TRADE MINISTERS DISCUSS LINKS BETWEEN COMMERCE AND CLIMATE CHANGE AT BALI CONFERENCE

International cooperation and a multilateral framework to address greenhouse gas emissions are a prerequisite for effective global economic governance, trade ministers from several major economies said during a weekend meeting on the margins of the United Nations climate change conference in Bali.

They stressed that policies to combat climate change must be structured in ways that minimise adverse social and economic impacts. Many said that the current lack of clarity about emissions rules limits the ability of the WTO to contribute to global efforts to tackle climate change.

Ministers and senior trade officials from the US, Brazil, Japan, the EU, China, India and several other Asian and European countries -- but none from Africa -- participated at the 8-9 December informal gathering at the invitation of Mari Pangestu, Indonesia's trade minister. It marked the first ever meeting at that level to discuss links between the international trade and climate policy regimes. Representatives from intergovernmental organisations and invited civil society observers also attended the meeting.

Pangestu stressed from the outset that the informal gathering was not meant to be a negotiation. It was simply to provide a platform for an informal exchange among trade ministers."The intention is to start a dialogue. This is the first time that trade ministers are meeting to discuss these issues," she said.

The United Nations Framework Convention on Climate Change summit in Bali is seeking to launch a process of negotiations on a successor agreement to the Kyoto Protocol, which expires in 2012. A key goal is to curb greenhouse gas emissions enough to allow global average temperatures to stabilise at no more than 2 degrees Celsius above pre-industrial levels, which many scientists and policy-makers say is necessary to avoid irreversible climate change.

Central to an effective post-Kyoto regime will be the participation of the US, which unlike most industrialised countries did not commit to mandatory emissions cuts pre-2012. Also crucial will be defining how emerging economies with high and growing levels of emissions - above all China and India - will participate in global efforts to address climate change.

Participants concurred that like trade, climate change requires multilateral solutions, and cautioned against unilateral approaches to either issue. They agreed that policymakers must consider how trade could be part of a response to climate change and its potentially profound socioeconomic implications. Although they widely shared the view that the trade and climate regimes could buttress each other in several areas, they noted that tension between the two could arise, especially in the context of negotiations towards post-Kyoto commitments.

That said, they noted that several measures addressed in WTO rules could be useful in dealing with climate change, such as standards, subsidies, taxes and intellectual property rules. Ministers reiterated that using these tools for climate purposes would be best guided by a clearly defined multilateral environmental framework. WTO Director-General Pascal Lamy, who attended the meeting, said that relevant trade rules "can certainly be leveraged in the fight against climate change, and adapted if governments perceive this to be necessary to better achieve their goals."

Cooperation, competitiveness, and development

Despite their desire for an international agreement on climate change, all participants made it clear that the issue has to be tackled primarily in environmental fora,. WTO chief Lamy, for example, emphasised that "it is not in the WTO that a deal on climate change can be struck, but rather in an environmental forum, such as the United Nations Framework Convention on Climate Change."

David O'Sullivan, a top trade official at the European Commission, warned that failure to reach a global deal on climate change could complicate international trade relations: policymakers could find themselves having to consider the use of trade policy tools, including controversial border tax adjustments on certain imports, in order to achieve climate change objectives.

Even an agreeent on climate change, if it fails to include all major economies, could give rise to trade tensions, as governments try to counteract competitiveness concerns vis-à-vis countries that are not striving to meet emissions targets. Indeed, some political leaders, particularly in Europe, have called for tariff adjustments on imports from countries that do not sign on to climate measures. This would, they claim, both level the playing field for their goods and encourage countries to join global efforts to mitigate climate change.

Most participants cautioned against the use of trade restrictions, either to compel others to action on climate change or to address competitiveness. US Trade Representative Susan Schwab emphasised that "WTO Members should be cautious to avoid a rush to restricting trade in the name of climate change action."

"Trade has a role in making economic growth and development 'climate-friendly', but should not be seen as the answer to all climate change mitigation concerns," said Schwab. She stressed that "approaches should emphasise multiple aspects of sustainable development, including economic growth, environmental effectiveness and energy security."

Given the developing world's need to develop, China said that that future action on climate change must abide by the notion of common but differentiated responsibility for poor nations, not least because of industrialised countries' historical responsibility for greenhouse gas concentrations in the atmosphere.

Common but differentiated responsibility was but one of several multilateral principles in the climate change and international trade regimes that participants said must be reflected in cooperative action on both issues. Others were non-discrimination, transparency, science- and rules-based policymaking, and special and differential treatment for developing countries.

Ministers were in agreement that steps to address climate change must leave developing countries enough room in which to develop. However, they expressed concern about "the lack of adequate studies or empirical evidence" on the links between trade, climate change, and poverty eradication, according to a statement from the Indonesian trade ministry. They called for further research in the area, which would enable governments to take more informed decisions.

Countries like China and India have complained that strict curbs on their emissions could constrain growth prospects. Argentina and Mexico said that the right to development must be preserved.

Environmental goods and services liberalisation

Participants discussed the potential climate benefits of liberalising trade in low-carbon goods such as renewable energy technologies and pollution control equipment.

