EU to push its trade-related environmental measures into WTO

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Geneva, 17 Nov (D. Ravi Kanth) – The European Union along with a group of developed countries have intensified their efforts to bring, in a big way, the issue of trade and environment into the WTO, setting the stage for making the WTO the nodal body for addressing all trade-related climate measures with binding rules, which could have far-reaching consequences for the developing countries, said people familiar with the development.

During the ongoing small-group discussions over the past few days on finalizing the outcome document for the upcoming WTO’s 12th Ministerial Conference (MC12), three issues seem to have come to the center-stage.

They include: (1) the establishment of the proposed Working Group for making recommendations on the proposed WTO reforms at the WTO’s 13th ministerial conference (MC13) which could be held sometime in 2023; (2) trade and environment; and (3) the special and differential treatment (S&DT) issues.

However, there is sharp disagreement on the issue of establishing a Working Group to oversee the discussions on WTO reforms that could change the rule-book in areas such as consensus-based decision-making, differentiation among developing countries for availing of S&DT, and a host of various other changes, said people familiar with the discussions. (See SUNS #9460 dated 16 November 2021).

There is no agreement as yet among the participants on whether the Working Group would work under the direction of the WTO General Council or the Doha Trade Negotiations Committee (TNC).

Apparently, the EU and Brazil want to discuss the proposed WTO reforms in a committee, so that they could push a range of issues, said people, who asked not to be quoted.

Under pressure from other participants in the small-group discussions, they have now indicated that the Working Group will work under the direction of the General Council.

On the issue of trade and environment, which is by far the biggest unresolved paragraph in the draft outcome document for MC12, the EU and other developed countries want to bring a host of issues into the WTO framework, said people, who asked not to be quoted.

Several issues are being advanced under the rubric of the trade and environment agenda.

These issues include what role the WTO should play in achieving the United Nations Sustainable Development Goals (SDGs), measures to address climate change as part of the WTO rule-book, strengthening the role of the Trade and Environment Committee, and assisting the developing countries in pursuing the sustainability agenda measures, including climate- and environment-friendly development measures.

However, the EU and its allies seem to remain silent on issues concerning finance, transfer of technology for adaptation, and a TRIPS waiver relating to copyrights, patents, industrial designs, and protection of undisclosed information in sharing climate change-related technologies, said an analyst, who asked not to be quoted.

The EU and the US recently signed a bilateral agreement on steel, carbon border tax adjustment measures as well as other trade-restrictive measures, said people, who are familiar with the discussions (see SUNS #9452 dated 4 November 2021).

Along with the changes that are being mooted concerning the WTO rule-book, the EU’s proposed trade and environment agenda could constitute the biggest threat to developing countries, which are currently paying a heavy price for the industrialization policies that the developed countries had implemented for the past 200 years that has singularly contributed to climate change.

Even though the developing countries were asked to make enhanced mitigation commitments at the just-concluded COP26 in Glasgow, they have been denied the much-promised climate finance, the sharing of technologies for adaptation, and footing the bill for loss and damage.

More importantly, the Paris Climate Change Agreement enshrines the principle of common but differentiated responsibilities, akin to special and differential treatment at the WTO.

However, the US, the EU, and other developed countries are engaged in wreaking havoc on the S&DT framework at the WTO, which could deny policy space to the developing countries, said people, who asked not to be quoted.

According to the former Appellate Body member James Bacchus from the United States, “a global trade war about climate change is approaching,” cautioning about the proliferation of trade-related environmental measures.

Significantly, during the discussions on special and differential treatment and the negotiating function of the WTO, the US has apparently insisted that there cannot be any reference to paragraph 44 of the Doha work program, said people familiar with the development.

Paragraph 44 of the Doha work program on special and differential treatment (S&DT) states: “We reaffirm that provisions for special and differential treatment are an integral part of the WTO Agreements. We note the concerns expressed regarding their operation in addressing specific constraints faced by developing countries, particularly least-developed countries. In that connection, we also note that some members have proposed a Framework Agreement on Special and Differential Treatment (WT/GC/W/442). We therefore agree that all special and differential treatment provisions shall be reviewed with a view to strengthening them and making them more precise, effective and operational. In this connection, we endorse the work programme on special and differential treatment set out in the Decision on Implementation-Related Issues and Concerns.”

