Trade and Environment: WTO and UNEP launch a report explaining for

the first time the connections between trade and climate change

The world cannot continue with "business as usual" and there is a

profound need for a successful conclusion to the current negotiations

on both climate change and trade opening.

26 June 2009 - The WTO/UNEP report on "Trade and Climate Change"

published today examines the intersections between trade and climate

change from four perspectives: the science of climate change; economics;

multilateral efforts to tackle climate change; and national climate change

policies and their effect on trade.

The WTO and UNEP are partners in the pursuit of sustainable

development and this report is the outcome of collaborative research

between the WTO and UNEP.

"With a challenge of this magnitude, multilateral cooperation is crucial

and a successful conclusion to the ongoing climate change negotiations is

the first step to achieving sustainable development for future

generations," said WTO Director General Pascal Lamy and UNEP's

Executive Director Achim Steiner.

Both Steiner and Lamy urge the international community to seal an

equitable and decisive deal at the crucial UN climate convention meeting

in Copenhagen, Denmark, in December 2009. They also urge nations to

conclude the Doha trade round which includes opening trade in

environmental goods and services, a complementary track towards

reducing greenhouse gas emissions to scientifically-defensible levels.

The scientific evidence is now clear that the Earth's climate system is

warming as a result of greenhouse gas emissions which are still increasing

worldwide, and will continue to increase over the coming decades unless

there are significant changes to current laws, policies and actions.

Although freer trade could lead to increased CO2 emissions as a result of

raising economic activity, it can also help alleviate climate change, for

instance by increasing the diffusion of adaptation and mitigation

technologies.

The global economy is expected to be affected by climate change.

Sectors such as agriculture, forestry, fisheries, tourism and transport

infrastructure which are critical for developing countries are more

specifically affected. These impacts will often have implications for

trade.

Climate change is the biggest sustainable development challenge the

international community has had to tackle to date. Measures to address

climate change need to be fully compatible with the international

community's wider ambitions for economic growth and human

advancement. It is a challenge that transcends borders and requires

solutions not only at national levels but at the international level as well.

The WTO is one part of the architecture of multilateral cooperation. It

provides a framework of disciplines to facilitate global trade and serves

as a forum to negotiate further trade openness. Freer trade is not an end

in itself; it is tied to crucially important human values and welfare goals

captured in the WTO's founding charter, the Marrakesh Agreement.

Among these goals are raising standards of living, optimal use of the

world's resources in accordance with the objective of sustainable

development, and protection and preservation of the environment.

The issue of climate change, per se, is not part of the WTO's ongoing

work programme and there are no WTO rules specific to climate change.

However, the WTO is relevant because climate change measures and

policies intersect with international trade in a number of different ways.

First, trade openness can help efforts to mitigate and adapt to climate

change, for example by promoting an efficient allocation of the world's

resources (including natural resources), raising standards of living (and

hence the demand for better environmental quality) and improving access

to environmental goods and services.

Second, the WTO is relevant because national measures to mitigate and

adapt to climate change may have an impact on international trade (as

they may modify conditions of competition) and may be subject to WTO

rules. The WTO “tool box” of rules can be relevant, therefore, to the

examination of climate change measures. Moreover, WTO rules, as a

whole, offer a framework for ensuring predictability, transparency and

the fair implementation of such measures.

Climate change ad the potential relevance of WTO rules

In addition to regulatory measures, national, regional or multilateral

initiatives to deal with climate change involve the adoption by

governments of price-based measures such as taxes and tariffs, market-

based mechanisms as well as a variety of other measures including

subsidies. As they relate to trade, these measures may be subject to

WTO rules and procedures. The design of climate change programmes and

the pursuit of international cooperation in this field will need to take into

account the potential trade impact of these measures and the relevance

of members' rights and obligations under WTO rules.

