The G20 and reimagining global rule-making for trade and climate action

5 March 2018

Trade and climate change are inextricably intertwined. Yet the trade and climate regimes are set for a collision that could undermine their legitimacy and efficiency. This post argues that a high priority for the G20 under the presidency of Argentina should be to move the World Trade Organization and the United Nations Framework Convention on Climate Change towards more affirmative actions to reimagine trade rules to support increased trade while also furthering the fight against climate change.

 

The recent ascendancy of Argentina to the presidency of the G20 offers a new opportunity for the G20 to inspire cooperative action for sustainable development by triggering an essential transition in the World Trade Organization (WTO) that will reconcile the rules for trade with the rapidly enveloping reality of climate change.

In 2016, the G20 embraced the United Nations 2030 Agenda for Sustainable Development as the centrepiece for its ongoing global work. Taking urgent action to combat climate change and its impacts is a central and pivotal Sustainable Development Goal (SDG 13) on the 2030 Agenda. This global goal cannot be achieved without addressing the crucial but neglected nexus between trade and climate change.

The trade and climate nexus

The realisation that trade and climate change are inextricably intertwined is not yet reflected in the agendas of either the WTO or the United Nations Framework Convention on Climate Change (UNFCCC). Climate negotiators are reluctant to talk about trade. Trade negotiators are reluctant to talk about climate change. For the most part, they live and work in separate silos of global endeavour.

Yet, without new WTO rules addressing the overlap in global efforts to liberalise world trade and respond to climate change, a collision will soon occur in WTO dispute settlement in a legal clash over a national measure purportedly taken in response to climate change that restricts international trade. Any such collision will threaten to undermine the legitimacy and the efficiency of the ongoing work of both the trade and climate regimes.

If this looming collision is not prevented, more ambitious climate actions will be slowed, “green protectionism” in the form of the abuse of trade restrictions will abound, and, damaged by the acrimony arising on both sides by the legal clash in the WTO, neither the trade nor climate regimes will retain the credibility and the capability to move ahead toward their vital respective goals.

Reimagining WTO rules

During the presidency of Argentina, a high priority for the G20 should be to initiate actions to prevent this legal collision between trade and climate change and, moreover, to move the WTO and the UNFCCC alike towards more affirmative actions to reimagine trade rules to support increased trade while also furthering the fight against climate change.

In particular, these G20 actions should point towards a WTO climate waiver to help facilitate and further national and international climate actions. In application, a waiver would amount to a carefully defined and limited exception to WTO rules that would advance climate action without requiring any amendment in the basic rules that govern trade. For this reason, among the various options available under WTO law, a waiver targeted towards reshaping trade rules for the sole purpose of advancing the global struggle against climate change would do the most to help slow climate change while posing the least risk to the indispensable basic rules of non-discrimination that underpin the WTO-based world trading system.

Topics of the needed reimagining of WTO rules through the adoption of a climate waiver and through other actions could include providing clarity on the WTO legality of carbon taxes as border tax adjustments, specifying that WTO rules support the creating and linking of carbon markets and climate clubs, eliminating tariffs on environmental goods and services, establishing disciplines on fossil fuel subsides, legalising renewable energy and other green subsidies, and concluding a sustainable energy trade agreement.

These and other reimaginings of WTO rules solely for climate purposes could accelerate climate action in any number of ways. For instance, eliminating the current legal uncertainty about whether carbon taxes can be adjusted at the border would encourage domestic climate action by diminishing domestic fears of carbon leakage that would undermine domestic competitiveness. Disciplining fossil fuel subsidies could reduce global greenhouse gas emissions by 18 percent by 2050. And the efficiencies derived from free trade and in environmental goods and services could – as one example – help increase the use of energy-efficient light bulbs, thereby saving merely in the United States kilowatt hours equivalent to 120 percent of the annual greenhouse gas emissions from the use of coal by the US State of Maine.

Beginning as part of a climate waiver, a sustainable energy trade agreement at the outset could bind only those WTO members that choose to be a part of it. Over time, more countries could adhere to the agreement and it could evolve, first, into a plurilateral agreement within the legal framework of the WTO and, ultimately, into a fully multilateral WTO trade agreement.

Among the additional provisions included in a sustainable energy trade agreement could be the mutual recognition and harmonisation of the standards and technical regulations that often serve as non-tariff barriers to clean energy trade; the repeal of government purchasing restrictions that distort clean energy trade; and sustainable energy issues related to investment policy, competition policy, and intellectual property and other aspects of technology transfer and diffusion.

Outside the WTO, the G20 could help inspire climate actions in the climate regime and other international institutions and endeavours on defining legitimate national climate “response measures,” improving energy efficiency, encouraging national actions curtailing carbon consumption, spurring international actions against black carbon, curbing emissions from international commercial aviation and ocean shipping, promoting sustainable agriculture, and more.

G20 commitments

To trigger this transition, the G20, under the leadership of Argentina, should begin this year by reaffirming the central role of the World Trade Organization in global trade governance, the necessity for taking actions that supply and build towards multilateral solutions in trade, and the importance not only of resisting protection but also of rolling back the recent proliferation of protectionist measures worldwide.

At the same time, the G20 should reaffirm the necessity for more international cooperation to forestall climate change in fulfilment of the Paris Agreement, and should employ the convening power of its combined global economic clout to bring the separate trade and climate regimes together to seek the international legal reconciliation on the connections between trade and climate change that is needed to accomplish the 2030 Agenda.

At a time when the United States of America is an outlier on so many international issues, it can be hoped that constructive ways can be found to engage the United States with the other G20 members in this endeavour. If not, the others should go ahead without the United States as, in effect, a G19.

 

This blog post is derived from the paper Triggering the Trade Transition: The G20’s Role in Reconciling Rules for Trade and Climate Change commissioned by ICTSD and authored by James Bacchus.

James Bacchus is Senior Counsellor to ICTSD. His new book, on global economic and environmental governance, The Willing World: Shaping and Sharing a Sustainable Global Prosperity, will be published in July by Cambridge University Press.

 ICTSD gratefully acknowledges funding from the KR Foundation—Denmark for this project.