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TWN
Info Service on WTO and Trade Issues (Nov22/13) Geneva, 24 Nov (D. Ravi Kanth) — More than a dozen countries, including Indonesia, Malaysia, and Thailand, have severely criticized the European Union’s “deforestation and forest degradation and repealing regulation” at the World Trade Organization, accusing the EU for allegedly adopting “inherently punitive” protectionist measures against developing countries in agriculture, said people, who asked not to be quoted. At a regular meeting of the WTO’s Committee on Agriculture (CoA) on 22 November, Indonesia, on behalf of 14 countries including Brazil, Malaysia, Argentina, Paraguay, Ecuador, Indonesia, Thailand, Guatemala, Nigeria, Colombia, and Cote d’Ivoire, conveyed in unmistakable terms that the EU’s proposed deforestation regulation constituted a new wave of protectionist measures against developing countries, which have more than 50 percent of the world’s forest coverage. Indonesia severely criticized the EU’s new regulation, calling it “inherently punitive” and “unfair” to developing countries. Furthermore, the co-sponsors of a letter sent to the EU Parliament argued that the deforestation regulation, in its current form, constituted a de facto import restriction and protectionism. LETTER TO EU PARLIAMENT On 27 July, several members of the above group of countries had sent a strongly-worded letter to the President of the EU Parliament as well as senior officials of the European Union such as Ms. Ursula von der Leyen, the President of the European Commission, expressing serious concern over the “Proposal for a regulation on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No. 995/2010”. The signatories of the letter sent to the EU hierarchy include Brazil, Colombia, Ghana, Guatemala, Indonesia, Cote d’Ivoire, Nigeria, Paraguay, Peru, Honduras, Malaysia, Ecuador, and Bolivia. Agreeing that “the fight against climate change and the conservation and sustainable management of forests are urgent tasks,” the signatories regretted that “the EU has chosen the option towards unilateral legislation instead of an international engagement to deal with these shared objectives, reflected in the Paris Agreement (on climate change) and the (United Nations) SDGs (Sustainable Development Goals), to which we have all subscribed.” The signatories asked the EU to consult with third countries, “particularly developing producing countries before the final approval of the proposed legislation.” EU’S HISTORICAL ROLE IN DEFORESTATION & CLIMATE CHANGE The proposed EU regulation, the signatories contended, “disregards local conditions and natural legislation of developing producing countries, their efforts to fight deforestation, and recalling the principle of common but differentiated responsibilities, also the EU Member States’ own historical role in deforestation and climate change.” Without getting into a substantive discussion, the signatories raised several important points/aspects concerning the EU regulation, including the following: * The country-assessment criteria and benchmarking system are inherently discriminatory and punitive in nature. Such criteria will most likely generate “trade distortion and diplomatic tensions, without benefits to the environment.” * The proposed regulation “imposes additional controls, entails reputational risks for companies and is likely to penalize producers in developing countries, especially smallholder farmers and SMEs (small and medium enterprises).” * The underlying approach in the EU’s proposed regulation includes several controversial elements. They include the “uncertain and discriminatory nature of the scope of products; definitions that are not mutually agreed; retroactive cut-off date; burdensome due diligence mechanism and subjective risk assessment criteria; costly and impractical traceability and geo-localization requirements; and insufficiently unilaterally defined transition period, which could increase costs and have negative social and economic consequences for developing countries.” The signatories said that “trade restrictions or the threat thereof cannot be a preferential means to achieve environmental ends.” They cautioned the EU that “trade restrictions are inadequate to address environmental concerns and will only lead to a downward spiral of trade distortion, reduced trade opportunities, and increased impoverishment, with limited if not negative effects for the conservation of forests.” More importantly, the signatories emphasized that “as developing producing countries deeply engaged in building the environmental international order and the multilateral trading system, we strongly believe that free trade helps rather than hinders the promotion of sustainable development goals.” The proposed EU regulation “poses a significant challenge to fundamental WTO rules and should be brought by the EU into compliance with the multilateral trading system,” the signatories warned. US & OTHER DEVELOPED COUNTRIES REMAIN SILENT The fight over the EU’s deforestation regulation seems to be taking place along North-South