[Interview] Unpacking WTO’s involvement in trade and environment negotiation at COP28 with Abhijit Das

The World Trade Organisation (WTO) is actively involved in the UN Climate Change Conference (COP28), co-leading the first ever trade day, in Dubai on December 4, marking a significant focus on global trade. The WTO, responsible for regulating global trade, has dedicated its 2022 annual report to climate change and trade, reflecting increased focus on the subject.

To understand the evolution of the WTO’s role in trade over the last three decades, Mongabay India interviewed Abhijit Das, the former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade (IIFT). Das, with extensive experience in trade negotiations, has represented India in various multilateral and bilateral forums.

Mongabay: WTO is going to complete three decades of existence soon. Of late, we see it is increasing its activities around climate change. What is your take?

Abhijit Das: Let me mention a few things about the WTO. First and foremost, it is crucial to realise that the WTO is a member-driven organisation. In other words, all decisions are made by its members—164 countries and territories.

Moving on to the second point, many developing countries, including India, have been at the forefront of arguing that environmental issues are best dealt with not at the WTO but at more specialised platforms, such as under the United Nations Framework Convention on Climate Change (UNFCCC) and various multilateral environmental agreements.

The reason behind this approach is simple. Developing countries, like India, believe that using the WTO and environmental linkages is an attempt by developed countries to restrict the elbow room and limit the space available for developing countries to pursue “catch-up” industrial policies.

It is important to bear in mind that new innovations, products and technologies are more likely to emerge in developed countries due to the innovation ecosystem.

Given this reality, developing countries can best implement policies to catch up with developed countries. However, using the environmental trade linkage, developed countries aim to negotiate outcomes at the WTO that tie the hands of governments in developing countries, making them heavily dependent on imports of green products and technologies.

So, two points need to be borne in mind. First, the WTO is a member-driven organisation, and second, the attempts to link trade with the environment at the WTO have little to do with improving sustainability. Instead, the real attempt is to tie the hands of developing countries, hindering their pursuit of catch-up policies in the realm of green products and technologies.

Mongabay: When the General Agreement on Tariffs and Trade (GATT), a legal agreement between countries to promote international trade, was adopted in 1947, an environmental exception to trade rules was included in the agreement. As a successor to GATT, the WTO also grants exceptions for environmental issues. Could you please elaborate on the major arguments that were used while framing WTO rules?

Abhijit Das: When the GATT legal text was adopted in 1947, an exception to trade rules was created known as GATT Article XX (General Exceptions). This provision allowed GATT contracting parties to depart from the generally applicable GATT rules in matters related to the conservation of exhaustible natural resources. This exception is commonly referred to as GATT Article XX(g).

A related provision that is also relevant for the environment is found in Article XX(b), covering measures necessary to protect human, animal, or plant life or health. Essentially, the environmental provisions were introduced as exceptions to generally applicable trade rules.

When the WTO came into existence, no separate agreement was made on environmental issues. Instead, there is an overarching agreement called the Marrakesh Agreement, signed in Marrakesh, Morocco, on April 15, 1994, established the WTO. It provided a small window for environmental issues to enter the WTO. For example, its preamble mentions the optimal use of the world’s resources in line with the objective of sustainable development. It also addresses another objective seeking to protect and preserve the environment.

These two openings have been utilised not by the membership itself, but by the various dispute panels and the appellate body reports under the dispute settlement mechanism of the WTO, bringing environmental issues from the fringe closer to the centre stage. However, as of today, there is no separate agreement at the WTO specifically addressing environmental issues.

Mongabay: The WTO came into existence in January 1995, a little over two years after the first Earth Summit in Rio in June 1992. How has the global trade governing body considered environmental issues thus far?

Abhijit Das: When the Doha Round of multilateral trade negotiations was launched in 2001, a mandate was provided. The negotiating mandate, primarily driven by the European Union, had three main aspects. First, it aimed to define the relationship between existing WTO rules and specific trade obligations in multilateral environmental agreements. Secondly, it sought to establish procedures for regular information exchange between relevant WTO committees. Thirdly, it aimed to negotiate the reduction or elimination of tariffs and non-tariff barriers on environmental goods and services.

However, the Doha Round negotiations could not be brought to fruition and attempts by the European Union to achieve outcomes on trade and the environment were unsuccessful.

Since 2017, there have been multiple initiatives by some WTO members to secure a negotiating mandate on issues related to trade and the environment, without a multilateral mandate and consensus of the entire WTO membership, but these initiatives have not succeeded. One such initiative is called Trade and Environmental Sustainability Structure Discussions (TESSD), where aspects of trade and environmental policies are being discussed. Another parallel initiative focuses on fossil fuel subsidy reform, where members are negotiating the elimination of subsidies on fossil fuels. Additionally, there is an initiative on plastics trade. It remains a question how the outcomes of these initiatives will eventually integrate into the WTO family of rules.

The attempt through these various non-multilateral initiatives is to negotiate generally applicable rules on trade and the environment across different aspects. This represents a major difference from the current situation and what some countries envision. Most of these initiatives are led by developed countries and supported by some developing countries as well. India is not a member of these initiatives.

Many developing countries perceive the attempt to link trade and the environment as a smokescreen, serving either to erect barriers to the exports of developing countries or to restrict the policy space for implementing catch-up policies in the area of environmental products and technologies.

Mongabay: Regarding Carbon Border Adjustment Mechanism (CBAM), a tariff proposed by the European Union on carbon intensive goods, China is pushing for a multilateral negotiation. India is engaging in discussions with the EU to repatriate the funds collected as a carbon tax from Indian companies. How do you see these developments and the narrative of developed versus developing countries?

