TRADE AND CLIMATE CHANGE NEXUS : A WAY FORWARD

TRADE AND CLIMATE CHANGE NEXUS  :  A  WAY  FORWARD⁺

Dr.Debesh Bhowmik

JEL- F13 , F18 , H23  ,  Q54  , Q56

Key Words – Trade  policy  , Trade and Environment ,Environmental taxes and subsidies,  , Climate ,Environment and Development

Introduction

The Stern Review[1] calculated that the impact of climate change would be a loss of at least 5% of global GDP each year and could be reach as much as 20% of global GDP at 2.5°C and 75-250 million African people would experience water stress in 2020  and some African countries would suffer from a 50% decline in agricultural yields. The required change in consumption and production patterns will neither be easy to achieve nor occur without seriously altering global trade patterns. Both climate change and measures taken to combat it will thus have an impact on international trade.

Trade intersects with climate change in a multitude of ways. In part, this is due to the innumerable implications that climate change may have in terms of its potential impacts and the profound regulatory and economic changes that will be required to mitigate and adapt to these impacts. Climate change is expected to have an impact on trade infrastructure and trade transportation routes. Literature indicates that more open trade is likely to increase CO₂ emissions as a result of increased economic activity (the scale effect). On the other hand, trade opening could facilitate the adoption of technologies that reduce the emission-intensity of goods and the production process (the technique effect) and lead to a change in the mix of production from energy-intensive to less energy-intensive sectors if it is where it has a comparative advantage  (the composition effect). Although most studies to date have found that the scale effect tends to outweigh the technique and composition effects in terms of CO₂ emissions, it remains difficult to determine in advance the magnitude of each of these three effects, and therefore estimating the overall impact of trade on green house gas emissions can be challenging.

Trade and climate change are linked in multiple ways in the domestic and international rules and institutions because climate change is already affecting the productive base of international trade which may help or hinder climate efforts by transferring climate friendly technologies or increasing transport-related emissions. In the realm of climate policy such as new regulations or standards may affect trade and competitiveness. On the other hand, trade policies may influence economic activities and associated GHG emissions. Trade and climate policies may also intersect with each other as a matter of law. Domestic climate measures and climate negotiations are likely to be scrutinized in the WTO rules. The linkage is essential in preamble of the WTO in the interest of developing countries and achieving sustainable development.The existing WTO agreements such as trade in goods,trade in services and protection of intellectual property transverse the territory covered by climate issues and institutions.Doha Work Programme in relation to agriculture,industrial products and environmental goods and services may also affect efforts to mitigate and adapt to climate change . WTO’s dispute settlement body may also come into play in the event that climate-related trade disputes cannot be addressed through diplomatic or other channels.

The association  between trade and climate change measures in the climate regime is governed by, among others, Art. 3.5 of the UNFCCC which states that “measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade.” This reflects Art. XX of the General Agreement on Tariffs and Trade (GATT), which allows WTO Members to adopt measures that may be inconsistent with their WTO obligations if such measures are, inter alia, “necessary to protect human, animal or plant life or health” or are related “to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”, provided that these measures “are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade.”

The climate –trade nexus has gained increasing attention after Kyoto Protocol  in relation to unilateral action and multilateral efforts in GATT Article XX[2] and in regional agreements in Article XXIV, for the interpretation of the causal link required to justify environmental measures under Article XX(b) and, by implication, XX(g). However, the relevance of WTO rules to climate change mitigation policies, as well as the implications for trade and the environmental effectiveness of these measures, will very much depend on how these policies are designed and the specific conditions for implementing them.

The discussion on  trade-and-climate-change is also expanding the notion of what constitutes “unfair” trade. For decades, international trade law, as reflected in both the WTO system and the domestic law of most trading nations, has recognized that pricing imports below certain levels (whether due to “dumping” by foreign exporters or subsidies provided by foreign governments) is a form of “unfair” trade that should be redressed where it harms domestic industries. This notion of unfair trade is based purely on how an imported product is priced. Climate change concerns are now expanding the notion of unfair trade to take into account how imported products are made - specifically, the volume and nature of the greenhouse gases associated with their manufacture.

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[1] Stern Review: The Economics of Climate Change, Executive Summary, available at http://www.hm-treasury.gov.uk/

independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm

+ The paper has been written to show my gratitude ,respect and honour to Prof.Raj Kumar Sen  who is my friend,philosopher and guide.

[2] For a detailed explanation of Article XX, see WTO (2002).

For full article -see,Environment Problems and Challenges-Recent Issues and Opportunities(A Festschrift for Prof.Raj Kumar Sen)(2013)-Somnath Hazra,(Regal Publishers, NewDelhi), pp498-524