Broadly speaking, WTO rules and jurisprudence (the WTO “tool-box” of

rules) that relate generally to environmental issues (including GATT

Article XX, the PPMs (processes and production methods) issue, and the

definition of a like product) are relevant to the examination of climate

change measures. The general approach under WTO rules has been to

acknowledge that some degree of trade restriction may be necessary to

achieve certain policy objectives as long as a number of carefully crafted

conditions are respected. A number of WTO rules may be relevant to

measures aimed at mitigating climate change. These include:

• disciplines on tariffs (border measures), essentially prohibiting

members from collecting tariffs at levels greater than that

provided for in their WTO scheduled consolidation

• a general prohibition against border quotas

• a general non-discrimination principle, consisting of the most-

favoured-nation and national treatment principles.

• rules on subsidies
 • rules on technical regulations and standards, which may not be

more restrictive than necessary to fulfil a legitimate objective.

Technical regulations and standards must also respect the principle

of non-discrimination and be based on international standards,

where they exist. There are also specific rules for sanitary and

phytosanitary measures which are relevant for agricultural

products.

• disciplines relevant to trade in services, imposing general

obligations such as most-favoured-nation treatment, as well as

further obligations in sectors where individual members have

undertaken specific commitments.

• rules on trade-related intellectual property rights. These rules are

relevant for the development and transfer of climate-friendly

technologies and know-how.

Expansion of international trade

The past half century has been marked by an unprecedented expansion of

international trade. Since 1950, world trade has grown more than twenty-

seven fold in volume terms. By way of comparison, the level of world GDP

rose eight-fold during the same period. As a consequence, the share of

international trade in world GDP has risen from 5.5 per cent in 1950 to

20.5 per cent in 2006. More

How does trade affect greenhouse gas emissions?

Trade economists have developed a conceptual framework for examining

how trade opening can affect the environment. This framework, first

applied to study the environmental impact of the North American Free

Trade Agreement (NAFTA), separates the impact of trade liberalization

into three independent effects: scale, composition and technique. This

framework can be used therefore to study the link between trade

opening and climate change. More

Trade and transport

One concern about trade's role in greenhouse gas emissions is its link to

transportation services. International trade involves countries

specializing in and exporting goods in which they have a comparative

advantage and importing other goods from their trade partners. This

process of international exchange requires that goods be transported

from the country of production to the country of consumption. So

international trade expansion is likely to lead to increased use of

transportation

services. More

Petroleum supplies 95 per cent of the total energy used by world

transport — making it a significant source of greenhouse gas

emissions. The International Energy Agency (IEA) has estimated that,

in 2004, transport was responsible for 23 per cent of world energy-

related greenhouse gas emissions. But there are important

differences in the contribution of various modes of transport. About

74 per cent of energy-related CO2 emissions in the transport sector

comes from road transport with another 12 per cent from air

transport.

Since the International Maritime Organization estimates that around

90 per cent of global merchandise trade by volume is transported by

sea, and the bulk of CO2 emissions in the transport sector comes

from road transport, international trade does not seem to play a

major role in the generation of emissions from the transport sector.

The IEA's 2007 study on CO2 emissions from fuel combustion

suggests that international marine transport generates about 8.6 per

cent of the emissions of the transport sector.

In the context of the carbon footprint of international

transportation, “food miles” is an emerging concept that involves the

calculation of CO2 emissions associated with the transport of food

over long distances to arrive at the final consumer. Therefore, some

advocate that products should be sourced as much as possible locally

and that labels of food products should include information on the

origin of the product.

However, the real “carbon footprint” of domestically produced versus

imported foodstuffs is very complex. Transport mode (air, road,

maritime or rail) and distance are not the only significant contributors

to CO2 emissions. Life cycle of the products, including production

methods (e.g. heated greenhouses vs. open-air production; energy-

intensive modern techniques vs. hand labour) also plays a big part.

