Making Trade Work to Mitigate Climate Change

The following is a guest post by Terrence Mullan, assistant director for international institutions and global governance at the Council on Foreign Relations.

Late last month, the European Union signed landmark trade deals with South America’s Mercosur bloc and Vietnam. This is just the latest signal that President Donald J. Trump’s large-scale abandonment of trade deals and boisterous protectionism are at odds with happenings in much of the rest of the world, where economic cooperation and integration continue to deepen, and sustainable development, prosperity, and rules-based trade remain ideals in name and practice.

Unfortunately, economic success is not without its downsides. Trade is a critical multiplier of the fossil fuel–intensive activities that contribute to climate change, and the trade regime’s response to climate change has been tepid at best. Many trade agreements have environmental chapters, but they tend to be vague in meaning and limited in effect.

Changes to the structure of global trade governance are necessary if the worst consequences of climate change are to be avoided. A new Council of Councils Global Governance Working Paper by Maria Panezi of the Centre for International Governance Innovation proposes a variety of options for realizing a more environmentally friendly global trade regime: “something old, something new, something borrowed, and something green.”

Something Old

First, the 1947 General Agreement on Tariffs and Trade (GATT) can be used to adapt trade rules to the climate challenge. Climate measures could include carve-outs, exceptions, and waivers that allow countries to temporarily set GATT and World Trade Organization (WTO) rules aside, as long as they are nondiscriminatory. Trade governance also has built-in safeguards for legitimate policy concerns, including for the conservation of the environment and exhaustible natural resources. WTO panel and Appellate Body reports have confirmed and refined the exceptions clauses in multiple cases (see “shrimp-turtle,” “tuna-dolphin,” and “European communities-seals”). It is time for measures directly related to climate change to be brought before the WTO.

Something New

Second, the WTO should consider more options to include climate change measures in WTO law. More trade agreements should use “permissive legal imagination” and create new space for mitigating climate change that follow WTO rules. Panezi proposes three options:

• Implement WTO-compatible border carbon adjustments (BCAs). BCAs will increase the prices of less accountable or nonaccountable products made abroad to match domestic environmental-accountability initiatives.
• Adapt WTO rules to simplify adoption of green-forward legislation at the subnational level. WTO rules can limit the subnational adoption and implementation of environmental regulations. WTO member states should negotiate an interpretive note making it possible for the adoption of subnational legislation as long as it protects the environment. At a minimum, WTO member states should draft a set of guidelines outlining permissible subnational environmental measures.
• Adopt a climate waiver at the WTO. A waiver would not change existing rules but could link climate change to the “exceptional circumstances” for waivers put forth in the Marrakesh Agreement, which would allow for legal interpretations that favor climate change action.

Something Borrowed

Third, countries should use the language included in the trade and environment chapter of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU as a model going forward. CETA’s chapter on trade and environment stands apart from other agreements. It specifically provides that a party “shall not, through a sustained or recurring course of action or inaction, fail to effectively enforce its environmental law to encourage trade or investment.” This should be used as a model for other countries to utilize and expand on.

Something Green

Fourth, parties should consider climate change when implementing all provisions—not just environmental sections—of trade agreements. Trade agreements include provisions outside of environmental chapters that can affect efforts to lower carbon emissions. For instance, intellectual property rules could be adjusted to allow for easier or even compulsory licenses for green technologies to make them fully accessible sooner than traditional rules allow.

Fifth, the Environmental Goods Agreement (EGA) negotiations should be picked up again, both bilaterally and plurilaterally. Negotiations on the EGA have stalled. Given the other institutional challenges at the WTO, many experts are pessimistic about EGA negotiations going forward. It might be best to have a coalition of countries discuss concessions on environmental goods at the bilateral and regional level, creating mini-EGAs that can be expanded at a later date.

The Way Exists—We Just Need the Will

Panezi’s paper makes it clear that policy options to address climate change exist. Much needs to be done, but the participants in the global trading regime have the ability to reinterpret and reform rules to more effectively meet challenges associated with climate change.

For more, read the full paper here.