This is a guest post from Christian Häberli of the World Trade Institute
The Great Taboo – Or will somebody please tell me where I am wrong?
The multilateral trading system is presently facing what some observers call an existential crisis with possibly dramatic consequences. So much so that nobody finds the time or the courage to consider a potentially even more harmful problem. Climate footprint differentiation demands discrimination. Granted, the greenhouse gas (GHG) emissions challenge for agriculture starts at the national level. But it has trade and investment implications which policymakers, trade diplomats and scientists seem to ignore, or to avoid. To many of them I have proposed, but never seen, a serious discussion of the problems WTO non-discrimination rules and disciplines could mean for climate change mitigation.
When policymakers fail to ask the right questions, at home and at the international level, should scholars tell them – or join the weekly demonstrations for rapid climate change action? Can we please discuss this among the few agricultural trade lawyers with some knowledge of Public International Law, WTO Law and the Paris Climate Change Agreement?
Summarising the Issue
My paper published by FAO (in SOCO 2018)[1] posits that many mitigation and adaptation policies require a differentiation between otherwise “like” products with different climate footprints. This is a mandatory provision under the Paris Agreement on Climate Change, and it harbours a potential for trade frictions. The main issue appears to be a climate-smart treatment of so-called “non-product-related like products.” The non-discrimination principle enshrined in the multilateral trading system can be a problem for such differentiations. Many scholars – agricultural and mainstream economists, political scientists, climatologists – advocate some kind of border adjustment measures (BAM), or other such tools from the defunct Kyoto Protocol. Most of these proposals claim, and a few trade lawyers agree, that WTO rules will not stand in the way of such measures. On their part, governments starting to implement their Paris commitments need political backing of their national constituents. They also look carefully at the trade and investment impact of their Nationally Determined Contributions (NDC). So far, however, no government seems to follow the advice of the scholarship.
- For energy, this difficult process starts looking better. Initially, insecurity was high after the “suspension” of the EU Aviation Directive (2012) whereby all airlines, regardless of their origin, had to acquire and ‘surrender’ to the European Union allowances for the CO2 emissions of their aircrafts landing anywhere in the EU – depending on the distance travelled. The Indian Solar Panels (cf. DS 456), Canada’s Hydro-Energy (DS 412 and DS 426) and most other renewable energy programmes found problems with several WTO rules, for good and less good reasons. Nonetheless, more recent energy BAM – namely in the United States, after it withdrew from the Paris Agreement – are now crediting imports with the “foreign cost of carbon” already paid, and with GATT-Article XX language built into the scheme.
- As for agriculture, which contributes perhaps 60% of all human-made GHG, FAO (2018) finds that all NDC presently available remain silent on concrete measures involving product differentiation according to footprint differences, be it by way of BAM, domestic subsidies, prohibitions, or restrictions. So far, no WTO Member has notified any climate-smart agricultural measures with a trade impact. Not a single WTO trade dispute has clarified this dilemma. Some business practices have been improved by new, private sustainability standards. But no intergovernmental standards for climate-smart agriculture exist as a benchmark for assessing governmental measures as a tape of “climate green box”, or as a form of eco-dumping. Hence, potential problems may arise for any measures differentiating tariffs and charges, or applying import restrictions, or taxes, depending on climate footprint. Besides, subsidies and incentives compensating domestic producers subject to domestic emissions reductions might distort conditions of competition. So would prohibitions and input restrictions only of commodities with a heavy footprint. As we know from other disputes on consumer information measures, even labels signalling products with a smaller or bigger footprint may raise trade concerns by foreign suppliers.
A second major problem lies in the way the new Climate Agreement, on the one side, and the WTO on the other side, address the Development Dimension.
- In the Paris Agreement, the Parties recognise the obligation of a Common but Differentiated Responsibility (CBDR), though they are basically free how to take development into account in their NDC. All emissions, regardless of their origin, have a global impact. However, there is no climate-smart way to help nomads and small cattle breeders reduce their record methane emissions per unit of meat or milk output. Technologies such as for “smarter” animal feed exist only for those already terribly efficient Dutch cows with 100 kg milk per day, or for American and Australian cattle with 200 pounds of carcass weight per acre of grass. Sudan seems to have more ruminants, but less mitigation means, than any other country. Yet nobody sets priorities for global methane reduction.
- On the other side, the so-called Special and Differentiated Treatment (SDT) foreseen in all WTO agreements for developing country products and services appears incapable to take into account the fact that climate-friendly action can exacerbate condition of competition. Moreover, no SDT provision helps developing country exports to meet more stringent climate-friendly import standards for developed country markets.
What we need is a comprehensive review of the climate-relevant trade and investment rules at the international level, involving climate, agriculture and trade regulators, supported by scientific, economic and legal expertise. The purpose of such a review is to avoid policies and rules conflicts jeopardising the implementation of the Paris Agreement. Climate mitigation and adaptation requires maximum policy space, without a negative impact on other countries, or unnecessary restrictions to trade and investment, especially in poor developing countries. This intergovernmental and inter-institutional review is urgent, because the results should provide as quickly as possible the legal security necessary for regulators, NDC developments and reviews, and international standard-setting processes.
Climate change – among its many other challenges and assuming it is real –impacts on conditions of competition along the whole food value chain. Global warming, however, will not wait for a solution to WTO’s present problems, or accept those diplomatic claims about “mutually supportive” climate-smart food production and trade rules. The time to act is now – not after a couple of GHG emission curbing measures failing the non-discrimination test in a WTO dispute.
[1] Häberli, Christian, Potential conflicts between agricultural trade rules and climate change treaty commitments. Background Paper in The State of Agricultural Commodity Markets (SOCO) 2018. Rome, FAO. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3123036
