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Info Service on Climate Change (Mar23/06) Geneva, 22 Mar (D. Ravi Kanth) — The World Trade Organization’s Director-General Ms Ngozi Okonjo-Iweala on 21 March sent a proposal to members concerning a global carbon pricing framework under development by the Secretariat, a proposal that could legitimize unilateral carbon tariffs in global trade, said people, who asked not to be quoted. Without formal approval from members as required under the WTO’s mandate, the DG is embarking on an exercise that could help the powerful industrialized countries, particularly the European Union and the United States, said several trade envoys, who asked not to be identified. The DG also mooted another proposal for the establishment of Business and Civil Society Advisory Groups, said members, who asked not to be identified. While the first proposal could legitimize unilateral carbon tariffs in global trade, the second proposal could create new avenues for the international business lobbies to influence the decision-making process in a member-driven and rules-based organization, said some trade envoys, who preferred not to be quoted. Two powerful members – the European Union and the United States – are at varying stages of imposing carbon tariffs. The EU’s move to impose carbon tariffs based on its unilateral carbon border tax arrangement will come into effect in October. Members from both sides of the aisle in the US Senate are toying with different proposals on carbon tariffs. Against this backdrop, the DG’s note sent to members on global carbon pricing by the Secretariat appears to be in line with the recent pronouncements made by Ms Okonjo-Iweala. At a workshop on “Decarbonization Standards: Promoting transparency and coherence in the iron and steel sector” on 6 March, the DG emphasized the problem of fragmentation of the regulatory standards for decarbonization. She suggested at that forum that there are 70 approaches, adding that developing countries are apparently not working on the issue of carbon pricing. She pointed out that when carbon tariffs come into play, the developing countries are likely to be hit with a “ton of bricks”. In the note sent to members, and seen by the SUNS, it is suggested that the “rationale for developing the framework [is that] carbon policies are increasingly fragmented.” The note says that “at present, there are about 70 different carbon pricing schemes, including a carbon border adjustment mechanism (acknowledging the EU’s Carbon Border Adjustment Mechanism).” The note says that “developing country Members of the WTO have expressed concern about the policy fragmentation and the lack of inclusiveness of these disparate policies, fearing protectionist and other adverse effects on their trade, and have raised these concerns in WTO committees, such as the Committees on Trade and Environment and on Market Access.” It is not clear which developing countries raised these concerns about policy fragmentation. Perhaps, the DG’s note may be referring to a proposal tabled by India on 10 February in which it argued that the WTO has no mandate on issues that are dealt with in multilateral environment agreements like the Paris Climate Change Agreement of 2015. India said that “carbon border measures that are being considered for imposition on imported products effectively amount to prioritizing a singular policy of the importing country over those of exporting countries and will amount to imposing a unilateral vision of how to combat climate change.” New Delhi said that “a country which may be fully compliant with its NDCs (nationally determined contributions) under the UNFCCC (United Nations Framework Convention on Climate Change), has to either match the importing country’s emission reduction obligations, or pay a cost/price for trade.” India said that “this upends the value of any multilaterally negotiated outcomes under Multilateral Environment Agreements (MEAs) such as the UNFCCC. Not only will such measures undermine the multilaterally agreed mandate of NDCs of the country of export, but also create distinct preferential treatment for domestic over imported goods.” It argued that “carbon border measures are being selectively applied to “trade-exposed industries” such as steel, aluminium, chemicals, plastics, polymers, and fertilizers, and this reflects the underlying competitiveness concerns driving such measures.” According to India, “the more fundamental issue is that these measures are effectively nullifying the tightly negotiated balance of rights and obligations under the MEAs, or the principle of special and differential treatment to developing countries under the WTO agreement have not been addressed.” According to India, “A key question for consideration, therefore, is the motivation for such measures, since these seem to be primarily aimed at levelling the playing field for domestic producers of countries that, as a result of their climate change commitments under the UNFCCC, have to necessarily undertake higher emission reduction norms. This clearly suggests that the measure is a protectionist one, and not one that can achieve any greening of the economy.” THE DG’S NOTE The DG’s note sent to members says that “the introduction of such [carbon] policies could lead to increasing trade tensions, trade disputes and a raft of countervailing measures, thereby creating a situation of further escalating trade restrictions and associated welfare losses.” Further, the note says that “the multiplicity of carbon taxing/pricing policies is a source of uncertainty and higher compliance costs for industry, which could possibly discourage investment.” Moreover, according to the note, “the carbon prices emerging from these uncoordinated efforts vary significantly.” “In order to mitigate these risks of policy fragmentation and associated trade tensions, some coordination of carbon policies would be helpful.” “The framework under development by the Secretariat is an objective technical effort to contribute to this domain of policy research, recognising that the WTO and trade need to be part of the solution to these critical issues that are at the intersection between trade and climate change.” The note maintains that such an instrument “will assist all Members, especially Developing and Least Developed Countries without the capacity to create and/or enforce their own carbon policies.” “It provides a common instrument through which all Members can objectively manage their commitments to the Paris climate agreement, to which they have signed, in a manner that avoids creating new trade tension,” the note claims, in sharp contrast to arguments advanced against the WTO getting involved in trade-related climate change measures. The Secretariat note states that its “model is consistent with the principles of the Paris climate agreement” which however, according to some developing countries, the WTO’s model is not because there is no specific role assigned to the WTO in the Paris Climate Change Agreement. The