By SM Golam Kibrea, December 15, 2011
The potential trade risks of a transition to a green economy — protectionism, conditionality, subsidies — are issues of long standing and not unique to the green economy. The urgency of the global challenges which a green economy transformation is intended to address, and the scale of the actions being taken by many countries to build green economies, does however bring renewed focus to these risks.
At the same time, the new greening of markets associated with a green economy may provide opportunities for many developing countries to find global markets for goods and services with low environmental impacts. This will, however, test the supply capacities of developing countries as reflected, for example, in domestic trade infrastructure.
The green economy offers an opportunity to improve both global trade governance and the domestic trade environment to ensure that trade contributes positively to a green economy in the context of sustainable development and poverty eradication.
1. Policy options for green transformation and trade implications
As a growing number of countries adopt strategies and policies to promote a transition to a green economy, this will have implications for trade flows and trading opportunities. The following external and internal measures and pressures, not necessarily mutually exclusive, may serve as driving forces to a transition to a green economy via international trade.
2. Local regulations and rules. For example, some U.S. states have imposed recycling requirements on newsprint, which is likely to have significant implications for the forest industries of its trading partners.
3. Environmentally-driven consumer pressure from major customers: For instance, the Chief Executive Officer of one of Canada’s most competitive paper companies remarked that the pressures from his European customers have become so severe that he is now running his mills to European, rather than Canadian, standards.
4. National legislation and plans: For example, many Chinese business leaders expect to face much stronger environmental regulations and an environmental tax over the next five years under China’s 12th five-year plan. Many are building major changes into their long term trade and investment planning to accommodate the need for sustainable development.
5. Unilateral policy measures: Many countries seem committed to the use of trade measures to persuade other countries to change their domestic environmental practices, despite the fact that many measures may be contrary to GATT-WTO rules (see Table 1 and discussion).
6. International environmental, climate change agreements/conventions: The outcome of negotiations on climate change will have an influence on trade, e.g., by affecting the consumption of various natural resources which are traded and shifting demand for various low-carbon technologies.
Some countries have expressed concerns that a green economy transition could cause their export industries to experience declining demand or competitiveness. These concerns can be real and need to be addressed through pro-active policies at both national and international level.
Competitiveness and environmental standards are often considered enemies. There is evidence, however, that trade policy and environmental policy can act as complements in the development of conditions within which firms can innovate and become more internationally competitive. Germany and Japan have amongst the toughest environmental regimes in the world, yet both are among the most able to compete internationally. Their strategies are clear: innovate now and capture markets in the future. It should be stressed, however, that technological capacity is key to such success.
Environmental regulations, standards, labeling and certification:
Concern: There is a large body of environmentally-related rules and regulations. The regulations, standards and labeling may represent significant obstacles to market entry.
Suggestion: One type of standard with potential to promote a green economy dictates the energy efficiency of a product in use. But different countries all have different standards, meaning higher costs for exporters and less dissemination. An international harmonization of standards and labeling would be a solid step towards lowering entry barriers, but there is no obvious forum for such harmonization (Cosbey, 2010).
Unilateral border carbon adjustments (BCAs), air and sea transport levies:
Concern: The risks associated with environmentally-related border tax policies are that they may be disguised protection of domestic firms. Countries could face significant difficulties in establishing that the proposed border measure would be compatible with WTO rules. In particular, border tax adjustments or international transportation levies have the potential to impact negatively trade and the conditions of competition for developing country exporters, or to penalize them unfairly.
Suggestion: The solution may be regime design, ideally based on internationally agreed principles (Cosbey, 2010). Nevertheless, the issue of BCAs will likely remain on the table in the negotiations on climate change, in the trade negotiations of the Doha Development Agenda and in the multilateral trading system in the near term. Some have suggested that a firm Multilateral Environmental Agreement (with explicit reference to trade measures) can form the basis for origin-based charges on traded goods. This requires strong carbon monitoring, reporting and verification (MRV). In the absence of a global agreement, MRV may be developed on a bilateral or regional basis.
Subsidies and domestic support mechanisms:
Concern: Recently, there have been a number of trade disputes related to 'green subsidies' and domestic support for green sectors. For example, the US government has petitioned in late 2010 to take China to WTO dispute settlement for its support to clean energy sectors. One question is whether environmental threats like climate change might provide a strong enough base to re-examine the WTO rules on domestic support to ensure that renewable energy can be promoted effectively.
Suggestion: In discussing specific subsidy-related rules of relevance to climate change, some have suggested the careful revival of an expired clause in the WTO subsidies agreement specifying that certain environmental subsidies were "non-actionable" (meaning that they are permitted) as a way of encouraging support for clean technologies (ICTSD, 2008). In this regard, developing countries have proposed that the environmental subsidies they provide shall be considered "non-actionable" under WTO rules.
Technology transfer and intellectual property rights:
Concern: Intellectual property rights (IPRs) have long been a tool to promote innovation and the dissemination of new ideas and inventions. The crucial issue is how they help or hinder developing countries’ gaining access to technologies and enhancing indigenous technological capacity for their development (Cosbey, 2011).
Suggestion: A global green economy package could promote the faster development of green technologies through collaborative arrangements that enshrine the sharing of technologies and the utilization of financing mechanisms like the green climate fund to acquire and place in the public domain IPRs for key climate-related technologies. These types of initiatives would be a solid step toward a green economy (ICTSD, 2008).
Liberalization of environmental goods and services:
Concern: Liberalizing trade in environmental goods and services (EGS) has been on the agenda of the WTO Doha Round since the beginning. Yet, very little has been achieved. Two particular areas of controversy involve "dual use" technologies that may be used to reduce emissions as well as meet other consumer needs, and agriculture products.
Suggestion: Any liberalization package will need to be complemented by a set of financial and technical assistance measures. The impact of trade liberalization for climate change mitigation efforts will only be as effective as the broader enabling framework within which it is put into play (ICTSD, 2008). Developing countries need to have the prospect of developing capacities to compete domestically and internationally in the EGS industry.
Countries may take measures to make trade policy respond better to social development and sustainable development objectives, including international commitments to poverty reduction, food security, quality jobs, and environmental sustainability. These measures may actually have positive impacts on green exports but some may raise concerns from trade partners. As suggested by UNCTAD (2011), the international community must agree upon the principles for the design and implementation of trade-related instruments in relation to a green economy.
In conclusion, this brief provides guidance on issues to be addressed to reinforce trade, green economy, and sustainable development complementarities.
1. Identify and address trade-related obstacles to a green economy
2. Ensure trade rules enable the transition to a green economy, e.g. ensure trade rules provide policy space for development and for the technology diffusion and acquisition necessary for a low-carbon development trajectory
3. Discuss and resolve issues of regulation, standards, labelling and certification to ensure they do not constitute unjustified non-tariff barriers to trade
4. Discuss and resolve issues of unilateral border carbon adjustments
5. Discuss and resolve treatment of green energy and industry subsidies
6. Conclude and implement effective Doha Round agreement on environmental goods and services
7. Embrace green trade opportunities by pro-active trade promotion and facilitation programs
8. Ensure access to affordable trade finance, particularly for the poorest countries, and particularly for sectors and activities related to a green economy
9. Finance green technology transfer and public procurement of key patents on latest generation green technologies to put them in the public domain
10. Provide Aid-for-Trade on promotion of environmentally friendly technologies and green commodity production.
These issues may require the further attention of all parties and stakeholders. Many questions remain unanswered and will need to be discussed in effective multilateral forums. Further research and policy deliberation would assist in filling knowledge gaps and contribute to preparation of countries for the Rio +20 conference and, eventually, a successful transition to a green economy.