By Aik Hoe Lim, Director, Trade and Environment Division, World Trade Organization (WTO)

What do the outcomes of the Sixth Assessment Report (AR6) of the IPCC, and other recent developments related to climate change, mean for the future of the multilateral trading system?

We must do more to raise ambition to mitigate and adapt to climate change. To change course, governments, the private sector and citizens must work together. The urgent need for action means that trade and environmental policies must be mutually supportive. The role of trade and the WTO in sustainable development is often expressed by the WTO’s Director-General Dr Ngozi Okonjo-Iweala. Trade should therefore be viewed as an important part of the solution to climate change. It is a key instrument for climate change mitigation and adaptation for both developed and developing countries. Open trade plays a powerful role in providing affordable access to advanced technologies for the transition to a low-carbon economy. Lowering barriers to trade in environmental goods and services can help spur the deployment of climate change mitigation and adaptation technologies. Trade can enable a circular economy by ensuring that markets for secondary resources are connected and that circular economy can scale up. Various estimates have found that a fully circular economy would cut global emissions by half. Trade will also be impacted by climate change. Rising sea levels and the frequency of natural disasters are already damaging critical infrastructure and having a devastating impact on lives. Food production is being negatively affected as weather patterns changes and natural resources are being eroded. But certainly, international trade can also cushion the negative impacts of climate change. For example, a recent study in the journal Nature Climate Change estimates that phasing out agricultural tariffs and implementing other trade facilitating measures could reduce the climate change impact on undernourishment by up to 64 percent in 2050. This means that trade could save 35 million people from suffering from hunger because of climate change. With the right policies in place, trade can be a powerful motor of the net‑zero transition.

Currently, there are no WTO rules specific to climate change. In which ways do the WTO’s trade rules help international business in advancing international environmental goals?

While WTO rules are not specific to climate change, sustainable development and protection and preservation of the environment are enshrined in the WTO’s founding document, the Marrakesh Agreement Establishing the WTO. WTO members are free to adopt environmental policies, such as environmental requirements and taxes, at the level they choose, even if they significantly restrict trade, as long as they do not introduce unjustifiable or arbitrary discrimination or disguised protectionism through the back door. The basic thrust of WTO rules is that environmental objectives should not be used as an excuse to protect domestic producers. What we have seen is that WTO members have increasingly adopted trade measures for a variety of environmental purposes. These include establishing minimum energy efficiency requirements for household goods, introducing licensing schemes to limit trade in endangered species of wildlife, creating taxes applicable to hazardous chemicals and supporting policies for the development of low-carbon technologies.

Some key environment-related disputes at the WTO have helped clarify that there are several useful checks to ensure that, when enacting measures to protect the environment, there is no protectionist intent or misuse for protectionist purposes. These checks include ensuring the policies have the environmental objective at their centre, and that policies in place are coherent, fit-for-purpose, holistic and flexible. In effect, by requiring such policies to follow these rules, WTO dispute settlement cases to date show that, after the application of these principles, the resulting environmental measures were often more coherent and effective in protecting the environment, even if this resulted in more significant trade effects. This is because once the unjustifiable or arbitrary discriminatory elements of these measures were corrected or eliminated, the environmental policies were often applied to a wider and more coherent number of goods, while requiring the effective application of the requirements justified by the legitimate objective. This helps ensure that international businesses are faced with stable and coherent policy frameworks that are contributing to addressing key 21st century challenges such as climate change.

What do current WTO discussions on trade and climate change focus on and how will these issues be addressed at the 12th WTO Ministerial Conference (MC12), at the end of November 2021?

WTO discussions on climate change take place within the broader context of trade and environmental sustainability. Here, at the Committee on Trade and Environment, WTO members have been sharing their national experiences with trade-relevant climate policies. Members seek to identify ‘win‑win’ contributions to the environment from trade, as well as to improve understanding of climate measures.

For several years, our members have boosted discussions on trade and environment, with a focus on climate issues.  Some of these issues are now being given further impetus in the Trade and Environmental Sustainability Structured Discussions (co-sponsored by 54 WTO members) launched in November 2020. Within this group, discussions are being undertaken on climate-related trade measures, environmental goods and services, circular economy, sustainable supply chains, sustainable agriculture, and fossil fuel subsidy reform. Another group has been conducting an Informal Dialogue on Plastics Pollution and Environmentally Sustainable Plastics Trade. Both initiatives are working towards ministerial statements for MC12, laying out work programmes for future work.

Finally, and very importantly, WTO members are working intensively to complete by MC12 an agreement to limit government subsidies contributing to unsustainable fishing and the depletion of global fish stocks. This work, which is in support of Sustainable Development Goal 14.6, is critical to protect our fish stocks and oceans.

ICC and the WTO are longstanding partners. How can both organizations combine forces to combat climate change and its impacts?

The ICC and the WTO can improve understanding and shine light on these and other opportunities to bring trade and environment closer together, and to highlight the importance of close collaboration between governments, entrepreneurs, investors, scientists, environmental groups and civil society at large. With its international reach, the ICC can also help involve the private sector of developing countries in the discussions. In this way, we can strengthen the contribution of our two organizations towards a sustainable, resilient and prosperous world, and demonstrate that international trade is part of the solution.

The views expressed are those of the author and cannot be attributed to the WTO or its members.

Bent u geïnteresseerd om lid te worden van de ICC Environment & Energy commissie of van de Trade & Investment Policy commissie? Neem dan contact op met Geoffroy Feij, feij@icc.nl.