Lamy pointed to the ongoing Doha Round negotiations on liberalising trade in environmental goods and services, suggesting they could "deliver a double-win for some our members. A win for the environment and a win for trade." However, he stressed that market opening must take place within the right environmental framework - a framework that governments need to set up.

Participants discussed a recent proposal by the EU and the US for all WTO Members to liberalise trade in some 43 products identified by the World Bank as providing direct climate change benefits, from wind turbines to stoves, cookers, and hydrogen fuel cells (see BRIDGES Weekly, 5 December 2007, http://www.ictsd.org/weekly/07-12-05/story5.htm).

The sponsors of the paper described it as an immediate trade deliverable for global efforts to tackle climate change. Japan, which also praised the paper, noted that it would do even more for climate change point if it included hybrid cars (in which it is a world leader).

Echoing criticisms made by his country's delegation at the WTO in Geneva, Brazilian Foreign Minister Celso Amorim said that the EU and the US list had failed to include the "single product whose effect on climate change is already demonstrated -- which is ethanol." He argued that ethanol use in Brazil had avoided the production of 670 million tonnes of climate-warming carbon dioxide over the past 30 years. Brazil is a major producer of ethanol, which is heavily protected and simultaneously subsidised in both the US and the EU.

Amorim pointed to an anomaly in tariff classification for different biofuels: ethanol is classified as an agricultural product (which makes it easier for rich countries to shield it from tariff cuts) while biodiesel is considered to be an industrial good. He said that there was no rationale for the discrepancy, and called for it to be corrected. The Brazilian minister stressed that liberalising trade in the ethanol market would also help other developing countries with conditions similar to Brazil.

Brazil's call for ethanol tariff cuts met favourable reactions from Sweden and Japan, the latter saying that biofuels should be considered in the context of energy security. The EU conceded that there might be problems with the way biofuels are classified in the trading system, but noted that reclassification procedures would be complex, though it did not rule out the idea entirely.

USTR Schwab rejected complaints that the EU-US list consisted of products of export interest to industrialised countries. She said that the US was in fact a net importer of the 43 products in 2006, with $18 billion in imports surpassing exports by $3 billion. The US' top two sources for those products were developing countries Mexico and China, she added.

Ministers at the meeting called for a successful conclusion to the Doha Round negotiations, including the environment mandate.

The carbon footprint of international trade

Emissions resulting from international trade - shipping, road, and air freight - also featured in the discussions. Participants cautioned against simplistically invoking carbon benchmarks to call for restrictions on global commerce. They noted that international trade accounts for less than 2 percent of greenhouse gas emissions, and that erecting barriers to trade could heavily penalise the poorer countries that have least contributed to the problem of climate change.

Instead of looking at transportation in isolation, speakers said that the broader carbon cycle from a good's production to consumption should be considered. Pascal Lamy referred to studies showing that a Kenyan flower air-freighted to Europe is still responsible for a third of the carbon dioxide emissions of a flower grown in the Netherlands.

"It is misleading to single out energy used in transporting goods without considering how trade contributes to productivity and efficiency -- and poverty reduction," said Schwab.

Technological cooperation

Technological cooperation is emerging as an essential part of a post-Kyoto climate regime. Developing nations have been pushing for a more effective approach to technology transfer from developed countries, as mandated by the UNFCCC.

Officials from both China and India raised concerns about barriers to accessing foreign technology. Notably, India referred to intellectual property protections as a potential obstacle, and called for a consideration of revisiting WTO intellectual property rules so as to ensure that they adequately respond to Members' pursuit of technology transfer objectives.

Several delegations warned that weakening the intellectual property regime could undermine innovation, and thus ultimately be counterproductive. The EU called for exploring innovative approaches to technology that would support the rapid diffusion of climate-friendly technologies without compromising the integrity of intellectual property protection. Brazil noted that it had expanded the scope of HIV/AIDS treatment programmes by using provisions in WTO intellectual property rules to suspend patents on medicines to allow for the production of cheap generic drugs; it suggested that the same 'compulsory licensing' flexibilties could be used to diffuse clean technologies more widely if required.

The head of the UN Conference on Trade and Development (UNCTAD), Supachai Panitchpakdi, talked about the potential of using the Clean Development Mechanism, an arrangement under the Kyoto Protocol that allows industrialised countries to invest in emissions-reducing projects in developing countries as a cheaper alternative to cutting emissions at home, to enhance technology transfer to developing countries. He also highlighted the importance of promoting investment in developing countries.

Environmental NGOs worried of interference in climate process

Environmental organisations cautioned that trade policymakers might harm the climate negotiations process. Just before the trade ministers meeting, groups including Friends of the Earth warned against using climate change to promote business interests that only benefit rich countries. They issued a statement arguing that "the liberalisation of energy markets, through multilateral or bilateral negotiations to deregulate the energy sector is increasing our dependency on fossil fuels and delaying efforts to move towards low-carbon economies." Others said that trade discussions might distract attention from the talks on launching negotiations on a future climate regime.

The ministers called for further high-level interaction on the links between international trade and climate change, possibly holding further discussions under the auspices of the WTO or UNCTAD. They also urged future hosts of UNFCCC conferences to organise similar meetings of trade ministers, and to consider holding a joint session with finance and development officials.

ICTSD reporting.