lines. At the CoA meeting on 22 November, the US and several other industrialized countries apparently remained silent during the discussion on the EU’s proposed deforestation regulation. It could well be the case that the US and other developed countries may be considering a EU-type of regulation, said a participant, who asked not to be quoted. In its response at the meeting, the EU said it had created a Euro 1 billion fund to help trade partners respond to the new regulation. Brussels maintained that it is taking all supportive measures to protect, restore and manage forestation. SIMILARITIES BETWEEN DEFORESTATION REGULATION & CBAM The EU’s proposed deforestation regulation appears somewhat akin to its Carbon Border Adjustment Mechanism (CBAM) based on carbon pricing on imports of specific products from developing countries. As part of the EU’s proposal on the Trade and Environmental Sustainability Structured Discussions (TESSD) at the WTO, attempts are already underway to introduce the EU’s controversial CBAM to penalize exports from developing countries ostensibly on grounds that the carbon content in their products are much higher than the same products produced in the EU-member countries. The EU has justified its proposed regulation establishing the CBAM on grounds that it would “incentivize the EU’s trading partners to decarbonize their industries, as to no matter where you pollute, you will now have to pay for it, if you want to export to the European market.” More disturbingly, the EU’s CBAM requires developing countries to charge polluters at the level of the EU’s carbon price. Effectively, the EU’s CBAM regulation needs polluters in China, India, and other developing countries to pay charges according to the EU’s carbon price. It aims to prevent carbon leakage, the EU claimed. Recently, the WTO director-general, Ms Ngozi Okonjo-Iweala, has backed the approach based on carbon-pricing measures. The DG’s campaign for adopting carbon pricing appears to be an attempt directed at bolstering the EU’s plan on CBAM at the WTO, said a person, who asked not to be quoted. As reported in SUNS #9684 dated 8 November 2022, the DG said that she wants trade to be included in the nationally determined contributions (NDCs) of Parties under the Paris Agreement on climate change, suggesting that the “trade and investment facilitation pathway” is “part of the solution for achieving a low-carbon, resilient, and just transition”. At a press conference on 7 November in Sharm-el-Sheikh, Egypt, where the Conference of Parties to the United Nations Framework Convention on Climate Change (UNFCCC) held its 27th meeting (COP 27), the DG made several allegedly controversial remarks while releasing the WTO’s World Trade Report 2022. She claimed that the flagship report issued by the WTO at the same time as COP 27 suggests how trade can be harnessed as a force multiplier to address climate change issues. She said the WTO is soon coming up with a report on the carbon pricing mechanism. The DG’s announcement at COP 27 that the WTO would soon come out with a blueprint for a global carbon pricing mechanism has also come as a surprise to several countries, said a person, who is aware of the DG’s announcement. The DG’s announcement seems to cement the EU’s CBAM, which was discussed at a recent meeting of the Committee on Trade and Environment (CTE). That the CBAM could adversely affect the production methods of developing countries in sectors such as steel, iron, cement, fertilizer, aluminum, and electricity, is well established. These sectors in developing countries could be forced to purchase CBAM certificates to cover direct carbon emissions embedded in certain products imported into the EU, especially in the above-mentioned sectors. A second phase by the EU is anticipated to cover indirect emissions. A proposal by the UN Conference on Trade and Development (UNCTAD) on a “positive” Trade and Environment Agenda seeks to promote “patent-free green technology transfers; providing additional finance for promoting trade of environmentally sustainable products e.g., through the Trade and Environment Fund; building technical capacities, especially of least developed countries (LDCs) and small island developing States (SIDS), in setting up climate-smart infrastructure; providing incentives like zero tariff regime for plastic substitutes; and ensuring adequate policy and fiscal space for developing countries for designing their trade policies seeking environmental goals.” At the meeting of the WTO’s Committee on Agriculture on 22 November, the WTO Secretariat made a power- point presentation for simplifying transparency requirements. Apparently, many members concurred with the Secretariat’s presentation and it is expected that a formal proposal will be made soon. Under the Nairobi MC10 decision on subsidies, only the least-developed countries (LDCs) and net food-importing developing countries (NFIDCs) are allowed the right to provide export subsidies till 2030. For the rest of the membership, export subsidies are to be terminated next year. +
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