Big climate change job awaits WTO, if it can step up

From laying down the law on fossil fuel subsidies to promoting low-carbon supply chains, there is no shortage of ways in which the World Trade Organization could be at the forefront of the global fight against climate change.

The question for trade chiefs from 164 countries gathering in Geneva next week for the WTO's first ministerial conference in four years is: are they ready to give it that job?

Few doubt that trade matters to climate change. While national emissions-cutting pledges grab headlines, the reality is that the world's top economies are yoked together by a mesh of intense rivalries and interdependencies.

That means that, unless someone is setting clear and fair rules, they will fear that any unilateral move to decarbonise could be exploited by competitors for trade advantage.

"Trade was a huge subtext of a lot of what was going on at COP26," Carolyn Fischer, Professor of Environmental Economics of Vrije Universiteit Amsterdam, said of U.N. talks in Glasgow this month that yielded some agreement but left climate campaigners disappointed by the extent of progress.

Many of those campaigners will be sceptical that the WTO, which has long been accused by critics of globalisation of putting free trade ahead of social concerns, should ever be trusted to have a role on climate change.

But others argue that the 27-year-old body, which is grappling with existential questions about its relevance amid mounting trade protectionism, has much to offer.

"Trade is part of the solution," WTO Director-General Ngozi Okonjo-Iweala told COP26, saying the WTO can help big emitters like the United States, China and India to jointly work through the trade impacts of their climate plans.

Some are already using trade to support their climate goals.

The European Commission last week proposed a law to stop imports of goods ranging from soy to palm oil and furniture if their production destroys forests vital to absorbing carbon dioxide.

The EU also plans to tax the carbon contained in imports, a world-first designed to protect European firms from competitors in territories with looser emissions restrictions.

A group of countries led by Costa Rica and New Zealand wants pacts to "discipline" the hundreds of billions of dollars of national subsidies thrown into fossil fuels, citing as an example WTO rules on farm or industrial subsidies.

Greenwashing 

All these moves raise questions to which the WTO has still not found the answers.

The EU says its border levy, due to be phased in from 2026, will be fully compatible with existing WTO rules. But trading partners including China and Russia have been hostile.

Complex global supply chains could also make it hard to identify the extent of deforestation caused by a product and so lead to disputes which the WTO - whose appeals body has ground to a halt - would struggle to settle.

And while tackling fossil fuel subsidies should be a clear-cut WTO task, its track record in the area has been mixed.

"Folks who follow the WTO know that we've had a 20-year negotiation on trying to discipline harmful fisheries subsidies," University of Michigan professor Jennifer Haverkamp, a former climate negotiator, said of a trade stand-off that is jeopardising the world's fish stocks.

One role for the WTO could be to combat "greenwashing" by defining commonly agreed standards against which environmental claims could be tested - for example by having oversight over eco-labelling schemes.

Another would be creating tools for assessing the carbon footprint of the finished products that emerge from cross-border supply chains and in helping to establish an accurate global price for carbon - a role Okonjo-Iweala has explicitly backed.

Further down the line, severe climate change could mean dealing with massive disruptions to the global economy.

"We will need to move things from places where there is a bumper crop to places that are in drought," said Dmitry Grozoubinski of the Geneva Trade Platform non-profit.

"We will have to get good at moving new technologies, new ideas, goods and people across borders."

Consensus on the WTO's role in any of the above may depend on whether trade ministers meeting next week see eye-to-eye on how they want to overhaul the body in the first place.

It would get a further boost if those ministers are able to secure a deal on reducing fisheries subsidies, because - as former WTO director-general Pascal Lamy has noted - it would show a political will to address environmental concerns.

Some suggest that defining a clear role on climate change is a credibility issue for the WTO.

"They've been talking about green goods and services for a long time," said Vrije Universiteit Amsterdam's Fischer. "Making progress there would help demonstrate the relevance of the WTO and trade towards sustainability."