The Economist - USA (2021-10-09)

Butthewto’s lawyerstendnottoapproveofdiscriminationbased
onhowproductsaremade,whichiscrucialifcarbon­intensive
productsaretobetreateddifferentlyfromcleanerones.
Withouttheoptionofagreementsatthewto, policymakersare
pursuingenvironmentalgoalsinotherways.Oneistousetradeto
reinforceinternationalclimateagreements,thoughsofarthishas
beenmainlya Europeanproject.Theeurefusestosignnewtrade
dealswithcountriesthathavenotratifiedtheParisagreementor
takenstepstocombatglobalwarming,andit mayaddcompliance
withParisasa conditionforpoorcountriestogainenhancedac­
cesstoitsmarket.ItsBrexittradedealwithBritainincludes“acts
oromissionsthatwouldmateriallydefeattheobjectandpurpose
oftheParisagreement”aspotentialgroundsforsuspension.

Greasingthepalms
Another idea is to link trade policy and environmental outcomes
directly. A trade deal approved in April between Indonesia and the
European Free Trade Association, a trade bloc, offers Indonesian
palm­oil exporters lower tariffs if they meet certain environmen­
tal standards. In May apec trade ministers launched a process for
identifying environmental services to inform future talks. Several
countries are trying to conclude an “agreement on climate change,
trade and sustainability” by the end of this year, to curb fossil­fuel
subsidies, liberalise tariffs on environmental goods and offer eco­
labelling guidelines. “It may be hard to get everyone on the same
page,”  says  Damien  O’Connor,  New  Zealand’s  trade  minister;  but
he adds, “let’s start with those who do agree.”
Bigger players are also throwing their support behind environ­
mental  measures.  In  2018  China  banned  the  import  of  plastic
waste.  The  euis  working  on  legislation  to  require  companies  to
show that their supply chains meet certain green standards. It is
also considering “digital passports” to contain information on en­
vironmental and material characteristics. In theory the European
Commission’s negotiators have agreed a trade deal with Mercosur,
a  South  American  trade  bloc.  But  after  some  members  protested
about  Brazilian  deforestation  and  the  European  Parliament  re­
solved that it could not approve the deal as it stands, the commis­
sion  is  demanding  new  green  commitments  before  the  ratifica­
tion process is resumed.
A final idea is to find ways to allow ambitious policies at home,
while  protecting  domestic  producers  against  the  possibility  of
leakage  and  shutting  out  foreign  suppliers  from  the  benefits  of
green investments. At the forefront, the euhas operated an emis­
sions trading system (ets) for years, making companies it covers
buy permits if they want to emit CO 2 . Some sectors have been pro­
tected from foreign competition with free permits, a handout the

commissionwantstoscrap.InJulyitunveiledplansfora carbon

borderadjustmentmechanism(cbam) thatwouldgraduallyex­

tendtheetstoimporters.Wherea carbonpricehasalreadybeen

paid,thechargewillbelower.Thisisdesignedtoencouragefor­

eigngovernmentstointroducecarbonpricing.

Othersarewatchingcarefully.Canada’sgovernmenthasan­

nouncedplans to developits owncarbon border adjustment

mechanism.TheBidenadministrationhascalledthecbama po­

tentiallyusefultool,andtheBritish governmenttookcareina re­

centreportongreeningtradenottoruleouttheidea.Concernsfor

consistencywiththemultilateralrules­basedsystemvary.Valdis

Dombrovskis,theeutradecommissioner,stressesthatthecbam

wasdesignedinawto­compatibleway.ButAmericanofficials,

whotalkabouttheenvironmentandnationalsecurityinthesame

breathseemlessfussedaboutwhetherthisistrue.

MsOkonjo­Iwealabelievesitispossibletodesigncarbonbor­

deradjustmentsina waythatisnotprotectionist,but“thedevilis

inthedetail.”Manyothermeasuresdesignedtoshoreupdomestic

supportforthegreentransitionarelesssuccessfulinavoidingthe

label, such as the Indian government’s plans for tariffs of 40% on

imported solar modules from 2022, or the Biden administration’s

Buy  America  conditions  for  infrastructure  spending.  As  govern­

ments cultivate more climate­related investments, one can expect

similar naked grabs for more jobs at home.

A  generous  assessment  of  this  mish­mash  of  trade  and  envi­

ronmental  policies  is  that,  given  the  scale  of  the  challenge,  it  is

worth  reaching  for  anything  that  might  work.  Waiting  while  164

wtomembers struggle to reach a consensus might mean waiting a

lifetime.  Unilateralism  from  countries  with  enough  clout  could

deliver  quicker  results.  Carolyn  Deere  Birkbeck  of  the  Forum  on

Trade, Environment and the Sustainable Development Goals, a re­

search  outfit,  says  that  bans  on  plastic  waste  imports  started  by

China have pushed rich countries to take more responsibility for

the stuff.

A  harsher  view  would  be  that  policymakers  are  being  pulled

along  by  a  mix  of  evolving  domestic  green  policies  and  populist

outrage,  rather  than  a  considered  assessment  of  the  right  mea­

sures to help the environment. Arguably, the collection of coun­

tries trying to curb fossil­fuel subsidies are showing more leader­

ship  than  the  many  Europeans  who  are  breathlessly  demanding

that market access be made vaguely conditional on adherence to

climate commitments. 

Policymakers would be wise to remember a lesson from the old

regime: that trade restrictions can have unintended consequenc­

es. When a country applying one represents only a small share of

the exporter’s market, it is unlikely to effect policy change. Tariffs

and local content requirements can cut off cheap suppliers, mak­

ing  environmental  goals  even  more  expensive  to  reach.  Pamela

Coke­Hamilton, executive director of the International Trade Cen­

tre, a undevelopment agency, says the rising number of sustain­

ability standards, from around 15 in 1990 to more than 250 today,

has “significantly increased the stress on a lot of businesses”. She

thinks  there  should  be  more  financing  so  that  companies  can

build the capacity to become greener. 

Policymakers  face  a  delicate  balancing

act  between  domestic  and  foreign  inter­

ests. Trade liberalisation is supposed to be

win­win.  Yet  climate  mitigation  involves

short­term  costs  for  all,  and  there  will  al­

ways  be  a  temptation  to  push  these  else­

where. Go too far, and that will have other

costs, including retaliation, ill will and less

co­operation. Trade policy may sometimes

seem like an easy short cut to climateim­

provement. Unfortunately it is not.n

Using the trade lever
World, new trade agreements enforced, by obligations

Source:WorldBank *ExcludingBritain’sreplacement trade deals

25

20

15

10

5

0

21*1020009080701958

Environment

Withenforceablelaws

Withlaws

Nolaws

25

20

15

10

5

0

21*1020009080701958

Labour market

With enforceable regulations

With regulations

No regulations

“The wto [ is] part

of the solution to

climate change,”

insists Ms Ngozi

Okonjo-Iweala

The Economist October 9th 2021 Special report World trade 11