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TWN Info
Service on WTO and Trade Issues (Apr21/19) Washington DC, 29 Apr (D. Ravi Kanth) – The United States President Joseph Biden on 28 April declared that the “trickle-down” economics has failed to address the bread-and-butter concerns of the vast majority of people while buffeting some 600 billionaires in his country with more than $1 trillion in gains during the COVID-19 pandemic. He came down heavily on the worst inequalities in the US, calling for a paradigmatic shift to provide jobs and reduce the grotesque inequalities. In his address to the US Congress on 28 April, the US President spoke about the need for a rupture with previous economic policies, displaying what seemed like soul-searching on the catastrophic policies followed by successive US administrations that created extreme inequalities in the US. President Biden’s remarks appear to have vindicated the findings in a new report by the United Nations Conference on Trade and Development (UNCTAD) on “Reforming the International Trading System for Recovery, Resilience and Inclusive Development.” The report has offered new developmental pathways and a narrative centred around the trade and climate change linkages in the World Trade Organization. The 24-page report, authored by former South Africa’s trade minister Rob Davies, Richard Kozul-Wright, Rashmi Banga, Jeronim Capaldo, and Katie Gallogly-Swan draws attention to the trade liberalization policies followed during last 200 years, particularly during the past 40 years, that has wreaked havoc across countries. It highlights that although climate change is not a part of the WTO’s work programme, sustainable development and protection and preservation of the environment are two basic objectives set out in the Marrakesh Agreement establishing the WTO. The WTO’s Committee on Trade and Environment is the standing forum for dialogue between Members on the interaction of trade and environment policies. The report argues that the coherence between special and differential treatment (S&DT) and the UNFCCC (United Nations Framework Convention on Climate Change) principle of “common but differentiated responsibilities” offers a starting point for understanding a development-sensitive approach to the trade-climate nexus. With the stock of atmospheric emissions largely resulting from 150 years of their carbon-intensive economic growth, the developed countries bear the largest responsibility in reducing it. Although emissions per capita in the developed world are declining, the levels continue to far outstrip emissions from the developing world. As an example, per capita CO2 emissions in the US (16 tonnes) are more than seven times that of Indonesia (2.28 tonnes), and about 230 times that of Chad (0.07 tonnes). Historically, the US has contributed 25 per cent of the global carbon dioxide stock, that is more than Asia, Africa and Latin America (with the exclusion of China). Higher individual incomes are linked to higher emissions, with the richest 10 per cent of people in the world generating around half of all emissions, and the poorest 50 per cent of the world conversely responsible for only 10 per cent. Unsurprisingly, the US Trade Representative (USTR) Ambassador Katherine Tai recently acknowledged that the “race-to-the-bottom” trade policies, which successive US administrations pursued as a Mantra, seem to have had a deadly impact on environment and climate change. “For too long, we believed that trade liberalization would lead to a gradual improvement in environmental protection as countries grew wealthier from increased trade flows,” the USTR said. “But the reality is that the system itself creates an incentive to compete by maintaining lower standards. Or worse yet, by lowering those standards even further.” Echoing the Northern perspective, Ambassador Tai said “the multilateral trading system has no rules to address the corporate incentive to participate in the race to the bottom. Rather, the environmental protection measures of WTO members are exposed to challenge.” This is why many look at the WTO as “an institution that not only has no solutions to offer on environmental concerns, but is part of the problem,” she stated. “Going forward, trade has a role to play in discouraging the race to the bottom and incentivizing a race to the top,” Ms. Tai said. Against this backdrop, UNCTAD’s path-breaking report acknowledges that while in per capita terms, developing countries’ emissions remain well below those of advanced countries, their total economic output is currently more carbon-intensive than developed countries. However, it argues that in a world where value chains are global, and even more in a hyper-globalized world, developed countries’ relative energy efficiency is not independent of developing countries’ relative inefficiency. According to the UNCTAD report, decades of outsourcing and financial liberalization have led to a massive transfer of production activities to the South and a concentration of financial and intangible assets in the North. As a result, income from energy-efficient corporate activities in the North is generated through carbon-intensive