Abhijit Das: The narrative of developing countries versus developed countries may need some fine-tuning, but the fundamental fact remains unchanged. What China is articulating represents a sophisticated way of arguing against CBAM. Let me provide some background on CBAM. It is designed as a measure to counteract what is known as carbon leakage. Essentially, this occurs when polluting industries in the European Union relocate to developing countries with lower environmental standards, resulting in little progress in reducing carbon emissions. The European Union’s response is to propose a tax on imports based on their carbon content. In essence, the objective of CBAM is to address carbon leakage.

Interestingly, a study by the United Nations Conference on Trade and Development (UNCTAD) has attempted to quantify the global reduction in carbon emissions that would result from the European Union’s CBAM. Surprisingly, the study reveals that the expected reduction in global carbon emissions due to CBAM is a mere 0.1%. In summary, the impact of CBAM on reducing carbon emissions is projected to be negligible. Instead, it is anticipated to have a significantly adverse effect on exports from developing countries like India.

This tension, as mentioned earlier, between the desires of developed countries and the aspirations of developing countries becomes particularly evident in the context of CBAM. While the EU aims to address environmental concerns through trade measures, the ostensible objective is likely to be minimally achieved, creating significant barriers to exports for some developing countries.

Mongabay: In the UN Climate Change Conference COP28, trade will be an exclusive topic for discussion on December 4 and WTO is co-leading it. What does it signify?

Abhijit Das: I mentioned right at the beginning that the WTO is an organisation of countries. Now, this entire initiative of organising Trade Day, does not have the endorsement of the WTO membership. It is a unilateral decision taken by the Director-General of the WTO. To my mind, it is an unauthorised decision, and in fact, questions have been raised by a large number of countries regarding the need and relevance of organising such an event in COP28.

Mongabay: With this narrative of developed versus developing countries when it comes to linking trade and the environment, what role do you believe trade plays in decarbonising the global economy?

Abhijit Das: The narrative put forth by developed countries and the WTO Secretariat suggests that increasing trade can help decarbonise the economy. However, this narrative is only partially correct and conceals numerous problems. One of them is that trade itself can lead to substantial carbon emissions. When developed countries propose trade as a solution to the carbon problem, they often have trade liberalisation in mind. Essentially, this implies urging developing countries to import more products instead of manufacturing them locally, purportedly aiding their transition to a low-carbon economy.

But it is essential to recognise that all countries must transition to a low-carbon economy, and there’s no denying that fact. However, the transition can occur either based on imported products and technologies or a combination of domestically manufactured products and imports.

Part of the problem lies in the end objective of developed countries, who seek to negotiate terms that would hinder developing countries from nurturing their domestic industries for producing green products and technologies. When it is asserted that trade is the solution, the underlying implication is to impede developing countries from implementing catch-up policies and make them overwhelmingly dependent on imports in their journey toward a low-carbon economy.

Mongabay: What is your perspective on initiatives like CBAM, and considering the new policy intervention in the U.S., particularly the Inflation Reduction Act, which proposes a regulatory mechanism similar to CBAM?

Abhijit Das: I am very clear in my mind that CBAM is absolutely not the solution. If the EU wants to prevent carbon leakage, then it can impose taxes on its entities that go outside its boundaries. There is no point in taxing imports from all sources because you will not meet the EU’s unilaterally determined standards. So, CBAM is not a solution. It is just an excuse to restrict trade ostensibly behind the smokescreen of Environmental Protection.

Mongabay: The WTO follows the “most favoured nation” (MFN) principle, promoting equal treatment for all trading partners. Conversely, the Paris Agreement’s “common but differentiated responsibilities and respective capabilities” (CBDR-RC) implies a variable approach, indicating that developed nations shoulder more responsibility for decarbonisation. What’s your take on this conflict and how significant is it for shaping the future of sustainable trade?

Abhijit Das: There is no conflict because while the WTO talks about the MFN principle, it also incorporates special and differential treatment provisions. These provisions, rooted in GATT since 1965, recognise that in trade negotiations, developing countries are not required to make concessions equal to those made by developed countries. For instance, Article XXXVI of GATT 1994, paragraph eight emphasises that developed contracting parties do not expect reciprocity for commitments made in trade negotiations with less developed contracting parties, forming the cornerstone of special and differential treatment. This principle is evident in various WTO agreements, such as the Agreement on Agriculture, where certain commitments required from developing countries are less onerous than those from developed countries. This includes areas such as the reduction of tariffs, reduction of domestic support, and reduction of export subsidies. Additionally, developing countries are afforded flexibilities, such as the ability to provide an unlimited amount of input subsidies in agriculture. All these are articulations of the special and differential treatment provision.

Mongabay: What do you expect from COP28, given the active involvement of WTO?

Abhijit Das: There is likely to be some articulation of how trade can contribute to reducing environmental problems. But it might not be hard obligation, it might be worded in soft language. This, of course, assumes that developing countries like India and Asia, Africa, and others will negotiate hard and prevent any outcome, which ostensibly is for protecting environment, but in reality, is about developed countries securing market access in developing countries. It is also likely that the outcome of the Trade Day will be used by the developed countries to seek a multilateral negotiating mandate on trade and environment issues at the WTO.

 

Banner image: Abhijit Das is the former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade (IIFT). Das, with extensive experience in trade negotiations, has represented India in various multilateral and bilateral forums. Photo from Abhijit Das.