Climate and trade policy in a new era: Options ahead

27 January 2017

With globalisation and trade increasingly challenged on multiple fronts, what can advocates of a rules-based international system do in response to urgent social and environmental concerns? The author argues that opportunities abound in environmental and industrial innovation and that an updated and inclusive Environmental Goods Agreement negotiated at the WTO can deliver on such aspirations.

 

For trade policymakers concerned about environmental issues, 2017 has arrived with a bang. The new reality looks rather stark. Protectionism is on the rise. What will happen to US action on climate? To the Paris Agreement?

Overall, there is only so much trade policy can contribute in the absence of a global carbon price. This price needs to be set by climate policymakers, and the trade regime will follow. As a global carbon price has yet to materialise, climate efforts through trade policy – although important – remain piecemeal and aspirational (addressing renewable energy standards or fossil fuel subsidy reform in free trade agreements or the World Trade Organization), or highly complicated and mainly in the academic realm (for example border carbon adjustments).

Pursuing negotiations towards an Environmental Goods Agreement (EGA) remains our best bet.

The agreement needs to be viewed through a wider lens, however, and remain up-to-date in an increasingly digitalised and service-based global economy. New game-changer opportunities for resource efficiency and innovative technologies may also arise as production and consumption patterns change in an era of unpredictability and disruption. Widening the ranks in terms of EGA participants and beneficiaries will also be important.

The Environmental Goods Agreement

Believers in the potential contribution of trade policy measures to the broader environmental good – beyond the mere peaceful co-existence of trade and environment policy – have been banking on the liberalisation of environmental goods and services. An energiewende at the global scale, necessary to avert dangerous climate change, was to be unleashed by getting the best green technologies, including renewable energy, to every corner of the world unfettered by tariffs or complex behind-the-border barriers.  

After years of frustrating negotiations as part of the Doha round, the plurilateral EGA was to deliver a decisive – albeit insufficient – step forward. The EGA negotiations, launched in 2014, hold the promise of a novel self-reinforcing system through the introduction of an update mechanism.

Those dreams came to a halt in December 2016 when ministers met in Geneva only to realise a deal was beyond reach. The uncertainty surrounding the global political dynamics of trade was at the heart of this failure.

So what comes next? Certainly a time of reflection. The EGA is part of a much larger shift in dynamics. Nevertheless, we now have a chance to continue with EGA-specific work, staying tuned to developments in the cleantech sector and its ever-expanding markets. We can, for example, use this pause to clearly flesh out the EGA work programmes foreseen for services and non-tariff barriers. The EGA is not dead but rather at a standstill. Nothing could be more familiar to trade negotiators.

The wider social and environmental ethic

At the same time, negotiators should keep their ears open to the wider environment and sustainable development movement, which has turned decidedly anti-trade and anti-globalisation over recent years. Should the reflection indeed be a deeper one? The EGA is a vehicle of a world order that is being challenged on many fronts. Where do the proponents of a free but fair global liberal market economy that delivers for all – safeguarding rather than exploiting precious environmental resources – stand today?

For decades, especially in textbook Nordic welfare states with redistribution systems, trade was considered a tool that provided peace, stability, economic opportunity, and increasing prosperity for all. It worked as long as the economy was growing. There was also tighter environmental legislation, new green technologies, and expanded conservation programmes. We thought we could have it all.

However, much larger segments of the population in developed countries than previously assumed were being left behind rather than adjusting to the changes induced by trade. Meanwhile, globally, the middle classes grew steadily, and a billion people were lifted out of abject poverty.

Globalisation is now simultaneously challenged on two fronts. First, there is the anxiety of disenchanted parts of developed country working-class populations that have been left behind. Much of their frustration is channelled against existing elites and towards populist and nationalist agendas.

Second, social and environmental movements also oppose liberal trade policies and globalisation in its current manifestation, most notably targeting the Transatlantic Trade and Investment Partnership (TTIP) and the Comprehensive Economic and Trade Agreement (CETA) in the EU and the Trans-Pacific Partnership (TPP) in the US. The focus here lies on the potential for trade agreements to have a negative impact not only on workers and human rights, but also on the climate and other environmental issues. Dispute settlement within investment chapters is often seen as particularly problematic. These movements want to curb the power of global corporations, check unethical behaviour such as the use of tax havens, and fend off intrusion into national policymaking space on issues such as climate change mitigation. The rise of extreme inequality is interpreted as a consequence of unfettered globalisation.

In fact, trade liberalisation processes are becoming crippled. President Trump has withdrawn the US from the TPP. The painful process in Europe last fall preceding the signature of the CETA – which addresses many of the key social and environmental concerns – has equally put the EU’s ability to sign new trade deals into question. Moreover, discussions at the WTO are slow.

What can those who believe in a rules-based international system do?

We need to make sure that the EGA delivers, and we must negotiate the best possible environmental provisions in those free trade agreements that do move ahead as part of the solution in a new trade context that focuses more on equity.

But we can also look at opportunities more broadly.

A time of environmental and industrial innovation?

If indeed there will be more protectionism and less trade, what will that mean for the environment and the use of natural resources? The collective failure to effectively address the emissions and other negative impacts of physical global trade itself, through shipping and aviation, has been a disgrace. Now there might, in an extreme scenario, be less shipping and aviation, conveniently placing the problem on the backburner at the UNFCCC, the International Maritime Organization (IMO) and the International Civil Aviation Organization (ICAO).  

What might reshoring bring about in terms of environmental impact? The jobs reshored will never look the same as those once loss. We are at a critical cusp in terms of digitalisation, automation, and artificial intelligence. Could reshoring, if it really happens, accelerate us into an era of new technologies? What would that entail in terms of equity, jobs and social justice? Consumption?

Accelerating consumption has been a signature feature of globalisation as we know it. We have often seen higher levels of consumption at the expense of quality; planned obsolescence and increasing replacement rates. This has happened without sufficient governance of the environment at the global level – climate change being case in point – and externalities have never been internalised.

If indeed the developed world reshores, what does that mean in terms of quality and cost? What could new investment in new production look like? Since the developed world can never compete on wages, it would have to drive automation to a new level. Could it mean quality, resource efficiency, on the foundation of a cost-efficient circular economy model?

The potential becomes interesting also from the perspective of the EGA negotiations. Will we do more with less, of better quality? Should we be looking at the sharing economy? Could online companies focused on reuse and sharing, or companies in the energy efficiency and circular economy business, be showing the way? Should these be included in the EGA? Do they need an EGA? And what would the EGA need to look like to work for them?

Bringing more developing countries on-board

Including developing countries and the least developed among them will be crucially important at this junction in time. The EGA can be a small part of that puzzle. Already, it is based on the principle of most-favoured-nation, so all countries will benefit from new export opportunities. However, much more could be achieved from deeper engagement on the part of developing countries that are, for example, leapfrogging sustainable energy projects, piloting new technologies, and already exploiting the gains from the global price fall in these areas.

Let the work on the EGA continue side-by-side with the global development and take-up of environmental technologies and solutions.

 

Malena Sell works on trade and environment at the Finnish Ministry for Foreign Affairs trade policy unit. This opinion piece is written in her personal capacity.