production activities in the South. In order to sustainably industrialize, developing countries need to invest in the necessary technology, which is predominantly held and protected by corporations in the North. This must be made accessible and financed through a multilateral arrangement that reflects the commitment to “shared responsibility”. At the moment, initiatives linking trade and climate are not development-sensitive and tend to be market-led approaches to nudge consumption emissions lower, thus lacking a real strategy to keep warming below 1.5 degrees C, it argued. The acceleration of negotiations on reducing tariffs on “Environmental Goods and Services” and the related programme on reducing plastics have the potential to distract from the required bolder action while damaging producers in the South. High-emitting plastic supply chains are key industries in the Global South, which stand to lose most from the necessary consumption shift away from these products, as is the objective of the higher tariff barriers, without a considered transition. Further, there is reason to be suspicious of the “green” credentials of the list of “environmental goods and services” which includes incinerators and steam generators that are used in carbon energy generation, and public utilities such as waste disposal that would be consequently liberalized. Liberalizing these services could in fact accelerate environmental and climate destruction. For example, the companies overseeing England and Wales’ liberalized water system were responsible for 3,000 overflows of raw sewage into the sea in 2020 alone. IPR BARRIERS The TRIPS Agreement and TRIPS+ measures make the green-friendly industrialization difficult and need to be urgently reformed to recognize key technologies as public goods. The current strict regime can negatively impact the green transition by discouraging new R&D and keeping patented technology prohibitively expensive. Removing such restrictions is vital for Southern countries to be able to benefit from low emissions technology and for developing their own green technologies, products and services, said the UNCTAD report. The international community should support initiatives to transform intellectual property rules, such as a WTO Ministerial Declaration on TRIPS and Climate Change, in order to expand TRIPS flexibilities for Southern countries in relation to climate-related goods and services, the report argued. NEED FOR CLIMATE WAIVER AT WTO The report highlights the need for a limited Climate Waiver of WTO trade and investment rules combined with preferential space and financing for developing countries. A narrowly defined waiver would give countries the assurance they need that they will not face disputes for climate- and development-friendly initiatives such as prioritizing a transition to renewable energy, green procurement, and green jobs programmes, it said. The report suggested that the ambition should be for developing countries to leapfrog carbon-intensive industrialization and for advanced economies to sustainably accelerate their transition to renewable energy use. Depending on its design, such a Waiver could also help to tackle the policy chill resulting from mechanisms such as ISDS (Investor-State Dispute Settlement) which serve to disproportionately expand the rights of investors over the public policy-making process, often at the expense of climate- and development-friendly initiatives. STRATEGIC TRADE AND INDUSTRIAL POLICIES The report further underscores that while massive financial subsidies are being rolled out in the North to sustain its businesses, developing countries, who cannot afford comparable bailouts, will need to revive strategic trade and industrial policies to manage the stresses resulting from the pandemic and its aftermath. Such policies will mean a rethink of the restrictions on policy space that have accumulated over recent decades through the aggressive agenda of “deep” integration. To revive their domestic production and trade policies in order to provide a level-playing field to their SMEs, developing countries will need to provide additional support to their trade and industrial sectors including concessional financial support for digital upgrading, along with qualified tariff protection. There is a need for developing countries to reassess their existing agricultural and industrial tariffs to help mitigate the damage from the crisis and build domestic capacity. Promoting innovation is vital for industrialization and all the more so given the threat of climate breakdown. Encouraging and widening access to innovation may require a review of the balance between rules on IPR protection and technology transfer. This matter could be part of the discussion on WTO reform as part of the broader effort at structural reform, economic recovery and fostering more equitable growth and development across the world. Principles on technology transfer along with supportive multilateral mechanisms were part of previous efforts in UNCTAD to develop a Code of Conduct on Technology Transfer. Revisiting those initiatives would seem timely as we enter a new technological era with the potential to widen