Indeed, some studies conducted on the “carbon mileage” of traded

goods have shown that the effect can be the opposite of what is

commonly believed. For instance, it has been argued that Kenyan

flowers air-freighted to Europe would generate less CO2 emissions

 than flowers grown in the Netherlands; or New Zealand lamb

transported to the United Kingdom would generate 70 per cent less

CO2 than lamb produced in the United Kingdom. Therefore, food miles

may be an issue in need of case-by-case analysis, and empirical

verification. Less

ENVIRONMENT: HISTORY

Early years: emerging environment debate in GATT/WTO

Trade and environment, as an issue, is by no means new. The link between

trade and environmental protection — both the impact of environmental

policies on trade, and the impact of trade on the environment — was

recognized as early as 1970.

Growing international concern about the impact of economic growth on

social development and the environment led to a call for an international

conference on how to manage the human environment. The 1972

Stockholm Conference was the response.

The 1971 GATT study back to top

In 1972, the UN held a Conference on the Human Environment in

Stockholm. During the preparations in 1971, the Secretariat of the

General Agreement on Tariffs and Trade (GATT) was asked to make a

contribution.

The Secretariat therefore prepared a study under its own responsibility.

Entitled “Industrial Pollution Control and International Trade”, the study

focused on the implications of environmental protection policies on

international trade. It reflected the concern of trade officials at the

time, that such policies could become obstacles to trade as well as

constitute a new form of protectionism (i.e. “green protectionism”).

In 1971, GATT Director-General Olivier Long presented the study to

GATT members (or the CONTRACTING PARTIES — written in capital

letters — as they were officially called). He urged them to examine what

the implications of environmental policies might be for international

trade.
In the discussions that followed, a number of GATT members suggested

that a mechanism be created in GATT for the implications to be examined

more thoroughly.

EMIT — GATT Group on Environmental Measures and International

Trade back to top

In November 1971, the GATT Council of Representatives agreed to set up

a Group on Environmental Measures and International Trade (also known

as the “EMIT” group), which would be open to all GATT members (i.e.

GATT signatories). However, the decision also said group would only

convene at the request of GATT members. Therefore, it was not until

1991 when the members of the European Free Trade Association asked

for the EMIT Group to be convened. (EFTA, at the time included Austria,

Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland.)

Why, after 20 years of EMIT’s inactivity, did EFTA make the request?

EFTA referred to the upcoming 1992 United Nations Conference on

Environment and Development (UNCED), and said GATT should

contribute. In addition, there were a few new developments in both trade

and the environment in those 20 years.

Developments: 1971–1991 Between 1971 and 1991, environmental

policies began to have an increasing impact on trade, and with increasing

trade flows, the effects of trade on the environment had also become

more widespread. This led to a number of discussions:

• During the Tokyo Round of trade negotiations (1973–1979),

participants took up the question of the degree to which

environmental measures (in the form of technical regulations and

standards) could form obstacles to trade. The Tokyo Round

Agreement on Technical Barriers to Trade (TBT), also known as the

“Standards Code”, was negotiated. Amongst other things, it called

for non-discrimination in the preparation, adoption and application

of technical regulations and standards, and for them to be

transparent.

• During the Uruguay Round (1986–1994), trade-related

environmental issues were once again taken up. Modifications were

made to the TBT Agreement, and certain environmental issues

were addressed in the General Agreement on Trade in Services,

the Agreements on Agriculture, Sanitary and Phytosanitary

Measures (SPS), Subsidies and Countervailing Measures, and

 Trade-Related Aspects of Intellectual Property Rights (TRIPS).

• In 1982, a number of developing countries expressed concern that

products prohibited in developed countries on the grounds of

environmental hazards, health or safety reasons, continued to be

exported to them. With limited information on these products,

they were unable to make informed decisions regarding their

import.

At the 1982 GATT ministerial meeting, members decided to

examine the measures needed to bring under control the export of

products prohibited domestically (on the grounds of harm to

human, animal, plant life or health, or the environment). This led to

the creation, in 1989, of a Working Group on the Export of

Domestically Prohibited Goods and Other Hazardous Substances.

