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Info Service on Climate Change (Apr22/02) Geneva, 4 Apr (D. Ravi Kanth) – The World Trade Organization’s Environment Division has embarked on providing substantial technical assistance to a group of countries led by the European Union on how to proceed on a non-mandated issue – the “Trade and Environmental Sustainability Structured Discussions (TESSD)” . The TESSD’s main goal is to frame new trade rules for trade-related climate change initiatives, according to people familiar with the development. So far, the members of the WTO have not formally agreed multilaterally on t he issues raised in the TESSD. The issue remains in square brackets in the second revised draft outcome document for the WTO’s 12th ministerial conference (MC12), tentatively scheduled for 12-15 June, due to the lack of consensus, implying that there is no agreement on this issue. According to the informal room document (RD/GC/17/Rev.2*), the square-bracketed text on environment states: [We recognize global environmental challenges such as climate change and related natural disasters, loss of biodiversity and pollution. We note the importance of the contribution of the multilateral system to promote the UN 2030 Agenda and its Sustainable Development Goals in its economic, social, and environmental dimensions. We reaffirm support to the UNFCCC (United Nations Framework Convention on Climate Change), and the Paris Agreement and note the outcome of COP26. We believe trade and environmental policies should be mutually supportive and contribute to optimal use of the world’s resources in accordance with the objectives of sustainable development. We reaffirm that measures to protect and preserve the environment should be WTO consistent [, not constitute unnecessary barriers to trade] and safeguard the multilateral trading system. We reaffirm the importance of providing appropriate support to developing country Members and LDCs in order to help their transitions, including through technological innovations, towards resource-efficient and sustainable development. We will reinvigorate our efforts geared towards enhancing the resilience of these Members and to better enable them to seize sustainable trade opportunities including through Aid for Trade [, transfer of environmentally sound technology on mutually agreed terms] and other capacity-building support that assists in the promotion of production and trade of goods and services that are respectful of the environment. We note the role of the Committee on Trade and Environment as a standing forum dedicated to dialogue among Members on the relationship between trade rules and environmental measures.] At the informal General Council meeting on 28 March, the chair of the WTO’s General Council (GC), Ambassador Didier Chambovey from Switzerland, said that there is no convergence yet on the topic of environment. On issues that have not been multilaterally agreed such as investment facilitation or the environment, it appears that the WTO Secretariat, by providing technical assistance services, is allegedly violating the rules set out in the Marrakesh Agreement, especially Article III, paragraph 2. Article III.2 states that “the WTO shall provide the forum for negotiations among its Members concerning their multilateral trade relations in matters dealt with under the agreements in the Annexes to this Agreement. The WTO may also provide a forum for further negotiations among its Members concerning their multilateral trade relations, and a framework for the implementation of the results of such negotiations, as may be decided by the Ministerial Conference.” Yet, under the leadership of the WTO Director-General Ms Ngozi Okonjo-Iweala, the Secretariat is providing technical assistance services for the controversial non-mandated Joint Statement Initiatives (JSIs) on digital trade, investment facilitation, disciplines for MSMEs (micro, small, and medium enterprises), domestic regulation in services, and trade and gender. WTO SECRETARIAT’S TECHNICAL ASSISTANCE It is in this context that the role of the Environment Division needs to be assessed. There are altogether four presentations made by the Secretariat. They include: 1. Overview of EDB (environmental database) information and types of trade-related climate measures (TrCMs); 2. Trade and Climate Change Modelling Workshop: Overview of research topics , insights, challenges, and takeaways of Workshop with inputs; 3. Experiences in the promotion and facilitation of environmental goods and services; 4. Circular Economy-Circularity: Aide-memoire. Two presentations were made by the British Overseas Development Institute (ODI) and the International Institute for Sustainable Development (IISD). While the ODI delivered its presentation on “Aligning Climate and Trade Pol icy for LDCs and Graduates: Overview of the project and main finding of relevance for TESSD,” the IISD made its presentation on “Fossil fuel subsidies: Types , measures, impacts, and reform efforts – Presentation by IISD”. According to the environment database on information and types of “trade-related climate measures (TrCMs)”, there are 4,629 notified TrCMs which include 897 climate change mitigation and adaptation measures; 184 afforestation/reforestation measures; 1,551 alternative and renewable energy measures; 1,870 energy conservation and efficiency measures; 839 air pollution reduction measures; and 473 Ozone layer protection measures. Interestingly, these TrCMs could result in trade restrictions, impose costs on production as well as on consumers, introduce market distortions in the economy and lock-in certain technologies/barriers to incumbents. In the second presentation concerning trade and climate change modelling, several takeaways were presented from a workshop held on 22-23 February. The takeaways include: 1.
