TWN Info Service on WTO and Trade Issues (Oct22/08)
14 October 2022
Third World Network

WTO: Northern trade & environment agenda to "test the waters" at CTE
Published in SUNS #9666 dated 13 October 2022

Geneva, 12 Oct (D. Ravi Kanth) -- The upcoming meeting of the Doha Committee on Trade and Environment (CTE) at the World Trade Organization from 17 October is likely to "test the waters" on controversial trade measures such as the European Union's allegedly punitive Carbon Border Adjustment Mechanism (CBAM) and a proposal on deforestation, as well as other initiatives being proposed by the developed countries.

Ahead of the meeting, the WTO's Committee on Trade and Environment (CTE), which was tasked to focus on a number of items in its work program under the mandate of the Doha Work Program in 2001, has issued a schedule of meetings that will take place during 17-21 October.

The agenda, contained in the restricted document Job/TE/76, seen by the SUNS, suggests that as part of "environmental measures and market access", several issues will be discussed.

The issues include "trade-relevant aspects of the European Green Deal", "recent developments on fossil fuel subsidy reform", and "circular economy and plastics pollution," including a report on the work of the Informal Dialogue on Plastics Pollution and Environmentally Sustainable Plastics Trade (IDP), as well as Trade and Environmental Sustainability Structured Discussions (TESSD), which will be debated at the meeting.

India is expected to present its "concern on the increasing use of environment as a non-tariff measure" at the upcoming meeting.

While the CTE operates under the Doha mandate, the outcome document of the WTO's 12th ministerial conference (MC12) on the environment did not mention either the TESSD or other initiatives.

According to paragraph 14 of the final MC12 outcome document, ministers merely stated that they "recognize global environmental challenges including climate change and related natural disasters, loss of biodiversity and pollution. We note the importance of the contribution of the multilateral trading system to promote the UN 2030 Agenda and its Sustainable Development Goals in its economic, social, and environmental dimensions, in so far as they relate to WTO mandates and in a manner consistent with the respective needs and concerns of Members at different levels of economic development. In this regard, we reaffirm the importance of providing relevant support to developing country Members, especially LDCs, to achieve sustainable development, including through technological innovations. 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 measures and environmental measures."

The final menu of issues to be finalized before MC13 on trade and environment will have to be consistent with the MC12 mandate in paragraph 14.

Against this backdrop, the EU's Green Deal as well as the TESSD and several other issues could witness sharply divergent and opposing positions, said a person, who asked not to be quoted.

Earlier, the EU rapporteur Mohammed Chahim had said that the Carbon Border Adjustment Mechanism (CBAM) "would incentivize the EU's trading partners to decarbonize their industries, as no matter where you pollute, you will now have to pay for it, if you want to export to the European market."

It implies that the polluters will have to pay according to the EU's price.

The US is also considering its Clean Competition Act that will give American companies a step up in the global marketplace while lowering carbon emissions at home and abroad and "steering the planet toward climate safety."

In short, the CTE is most likely going to be a battleground between the ideas being floated by a group of industrialized countries, on the one side, and resistance and opposition from many developing countries, including India, on the other, said people, who asked not to be quoted.

The EU had already faced opposition from Brazil to a deforestation proposal on grounds that it is a non-tariff barrier.

ARE PUNITIVE MEASURES WARRANTED?

Many developing countries have already expressed sharp concerns in various fora, particularly at the WTO, whether these measures, some of which seem to be punitive, in the name of climate change mitigation, are tantamount to being "obstacles to trade, or trade protectionism."

Several studies, particularly by the UN Conference on Trade and Development (UNCTAD) in its Trade and Development Report (TDR) 2021, have already pointed out that the EU's Carbon Border Adjustment Mechanism (CBAM), which will be discussed at the CTE meeting, could adversely affect the production methods of developing countries in sectors such as steel, iron, cement, fertilizer, aluminum, and electricity.

These sectors in developing countries could be forced to purchase CBAM certificates to cover direct carbon emissions embedded in certain products imported into the EU. A second phase is anticipated to cover indirect emissions.

According to UNCTAD's estimates, the "CBAM will reduce global carbon emissions by not more than 0.1 per cent and decrease global real income by $3.4 billion."

Further, real income in developed countries will rise by $2.5 billion, while it will fall by $5.9 billion in developing countries.

It said that the distributional impacts of the EU's unilateral CBAM will be huge and compliance costs will be prohibitive for most developing countries' products entering the EU market, which will adversely impact exports of many developing countries to the EU.

The TDR severely questioned the use of the CBAM in today's globalized world integrated through global value chains where the manufacturing activities have been outsourced to developing countries and less carbon-emitting activities like branding and financing have been retained in the developed world.

It implies that the energy efficiency of the North cannot be de-linked from the energy inefficiency of the South.

Also, there are concerns raised about the compatibility of CBAMs with GATT Article XX, which could constitute "a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade..."

The CBAM may also come into conflict with the "common but differentiated responsibility (CBDR)" principle enshrined in the Paris Agreement.

UNCTAD proposed a positive trade and environment agenda that seeks to promote "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 least developed countries (LDCs) and Small Island Developing States (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 seeking environmental goals."

Several other issues were listed for discussions at the upcoming CTE meeting, like TESSD where there is no consensus yet, market access for environmental goods which was abandoned by a group of developed countries in 2016, the informal dialogue on plastics pollution and environmentally sustainable plastics trade (IDP), which is being led by China, and fossil fuel subsidy reform, which are expected to witness divergent and opposing positions.

While the importance of the climate agenda is acknowledged by all countries, it is important to note that issues being debated and likely to be pursued in the short- and medium-term at the WTO's CTE could have far-reaching implications for developing countries. +