• In 1991, a dispute between Mexico and United States put the

spotlight on the linkages between environmental protection policies

and trade. The case concerned a US embargo on tuna imported

from Mexico, caught using “purse seine” nets which caused the

incidental killing of dolphins. Mexico appealed to GATT on the

grounds that the embargo was inconsistent with the rules of

international trade. The panel ruled in favour of Mexico based on a

number of different arguments. Although the report of the panel

was not adopted, its ruling was heavily criticised by environmental

groups who felt that trade rules were an obstacle to environmental

protection. (Details here)

During this period, important developments were also taking place

in environmental forums. The discussion on the relationship

between economic growth, social development and environment that

began at the Stockholm Conference continued throughout the

1970s and 80s.

In 1987, for example, the World Commission on Environment and

Development produced a report entitled Our Common Future (also

known as the Brundtland Report), in which the term “sustainable

development” was coined. The report identified poverty as one of

the most important causes of environmental degradation, and

argued that greater economic growth, fuelled in part by increased

international trade, could generate the necessary resources to

combat what had become known as the “pollution of poverty”.

As a result of these developments, the EMIT group’s proposal met with a

positive response. Despite some countries’ initial reluctance to have

environmental issues discussed in GATT, they agreed to have a

structured debate on the subject.

In accordance with its mandate of examining the possible effects of

environmental protection policies on the operation of the General

Agreement, the EMIT group focused on the effects of environmental

measures (such as eco-labelling schemes) on international trade, the

relationship between the rules of the multilateral trading system and the

trade provisions contained in multilateral environmental agreements

(MEAs) (such as the Basel Convention on the Transboundary Movement of

Hazardous Wastes), and the transparency of national environmental

regulations with an impact on trade.

Rio in 1992 and after The activation of the EMIT group was followed by

further developments in environmental forums.

The 1992 UN Conference on Environment and Development (UNCED), also

known as the Rio “Earth Summit”, drew attention to the role of

international trade in poverty alleviation and in combating environmental

degradation. Agenda 21, the programme of action adopted at the

conference, also addressed the importance of promoting sustainable

development through, amongst other means, international trade.

The preparatory work for the summit had itself influenced developing

countries’ approach discussing trade and environment issues in the EMIT

group. The concept of “sustainable development” had established a link

between environmental protection and development at large.

These moves were about to yield more concrete results within the trading

system. The environment and trade were to be linked more explicitly in

the new constitution of the multilateral trading system that was to be

signed in 1994.

Trade and environment in the WTO’s founding charter

Towards the end of the 1986–94 Uruguay Round (and two decades after

the EMIT group was set up in GATT), attention was once again drawn to

trade-related environmental issues, and the role of the soon-to-be-

created World Trade Organization (WTO).

As a result, the preamble to the Marrakesh Agreement Establishing the

World Trade Organization, refers to the importance of working towards

sustainable development. It states that WTO members recognize:

 “that their relations in the field of trade and economic endeavour

should be conducted with a view to raising standards of living... , while

allowing for the optimal use of the world’s resources in accordance with

the objective of sustainable development, seeking both to protect and

preserve the environment and to enhance the means for doing so in a

manner consistent with their respective needs and concerns at

different levels of economic development.”

The fact that the first paragraph of the preamble recognizes sustainable

development as an integral part of the multilateral trading system

illustrates the importance placed by WTO members on environmental

protection.

1994 ministerial decision back to top

In Marrakesh in April 1994, ministers also signed a “Decision on Trade

and Environment” which states that:

“There should not be, nor need be, any policy contradiction between

upholding and safeguarding an open, non-discriminatory and equitable

multilateral trading system on the one hand, and acting for the
 protection of the environment, and the promotion of sustainable

development on the other.”

The decision also called for the creation of the Committee on Trade and

Environment.