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Cicerone 5-2004

Trade measures can improve the climate

Using trade measures against countries that do not comply with or do not participate in the Kyoto Protocol can make the climate regime more robust. “It appears, though, that the link between trade and climate is a bigger issue in the World Trade Organization than it is in the UNFCCC,” says political scientist Olav Schram Stokke at the Fridtjof Nansen Institute.

“Trade measures have only just been touched upon in the climate negotiations,” says Olav Schram Stokke at the Fridtjof Nansen Institute. “There have probably been so many other points of contention that bringing in one more to the negotiations has not been considered desirable – particularly for one as divisive as trade barriers. There is also no reason to believe that this will be given a high priority in the climate regime in the time ahead.”

Exceptions to free trade

Developments under the World Trade Organization (WTO) may be more consequential for relationships between trade measures and climate policies.
“Trade and the environment is a bigger issue in the WTO than it is in the UNFCCC. Over time the dispute-settlement system in the WTO has interpreted the so-called environmental exceptions in the free-trade agreements more broadly,” says Stokke. “In the ongoing Doha rounds, they are discussing in particular cases where an environmental agreement can mandate trade measures against non-parties or non-compliers, which is not true for the climate regime. The upshot of these negotiations will nevertheless indicate whether WTO parties are prepared to give greater priority to environmental considerations than before, which is still an open matter.”

Trade measures can have immediate costs for a target country whereas the costs associated with the Kyoto compliance mechanism would depend on a series of procedural and political conditions. At the same time, trade measures can be challenged under WTO’s compulsory and legally binding dispute settlement system. Since liberalization is so important for many countries, there has been a willingness to relinquish more sovereignty to the trade regime than to the climate regime.

Good for the global economy

Trade measures are already being used to a limited degree in other environmental issue areas, such as protecting threatened species or fighting ozone-depleting substances.
“These are areas that have very little importance for the global economy,” says Stokke. “Measures to limit greenhouse gases, on the other hand, can affect production costs for many energy-intensive goods that weigh heavily in the global economy. This is one of the reasons that it would be more difficult to introduce climate-related trade measures.”

“Any such trade measure would probably be justified primarily by reference to competitive advantage enjoyed by producers in countries that have not implemented costly mitigation measures”, says Stokke. “If all industrialized countries took on and implemented emissions-limitation commitments, it would make the playing field more even.”

“From an environmental standpoint, there are several conditions that speak in favor of linking trade and climate,” he says. “Worries about competitiveness could keep a country from introducing climate measures in the first place. Offsetting trade restrictions would reduce such worries. Second, trade measures could reduce incentives to be a free rider on the climate policies of others. Finally, climate-related trade measures could reduce the risk of carbon leakage, where emissions-intensive industries re-locate to countries without climate policies.”

Prioritizing

Stokke believes it would have been easier to gain acceptance in WTO’s dispute-settlement system for trade measures based on climate considerations if the UNFCCC and associated instruments had provided explicitly that climate measures are just as important, or more important, than free trade, and detailed when such measures could be relevant.
“Today, the UNFCCC simply says that climate measures should interfere with trade as little as possible.”

Last updated: 20.12.2004

GLOBAL ECONOMY. Restricting greenhouse gas emissions can have a major impact on energy-intensive goods, which are crucial to the global economy. This can make it difficult, but all the more interesting, to link trade and climate. (Photo: Audiovisual Library European Commission)GLOBAL ECONOMY. Restricting greenhouse gas emissions can have a major impact on energy-intensive goods, which are crucial to the global economy. This can make it difficult, but all the more interesting, to link trade and climate. (Photo: Audiovisual Library European Commission)
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