WTO Secretariat note touts that “other international organizations with whom we are coordinating (IMF, IEA, OECD) are also working on approaches to address these issues, in response to the emerging fragmentation in policies.” However, members have not given any mandate to the Secretariat or the DG to prepare the carbon pricing instrument, said several trade envoys, who asked not to be quoted. The note says that “the central role of equivalence” is to “recognize that different countries may prefer different approaches to achieving the necessary emission reductions, be it by imposing an explicit carbon price, or by regulations or subsidies.” It says that the “(Secretariat’s) framework provides flexibility in the choice of policy instruments and does not seek to impose any particular approach on countries.” The note asserts that “it is an instrument whose adoption is purely voluntary,” suggesting that “countries can simply realize their emission reductions equivalent to the reductions implied by the carbon price level according to the framework.” Meanwhile, writing in Project Syndicate, Ms Jayati Ghosh, an economist and member of the United Nations Secretary-General’s High-Level Advisory Board on Effective Multilateralism, argued that “amid the growing enthusiasm for carbon border taxes, Western policy makers have largely ignored the negative impact on the world’s poorest countries.” She writes that “for carbon-pricing policies to succeed, developed countries must show [that they are] committed to a shared prosperity by enabling knowledge-sharing and fostering equitable climate finance.” In sharp contrast to the DG’s exhortations on carbon pricing, Ms Ghosh argues that “while global leaders and experts – most of them from rich countries – increasingly embrace the idea of putting the “right price” on carbon, the concept remains vague and ill-defined.” “Worse,” she says, “its growing acceptance and increasingly protectionist bent may have the perverse effect of impeding efforts to decarbonize the global economy.” According to Ms Ghosh, “the two most commonly discussed forms of carbon pricing – cap-and-trade schemes and carbon taxes – are based on the carbon intensity of production.” While a cap-and-trade-system is designed “to limit greenhouse-gas emissions by dividing the total target amount into allowances that can be traded among high and low emitters,” she says that “this supposedly establishes a market price for carbon dioxide emissions, [but] it does not consider their negative social and environmental externalities.” “A carbon tax, by contrast, sets a price on carbon by taxing emissions-heavy activities,” Ghosh argued, suggesting that “these two models reflect a very narrow (and possibly even distorted) view of how carbon should be priced into the economic system.” She says a 2017 report by the High-Level Commission on Carbon Prices, chaired by Nobel Laureate Joseph E Stiglitz and Nicholas Stern, provided a much more nuanced analysis. Ms Ghosh says that “in addition to cap-and-trade and carbon taxes, the report recommended reducing or eliminating fossil-fuel subsidies and creating new financial incentives for low-carbon projects; offsetting the negative distributional impact of carbon pricing by using the proceeds to finance policies to protect poor and vulnerable populations; and complementary policies, such as investment in public transport and renewable power.” Perhaps most important, the authors noted, countries must be able to choose instruments that fit their specific circumstances, resources, and needs, Ms Ghosh pointed out. DG’S SECOND PROPOSAL In the second note sent to members “on establishment of Business and Civil Society Advisory Groups”, the DG says that “these Groups will provide me and the Secretariat a valuable platform to listen to leading voices around the world on crucial international trade issues.” Instead of negotiating on proposals made by members in a member-driven and rules-based organization, the DG seems to be according a higher role for the business lobbies and civil society groups that could undermine the negotiating processes, said a trade envoy, who asked not to be identified. Ms Okonjo-Iweala said that she engaged with the business community and civil society, adding that “I have witnessed a strong desire from these sectors to share their inputs and perspectives on how people and business are affected by developments in international trade.” The DG says that “the Secretariat engages with business representatives and civil society members on a regular basis,” insisting that “these advisory groups are part of our broader efforts to deepen our engagement with key stakeholders.” After citing past practices and initiatives by some of her predecessors which played an “instrumental role”, she argues that “the Business and Civil Society Advisory Groups will provide an informal platform for leaders of SMEs (small and medium enterprises) and larger companies, and some of their associations, and civil society organizations from around the world to share their inputs on relevant trade-related issues.” She sought to justify the “Advisory Groups” on grounds that they “will facilitate mutual understanding and bring us perspectives and concerns of businesses and ordinary people, with a special focus on youth around the world.” The selection of the members of the Advisory Groups will be done “in line with our commitment to ensuring geographical and sectoral diversity, as well as gender balance.” She says that “the Business and Civil Society Advisory Groups will each meet at least twice a year, either virtually or in person, and preferably ahead of major WTO meetings.” “I will chair both advisory bodies and may call additional meetings or seek the expertise of individual group members,” she says, suggesting that “the Information and External Relations Division of the WTO Secretariat will organize and coordinate the operation and meetings of the Groups.” Ms Okonjo-Iweala expressed confidence that “the establishment of these Advisory Groups will provide a valuable contribution to our work and enhance our engagement with key stakeholders.” The DG’s move to establish the “Advisory Groups” could constitute a violation of paragraph 4 of Article VI of the Marrakesh Agreement. Paragraph 4 of Article VI of the Marrakesh Agreement states: “The responsibilities of the Director-General and of the staff of the Secretariat shall be exclusively international in character. In the discharge of their duties, the Director-General and the staff of the Secretariat shall not seek or accept instructions from any government or any other authority external to the WTO. They shall refrain from any action which might adversely reflect on their position as international officials. The Members of the WTO shall respect the international character of the responsibilities of the Director-General and of the staff of the Secretariat and shall not seek to influence them in the discharge of their duties.” +
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