliferation of carbon footprinting standards and labelling and the need for international harmonization; the importance of capacity building for developing countries, including for small and medium-sized enterprises; and the need for a scientific basis for the calculation of carbon content.

ICTSD reporting.

One response to “WTO Environment Committee Puts the Spotlight on Climate Change”

  1. Garba Malumfashi, PhD

    This Singaporean proposal is a welcome development. In addition to border measures, another trade tool being used by governments to address climate change is the power of government procurement. Therefore, any consensus reached on the definition of climate-friendly goods, services and technologies (CGS), under the Doha or even at CTE level will go a long way in helping governments to argue for permission to maintain preferential procurement in those items. I argued elsewhere that an adopted definition of CGS can also help to guard against abuse of the permission. This is because preferential procurement would only be permitted in relation to the limited list of the items (which should be dynamic) in the agreed definition. Both the current WTO Agreement on Government Procurement (GPA) and the proposed amended version of 2007 contain no such innovative provisions. Article XXIII of the current GPA which arguably permits measures to address the environment is still susceptible to the usual technical contention and controversy that have always trailed the trade-environment intersections in the GATT/WTO jurisprudence. It is time to move forward.

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