inequities across the global economy, said UNCTAD. Given the existing digital divide, which is exacerbating global inequalities especially in the times of COVID-19, the report asserts that it is important for WTO members to ensure that global e-commerce delivers inclusive development. The growing digital monopolies and concentration of rents in the hands of a few digital platforms, which pay little taxes to the governments of countries where they operate, make it urgent for developing countries to agree to tax these digital platforms and ensure that their products sold via e-commerce also face customs duties to level the playing field with the exporters of physical products. WTO E-COMMERCE MORATORIUM The WTO moratorium on customs duties on e-commerce which has continued since 1998 provides a special and differential treatment for the big digital platforms which do not face customs duties for their exports. The removal of the WTO e-commerce moratorium will ensure that the exporters of physical products from developing countries are not out-competed by the exporters of electronic transmissions which are mainly from developed countries. The report reiterates that under the Work Program on E-Commerce, which was established in 1998, WTO members had decided to examine all trade-related issues relating to global electronic commerce, considering the economic, financial, and development needs of developing countries. According to the report, the Committee on Trade and Development was specifically tasked to report on the development implications of electronic commerce, including in relation to SMEs; challenges to and ways of enhancing the participation of developing countries in electronic commerce; financial implications for developing countries; assess the possible impact on the traditional means of distribution of physical goods; and the role of improved access to infrastructure and transfer of technology. However, to date, no comprehensive assessment of developmental impacts of global e-commerce focusing on exports and export-oriented development of developing countries has been undertaken, said the report. Instead, a group of countries under the Joint Statement Initiative have started negotiations among themselves on e-commerce rules undermining and fracturing the multilateral track instituted under the WTO. Instead of focusing on how to deliver gains from growing global e-commerce to developing countries and building their digital capacities to increase their exports, as mandated by the DDA (Doha Development Agenda), some countries are negotiating digital rules under the Joint Statement Initiative on E-Commerce. Not only will these digital rules, if agreed, have high cost of compliance for the developing countries, they will severely restrict their digital policy space. More importantly, this plurilateral initiative is fracturing the multilateral process and diverting attention from the E-Commerce work program instituted within the WTO, said UNCTAD. The E-Commerce Work Program in the WTO needs to be reinvigorated by focusing on building awareness of the members on the development implications of growing global e-commerce and the ways of increasing the export competitiveness of their digital companies. The COVID-19 crisis has revealed the vulnerability created by the over-concentration of productive capacity in strategic health products in too few locations and too few corporations. Similar patterns are evident in other products and technologies, including those shaping the future such as “green technologies” and products and processes associated with the fourth industrial revolution. A key lesson is to reduce vulnerability with more inclusivity, solidarity and building regional resilience with greater diversification of production processes. The confluence of an economic, health and climate crisis offers the context to revive multilateralism in a way that reasserts the importance of these goals and recovers the deficit in trust that has hampered its effectiveness over recent decades. For this, both developed and developing countries will need adequate policy space in the existing trade and investment agreements tuned to their existing conditions. The preamble to the Marrakesh Agreement speaks of “ensuring full employment”, and the importance of “sustainable development” consistent with different levels of development. The report points out that it is time to reflect on why the world has not lived up to those ideals and revive their quest in the common interest. Trust is likely to be further eroded if there are initiatives which move away from multilateralism like the Joint Statement Initiatives. Doing so will have a further chilling effect on international cooperation more generally in support of global public goods and the global commons. The report concludes by proposing that the WTO reforms should aim at restoring the trust in the trading system with a commitment to special and differential treatment as a prerequisite for ensuring a fair outcome. Moving forward, concluding the Doha Round and delivering on the Doha Development Agenda in the WTO can help build this trust.
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