The need to integrate climate and trade agendas
Today, humans have collectively come to constitute a geological force that undermines the very natural balances that have preempted the growth of civilization and the triumph of human nature itself, giving rise to an era of anthropogenic climate change. Human activity has already been responsible for a 1.0ºC increase over pre-industrial levels. It is widely recognized that an increase over 1.5ºC will cause irreversible harm to both human and natural ecosystems, with more extreme and variable weather events, resource scarcity, sea-level rise, biodiversity loss, economic recessions and global conflicts.
The World Trade Organization (WTO), both with the Marrakesh Declaration of 1994 and the Doha Ministerial Declaration adopted in 2001, codifies its support for sustainable development and the protection of the environment, which is legally covered under the exceptions (Article XX) of the 1947 General Agreement on Tariffs and Trade (GATT). However, there is an increasing awareness of the need to further integrate Multilateral Environmental Agreements (MEAs) and trade agendas. The European Union (EU), for instance, expressed environmental protection concerns in the WTO as early as 2001, and introduced the issue of sustainable development in its Trade Policy Review submitted to the WTO in 2011, and more recently, its review for 2017.
The recent Paris Accord has set ambitious environmental targets to limit Greenhouse Gas (GHG) emissions and avoid a wide range of consequences outlined in the 2018 IPCC report. Out of 163 National Determined Contributions (NDCs) to the Paris Accord, 90 include the use of market and trade mechanisms. Such instruments are designed to reach the targets of the Paris Accord nationally, with subsidies for green technologies and environmentally friendly companies and producers, special taxes and the enforcement of strict environmental regulation. They also aim to externalize environmental protection with the use of tariffs, market access restrictions and clauses in Free Trade Agreements (FTAs). These measures are likely to increase conflicts which will be tackled through the framework of the WTO dispute settlement body: such has already happened with the renewable sector in a process that is severely affected by the Appellate Body crisis. At the same time, more and more regional trade agreements are incorporating references to environmental protection through GATT Article XX (80% of RTAs analyzed by OCDE), and more European FTA’s are incorporating environmental provisions (38% of EU FTA’s have climate change provisions) and even fully-blown sustainable development chapters, with growing pressures from the European Parliament and from civil society broadly.
The risks of the current system
The WTO is facing multiple challenges as the framework for a stable international trade regime. These vary from the imminent collapse of the Appellate Body (AB), notification requirements and transparency, the self-categorization of the developing country status and its inability to deliver new international rules. Such non-functionality has been widely cited as a possible deterrent for the articulation of a climate responsible trade regime.
The European Commission received a mandate from the European Council of June 28-29th 2018 to draft proposals to modernize the WTO and make it more relevant and effective, resulting in the concept paper of September 18th 2018. Although this included climate change objectives (Part C), the document led to the presentation of two official documents to the WTO General Council (transparency and notification requirements and Appellate Body Reform) and only a Joint Communique in which, among others, the urge to reconcile the WTO with sustainable development is mentioned.
Therefore, the EU has not yet included specific proposals to give sufficient space and legal framework to its national and international use of climate and sustainable development measures under the WTO. Certain national climate-measures and climate conditionality provisions in EU trade agreements have been issues of legal uncertainty, including vulnerability criterion, international agreements ratification (illegal form of reciprocity), an unclear causality between EU market access and sustainable development policy objectives and the possible withdrawal of trade preferences on non-trade provisions grounds (affecting GATT Articles I, II.2, III, among others, and not comprehensively covered under Article XX exceptions). Together with an increasingly populist and protectionist global trading context, this produces a security risk for both a stable, functioning multilateral trade system and the achievement of Multilateral Environmental Agreements (MEAs) targets, both of which are central EU Foreign Policy commitments.
The benefits and challenges of a Climate Waiver
Article IX:3 of the Marrakesh Agreement provides that “[i]n exceptional circumstances, the Ministerial Conference may decide to waive an obligation imposed on a Member by this Agreement or any of the Multilateral Trade Agreements”, thus providing the legal basis for a climate waiver under the ‘exceptional circumstance’ of climate change. A climate waiver enabling trade restrictions in the light of concrete national steps taken to advance the fight against climate change will do the utmost to help slow climate change, facilitating a green energy transition and carbon pricing policies, while at the same time posing the least risk to the fundamental basic non-discrimination rules underpinning the WTO framework of world trade.
The main benefit of a climate waiver is the incompleteness and infeasibility of other options. Policy options to reform the WTO to help it cope with the climate objectives that have been disregarded, include an Article XX amendment (no use of amendments in WTO practice, complex legal and negotiation context which would result in a binding amendment for long-term practices), an authoritative interpretation around the same article (non-trade rules would remain inapplicable in trade disputes, and it could increase protectionism) and a peace clause (similar limitations as other amendments).
Another benefit of a clear climate waiver is that it may overall reduce disputes under the WTO dispute settlement mechanism, avoiding an overload. Moreover, a climate waiver would limit WTO control in favor of other regimes and frameworks holding greater legitimacy and expertise to deal with climate change. Additionally, its exceptional and temporal nature may make it easier to pass than actual permanent amendments, although if used repeatedly to cover for certain provisions under MEAs (such as NDCs) it could provide a long-term legal framework.
A climate waiver would also come with challenges. Most importantly, such a measure is highly dependent on political will. Indeed, a WTO waiver requires three-fourths of all WTO members to agree, and the difficulty of gaining such support must not be underestimated. Moreover, as in all legal texts and as shared with options exposed above, the challenge remains in collectively defining the dimensions and scope of what constitute climate measures, with the priority in the design process being not to allow the waiver to disguise protectionist policies.
Five main considerations for EU Foreign Policy
While the EU is fine increasingly integrating climate and trade aspects in its internal and external dimensions, EU member states should foresee the long term objective of integrating trade and climate in the multilateral framework, especially under the WTO, to provide greater legal clarity and to avoid the case-by-case nature of the organization. It should:
- Propose the creation of a WTO climate waiver under collectively agreed circumstances in order to respond to climate change providing, for example, legal clarity to conditionality clauses and border tax adjustments emanating from carbon pricing mechanisms. The EU should collaborate with like minded allies, potentially taking advantage of the change of administration in the US.
- Expand the Trade and Environment Committee mandate to allow for the monitoring and dispute prevention of the changed rules and develop a method to analyze FTAs impact in reaching MEAs targets, such as considered with the EU-ASEAN’s FTA agreement. Similarly ensure the Dispute Settlement Body has sufficient technical climate expertise.
- Reinforce discussions under the Environmental Goods Agreement, which seeks to eliminate tariffs on a number of important environment-related products and could further MEA compliance and strengthen the WTO framework.
- Engage in wide debate over the precautionary principle, aiming to find convergence on the understanding of precaution, so as to reduce disputes, better interpret the SPS agreement and better protect EU’s anchored precautionary principle, as already introduced in 2001.
- Continue including trade and sustainable development chapters (TSD) in all RTAs and FTAs to ensure convergence and coherence of Foreign Policy objectives.
Pau Ruiz Guix
Pau is a Fulbright Master of Science in Foreign Service (MSFS) student at Georgetown University. He holds an MA in European Studies from King’s College London. He is interested in the nexus between science and international affairs, and focuses specifically on EU Foreign Policy, Climate Diplomacy and EU-Asia relations.
The featured image (top) is ‘European Union Flags 2’ by Thijs ter Haar on Flickr. It is licensed under Attribution 2.0 Generic (CC BY 2.0).
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