A Look at Key Recent Developments in Trade & Environment

There are a lot of things flying in the air right now in the nexus of trade & environment. I’ve decided to outline a few of the major ones that have caught my attention lately. 

First, the UN very recently came out with what perhaps could be described as a spiritual successor to the Brundtland Report that came out in 1987 (which popularized the term ‘sustainable development’). In this new report, which you can read and check out here, the attempt is essentially to try and further make sure that this concept of sustainable development is actually operationalized.  It’s a good initiative, since without further leadership on this concept it has the distinct possibility of degrading into a shorthand for being interpreted as everybody getting everything they want, which would be an unsustainable concept if ever there was one.

I have not had time to go through it in detail, but there are some truly key concepts included in this report. The move away from GDP (on which there is more here), the crucial importance of developing actual sustainability indicators and get some measuring going, and several other “big ones” are brought up.

Trade is also mentioned in several places, essentially by saying that all this needs to be done without instituting unfair trade practices and creating green protectionism.

Point 27 I think is so important that i’ll quote it here in its entirety:

“Governments should establish price signals that value sustainability to guide the consumption and investment decisions of households, businesses and the public sector. In particular, Governments could:

a. Establish natural resource and externality pricing instruments, including carbon pricing through mechanisms such as taxation, regulation or emissions trading systems, by 2020;
b. Ensure that policy development reflects the positive benefits of the inclusion of women, youth and the poor through their full participation in and contribution to the economy, and also account for the economic, environmental and social costs;
c. Reform national fiscal and credit systems to provide long-term incentives for sustainable practices, as well as disincentives for unsustainable behaviour;
d. Develop and expand national and international schemes for payments for ecosystem services in such areas as water use, farming, fisheries and forestry systems;
e. Address price signals that distort the consumption and investment decisions of households, businesses and the public sector and undermine sustainability values. Governments should move towards the transparent disclosure of all subsidies, and should identify and remove those subsidies which cause the greatest detriment to natural, environmental and social resources;
f. Phase out fossil fuel subsidies and reduce other perverse or trade-distorting subsidies by 2020. The reduction of subsidies must be accomplished in a manner that protects the poor and eases the transition for affected groups when the products or services concerned are essential.”

That’s quite a list. From an economical viewpoint, what this means is of course that things will have to get a lot more expensive if we are serious about sustainable development. Not exactly news for anyone engaged in climate and environment issues, but still as unpopular as ever with the general public. However, I’m very glad they went after subsidies so directly. The current levels of fossil fuel subsidies are a disgrace, and subsidies more generally can pose a serious threat for sustainable change. As the report rightly alludes to, this goes especially for countries that do a less than impressive job of actually disclosing their subsidies.

Time will tell what kind of impact this report will have. To be sure, it has the stamp of approval from many key figures in international politics. The key realization that the report makes clear early on is that we don’t really need more sweeping statements about the wonders of nature or the fight against poverty. What we need is to actually put those statements into practice and “operationalize” what we already have. Put simply, to make it actually work. This report, between the lines, is thus probably also equal parts frustration and reminder that we are moving much too slowly on these issues. A quote I found poignant may illustrate:

“There is another answer to this question of why sustainable development has not been put into practice. It is an answer that we argue with real passion: the concept of sustainable development has not yet been incorporated into the mainstream national and international economic policy debate. Most economic decision makers still regard sustainable development as extraneous to their core responsibilities for macroeconomic management and other branches of economic policy. Yet integrating environmental and social issues into economic decisions is vital to success.”

There’s no real need for comment on that and I simply couldn’t agree more. This report is a major one that will likely be referred back to for years, so it is worth checking out to see where the UN is currently at with regards to sustainable development.

Speaking of operationalizing sustainable development, this is exactly what the buzz concept of “green growth” is about as well. I highly recommend that you read this new article by the SG of OECD in its entirety, as it is a good example of the strong connect there is between what the UN says needs to be done now about sustainable development and what the OECD is talking about with regards to green growth. It would seem a lot of organizations are basically on the same page about what is needed at this point, though the use of the terminology differs somewhat. It is no secret that not enough progress is being made in global, regional and national environmental policy right now. Hopefully we will start to see a strong compounding effect that gets us out of the current rut and moving forward strongly on sustainability and climate issues.

In the trade world, people have been tightly focused recently on the so called raw materials case, in which China lost against the US, EU and Mexico with regards to their right to impose export restrictions on certain key “rare earths”. These are essentially mining products that are crucial for a multitude of manufacturing purposes, where the export to the world currently happens to be dominated by China. This skewed supplier picture has had many countries worried for a long time about predictability and access to rare earths, further compounded by allegations that China purposefully instituted policies to favour their own manufacturers with rare earths for below market prices. The recent report by the AB was thus a major event not just for trade but for international politics and it signifies some very important clarifications on export restrictions that will undoubtedly have an effect for the future of attempting these types of measures. It was especially interesting to see China use an environmental and conservational rationale (among other things) as attempted justification and not getting away with it.

In all honesty, this decision was expected, and I do think the AB made very much the right decision. The temporary nature of Article XI 2(a) of the GATT doesn’t rhyme very well with how the Chinese conducted their policy of controlling rare earth exports.

Now, a really interesting thing to come out of this case for the intersection of trade and environment is of course the AB’s reasoning on article XX. In the case, China made the claim that even if they were found to be in breach of their obligations to remove their export duties, as seen in their accession protocol, they could still be excused under one of the exceptions found in Article XX of the GATT. The AB did not agree, hence the hooplah in the trade world that finally we have some more clarity about the applicability of Article XX outside the GATT.

Does this mean that Article XX can never be used for any of the WTO agreements, most especially the subsidies agreement and the TBT? No. An accession protocol is certainly not a WTO agreement in the same sense that the subsidies agreement is, and one should not go too far in thinking “that’s it” for article XX justification of anything other than the GATT. What this gives is an indication about a certain sense of restriction for wielding article XX left and right. However, the truth at this point is that we simply don’t know about its further applicability other than in the strict sense when applied within the confines of the GATT. Perhaps future cases will clarify since it doesn’t seem impossible that using article XX for other WTO agreements might come up again before long. For a delightfully wonky bonanza of speculation on the applicability of Article XX, go here.

Just a brief note also on the continuing spat between the EU and almost everyone else on introducing emissions permit requirements for international flights. This is quickly getting vitriolic and both China, outright, and the US, de facto, have told its airlines not to comply with the EU’s directive regarding their flights. If you are not familiar with the background to this, or just generally want an excellent discussion of it, go here as Joshua Meltzer of Brookings has made a fine summary of what this actually means for international trade (unsurprisingly, the usual suspect of article XX rears its head again). This row still centers more around issues of national sovereignty than it does around WTO commitments, but that could change very soon as there are very strong trade implications to the EU’s measure here. In any case, the EU does not seem to be backing down, as can be seen here.

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