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Info Service on WTO and Trade Issues (May22/18) Geneva, 20 May (D. Ravi Kanth) – With the United States having formally joined the plurilateral Trade and Environmental Sustainability Structured Discussions (TESSD) at the World Trade Organization, the developing countries could face a combined assault from the US and the European Union as well as other developed countries in their attempts to pry open the markets of the South for environmental goods and services, said people familiar with the development. The US has fired its first shot by saying that it wants to explore how TESSD must address “trade-related measures and policies that can address climate change”. Even though the Trade and Environmental Sustainability Structured Discussions (TESSD) lack consensus at this juncture, the US has signaled its intention to play a major role in galvanizing the TESSD initiative by focusing on “the topic of how trade measures may limit the risk of carbon leakage and the utility of border adjustments, or other frameworks for incentivizing trade in low-emission goods and to encourage decarbonization of production processes.” In its restricted proposal (INF/TE/SSD/W/19) circulated on 4 May, seen by the SUNS, the US proposed the “organization of a roundtable with stakeholders and experts to consider trade measures that can positively contribute to addressing climate change.” The US proposal says that “such a roundtable would also provide an opportunity to engage in an in-depth discussion among WTO Members on the attributes of what may be considered “clean” and “climate-aligned” technologies, goods, and services.” Further, the US wants WTO members to discuss “the issue of pursuing resilient supply chains in the face of climate change, including support for enabling reverse supply chains to facilitate … re-use, repair, refurbishment, re-manufacturing and recycling of goods, as well as other circular economy considerations.” It says that “discussions on issues such as identifying bottlenecks and how to best facilitate trade could help officials better understand the potential impacts of Members’ policies that may be restricting trade flows.” The US says that “these discussions could explore how trade can contribute to efforts to reduce greenhouse gas emissions and explore the role of supply chains to facilitate a more circular economy.” According to Washington, “this may also provide an opportunity to explore options to pursue trade facilitation to reduce emissions and environmental impacts and accelerate progress towards a net-zero future.” The US raised the following questions in its proposal: * How can WTO Members ensure the integrity of trade in goods and services that are claiming a climate or an environmental benefit? What are the tools or information needed to verify these claims and how can WTO Members support transparency, e.g. traceability and accounting of embedded carbon emissions, in a manner that does not create undue burdens for exporters or importers? * What does “low-carbon” or “low-emission” mean in the context of global trade? * Are there international, widely accepted and used standards or benchmarks that would align with the climate goals? * Can WTO Members agree on where, and how, the carbon content should be measured (e.g. using GHG Protocol scopes 1, 2, or 3)? How can we accomplish this calculation and accounting without overly burdening commerce? How do we trace and account for greenhouse gas emissions in the global trading system without restricting trade? * How can we facilitate trade in low-emission goods and services through voluntary standards, technical considerations, and addressing non-tariff barriers to trade? * Are there trade tools other than border adjustments that can contribute to reducing greenhouse gas emissions or addressing carbon leakage? * Would a “carbon club” of WTO Members committed to decarbonizing be an effective mechanism for increasing trade-related action to address climate change globally? If so, what are the key trade considerations for establishing such a club? * How can WTO Members minimize off-shoring production to countries with less-restrictive climate policies, and what domestic efforts are Members taking to retain industrial activity within their borders while simultaneously decarbonizing? * What technologies, goods and services are currently in use and commonly traded that may be considered “low- emission”, “clean”, and/or “climate-aligned”? What are the bottlenecks that inhibit or hinder full potential for trade and deployment of such technologies, goods and services? * What do WTO Members need to consider to support a resource efficient and more circular model for economic activities? What are the constraints to trade? Can we address these bottlenecks to support increased reuse, repair, re-furbishment, re-manufacturing, and recycling? * What are the barriers to facilitating a reverse supply chain? What are the constraints in the trading system that challenge recovery, dismantling, and recycling of products and their components? The questions posed by the US reveal what Washington intends to do in terms of bringing a host of trade-related market-opening measures under the apparent pretext of addressing climate change, said a person, who asked not to be quoted. Meanwhile, in a separate development concerning the TESSD, the United Kingdom, which is one of the leading spokespersons for the developed countries on the trade and climate change initiative, issued a restricted unofficial room document (INF/TE/SSD/RD/10) on 16 May on its recent stakeholder meeting on “trade in environmental goods and services.” The UK said that it held a stakeholder meeting in March 2022, to discuss (1) environmental goods and services in the TESSD; (2) policy challenges in multilateral efforts to promote trade in environmental goods and services; and (3) technical issues in environmental goods and services. The summary provided by the UK in its room document suggests a high level of ambition in pushing the plurilateral negotiations on environmental goods and services, which had initially failed in 2016. Interestingly, the UK summary also said that the developed countries have more non-tariff barrier (NTB) measures than the developing countries. The UK highlighted the following points: A. It claimed there was a broad consensus that multilateral work should be focused primarily on how trade can support environmental goals, rather than on economic outcomes. The trade community should articulate clearly how addressing barriers to trade in environmental goods and services (EGS) can bring environmental (as well as economic) benefits to a wide range of WTO members. B. The summary says that “work should be done sequentially to identify (1) the environmental objectives shared by members, (2) the most relevant goods and services to achieve these aims, (3) the barriers or issues in trade of these goods and services, and (4) the appropriate policy tools to overcome those barriers. Policymakers should think holistically, considering, for example, regulatory issues, investment cooperation, technology transfer, and green procurement. The possible solutions may include tariff liberalization but should not be limited to this objective.” “It is important that the developing countries adopt a positive trade and environment agenda and challenge punitive actions,” said an expert, who asked not to be quoted. According to UNCTAD’s Trade and Development Report (TDR) 2021, “Incentive-based approaches, such as optional preference schemes that provide ring-fenced climate financing additional to ODA (official development assistance) or preferential market access in exchange for progress towards nationally determined contributions (NDCs), could accelerate climate action without recurring to punitive measures with anti-developmental effects.” UNCTAD has also suggested that a development-oriented approach to trade and environment which calls for a limited climate waiver of WTO trade and environment rules combined with a “peace clause” for disputes on trade-related environmental measures of developing countries could be one route forward. “A narrowly defined waiver and “peace clause” would give countries the assurance that they will not face disputes for climate and development-friendly initiatives such as prioritizing a transition to renewable energy, green procurement, and green jobs programmes – all initiatives that advanced economies are also prioritizing but that could be challenged under the WTO dispute mechanism,” it said. Further, according to UNCTAD, the Trade and Environment agenda focusing on existing proposals like Carbon Border Adjustment Mechanisms (CBAMs) and tariff elimination on environmental goods and services are likely to disproportionately impact resource mobilization in developing countries for whom tariffs make up a greater proportion of government revenue. New financing support needs to be provided through a Trade and Environment Fund, as proposed by some WTO members. Such a Fund could finance the incremental costs of sourcing critical technologies, provide grants for specific green technologies, finance joint research, development and demonstrations, as well as the establishment of technology transfer centres, exchanges and mechanisms, said UNCTAD. UNCTAD warns that should negotiations on carbon tariffs proceed at the WTO, it will be important to ensure that this issue remains in the multilateral rules-based system. No decision should be taken between smaller groups of developed economies, as this would risk further undermining the trust of other WTO members, particularly those impacted most, in the ability of the multilateral trading system and global climate initiatives to support the achievement of developmental objectives, it said. Further, most importantly, any requirement for governments in the Global South should be contingent on the more effective policies regarding expanded policy space, enhanced intellectual property rights flexibilities and new sources of climate finance to avoid a catastrophic impact on development initiatives, UNCTAD added.
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