Carbon pricing at a global level is economically and environmentally
best but difficult to achieve due to (a) international carbon price
floor (ICPF) for introducing global carbon pricing can largely be
imposed by high income countries and there would still be need for
a re-distributive mechanism to follow 2. Calculating effective carbon prices is complicated due to implicit policies due to explicit carbon pricing involving carbon tax, emissions trading scheme, and “feebates” as well as implicit carbon pricing such as fuel and commodity taxes/subsidies, and tradable performance standards. In the aide-memoire on the circular economy-circularity, the WTO Secretariat says that measures for recycling represent around half of all relevant measures such as reuse and repair (16%); biodegradability as well as waste-related technologies and innovation (11%); waste-to-energy (6%); and refurbishment and re-manufacturing (4%). Also, according to the presentation, government support is the most frequently notified measure like technical regulations (17%) and bans and licenses (21 %). It says that there are information challenges in the circular economy such as for both trade in second-hand goods and goods for re-manufacturing and refurbishment. There are challenges to distinguish goods from new products or waste. Also, according to the Secretariat’s presentation, there is a lack of reliable da ta on trade in services. Among the obstacles affecting the transition to a circular economy, the Secretariat has pointed to several areas. These areas comprise: (1) standards and conformity assessment wherein there are differences across jurisdictions, lack of common definitions, and incompatibility; (2) export restrictions such as 40% of copper waste and scrap, 30% of aluminum and 20% iron and steel; (3) subsidies that include fossil fuel subsidies, subsidies to plastic production, and subsidies to the metal sector; (4) classification o f end production; (5) tariff protection and rules of origin, including tariff escalation and rules of origin on goods such as EV (electrical vehicle) batteries; and (6) quantitative restrictions mostly on hazardous waste. The options for deliverables at the WTO include: (a) through revived EGS (environmental goods and services) talks, which would identify and include the circular economy goods and services; (b) by reviving and extending previous work on non-tariff measures on re-manufactured goods; and (c) working towards a set of common principles and sectoral best practices for the design of trade-related circular economy measures. In short, the WTO Secretariat, which is funded by the contributions made by members for conducting multilateral negotiations, appears to be focused on the controversial non-mandated issues. This work of the Secretariat is nothing but an alleged gross violation of the WTO rules, said a person, who asked not to b e quoted. IMPLICATIONS FOR DEVELOPING COUNTRIES It is interesting to note that the presentations did not include the impact of Carbon Border Adjustment Mechanism (CBAM) on developing countries’ exports or real income. According to the UNCTAD report on “A European Union Carbon Border Adjustment Mechanism: Implications for developing countries” (2021), UNCTAD estimates that the CBAM will reduce global carbon emissions by not more than 0.1%. But distributional impacts will be huge. It will decrease global real income by $3.4 billion, with the developed countries’ income rising by $2.5 billion while the developing countries’ incomes will fall by $5.9 billion. Developing countries which will experience loss in real incomes and employment include Brazil, China, India, Russian Federation, Saudi Arabia, South Africa, Turkey and other countries in the Middle East and North Africa. It also found that CBAM will lead to a fall in export competitiveness of developing countries in energy intensive sectors such as paper products, petroleum, coal products, chemicals, fertilizers, cement, glass, steel, ferrous metals, aluminium and electricity. According to the report, a fall in exports is experienced by Argentina, Brazil, China, Egypt, India, Indonesia, Israel, Kazakhstan, Malaysia, Mexico, Morocco, Russian Federation, Saudi Arabia, South Africa, Thailand, Turkey, Ukraine, among others. But terms of trade (i.e., export prices increase relative to import prices) improve for the EU. The WTO Secretariat also failed to mention UNCTAD’s Trade and Development Report 2021, which argues for a positive Trade and Environment Agenda for developing countries, focusing on: facilitating patent-free green technology transfers; providing additional finance for promoting trade of environmentally sustainable products e.g., through the Trade and Environment Fund; building technical capacities, especially of LDCs and SIDS, in setting up climate-smart infrastructure; providing incentives like preferential market access based on progress towards nationally committed goals; and ensuring adequate policy and fiscal space for developing countries for designing their trade policies se eking environmental goals. On Environmental Goods and Services, it is important to note that environmental services are already identified under the General Agreement on Trade in Services (GATS). However, some proposals aim at extending the scope of environmental service s by including services such as architecture, design, general management, construction, engineering, etc. Any resulting commitments in these services will take away the flexibility provided by the “positive list” approach available to the developing countries under the GATS. According to the aide memoire, the guiding questions for an informal working group on the circular economy- circularity consist of: what trade policies, tools and collaborative actions can support the transition to a circular economy that supports the achievement of the Sustainable Development Goals?; what trade policies, tools and collaborative actions could help developing and LDC members ensure that circular economy approaches contribute to their sustainable development?; and what are the lessons learned from the existing efforts to advance the circular economy goals? However, the implications of liberalizing trade in second-hand, refurbished , or re-manufactured goods were not mentioned. The developing countries have rejected these agreements in the past, arguing that such an agreement may lock the developing economies into outdated and less efficient technological solutions and, therefore, would delay the achievement of the environmental goals. Concerns were also raised on liberalizing trade in waste and scrap as that would put additional pressure on the waste management systems of developing countries, especially those which lack a sound regulatory framework for waste management and the associated infrastructure capacities. Developing countries have argued that restrictions like export bans on meta l waste and scrap were used to promote domestic processing and value added. Furthermore, imports of second-hand clothes and footwear were found to have significant negative impacts on the re-vamping of the textiles and leather industries, especially in Africa.
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