More disturbingly, the US has apparently suggested the need to abolish the WTO’s Committee on Trade and Development (CTD) so that the review process for making S&DT “more precise, effective, and operational” can be brought to a halt, said people familiar with the development.

So far, in the discussions, India has apparently opposed the moves by the industrialized countries on finalizing the outcome document, said people familiar with the development.

Disregarding the fact that the WTO is a rule-making organization with respect to only international trade, the organization has been misused by the developed countries to bring in all issues of their interest such as intellectual property rights, said an analyst, who asked not to be quoted.

“The reason being that the WTO may be one of the few organizations where countries take binding commitments with punitive action and most of the developing countries have limited capacity to negotiate these rules,” the analyst said.

“The history of the WTO negotiations reflects this where developing countries have performed miserably by giving away their policy space in a number of areas, for example, TRIPS, e-commerce moratorium, etc., which were of interest to the developed world with nothing negotiated in return,” the analyst added.

More disturbingly, “history is repeating itself and this time it is climate change which is being brought into the ambit of the WTO and may result in developing countries making binding commitments in the area where they have limited capacity to deliver. Agreement on trade in environmental goods and services will lead to liberalizing and deregulating a number of products and services which are of export interest to the developed countries and most developing countries are net importers,” the analyst said.

In fact, according to UNCTAD’s Trade and Development Report 2021, the share of three developed countries -the EU, the US and Japan – in global exports of these environmental goods is more than 50 per cent.

Duty-free imports of these goods can lead to massive annual losses of tariff revenues to developing countries, as in 2019, tariff revenue collected on these goods by developing countries was USD 15 billion (using applied duties).

Trade liberalization in re-manufactured goods, as pursued in the climate change agenda, will further add to these losses.

While there is no consensus on what goods should be included in the list of environmental goods, the scope of environmental services is being widened by including services like engineering, architecture, design, general management, and construction to the existing list comprising of only sewage services, refuse disposal services and sanitation services under the General Agreement on Trade in Services (GATS).

A potential threat in bringing the issue of trade and environment into the ambit of the WTO is the application of the Carbon Border Adjustment Mechanism (CBAM), which is currently being used by the EU and is being considered by a number of developed countries.

The carbon tariffs on the imported products based on their CO2 emissions can pose considerable challenges for developing countries.

The sectors which will be most affected are those of export interest to the developing world including mining and extraction; textiles, wearing apparel, leather and related products; chemicals and non-metallic mineral products; basic metals and fabricated metal products; computers, electronic and electrical equipment; machinery and equipment; and motor vehicles, trailers and semi-trailers.

“If climate change enters the WTO as a mandated item for negotiation, which is what will be pushed in the upcoming MC12, cost of production in export sectors of developing countries will rise substantially as costly patented green technologies will have to be procured from the developed countries to reduce carbon emissions in their exportable products,” the analyst said.

This will adversely impact their cost competitiveness vis-a-vis developed countries which are progressively using digital technologies in these sectors.

The developing countries will not only lose their export revenues and tariff revenues but will also face rising imports of green products and services along with green technologies.

With an already precarious balance of payments situation and rising debts, many developing countries may not be able to face these rising costs and may be caught in the vicious circle of poverty and debt traps, the analyst said.

It is important to highlight that climate adaptation remains an important agenda for the developing countries.

However, greenhouse gas emissions in traded goods and services comprise only 27 percent of global carbon emissions, therefore, the scope of international trading rules in achieving global green growth is limited, as also argues UNCTAD’s Trade and Development Report 2021.

Further, in the interconnected world of global value chains, where low carbon-emitting activities have been retained by the developed countries while high carbon-emitting activities have been outsourced to developing countries, there exists no justification for the CBAM, the analyst said.

What developing countries need from the WTO is to facilitate their progress towards the climate goals, which requires adequate policy space to put in place national policies to address climate mitigation and adaptation, patent-free green technology transfers, and climate finance to build capacity for building resilient economies which can sustain their export competitiveness in this rapidly digitalizing world, the analyst said.

- Third World Network