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Info Service on WTO and Trade Issues (Jun23/08) Washington DC, 9 Jun (D. Ravi Kanth) — Many developing countries apparently berated the European Union’s “Green Deal”, involving a number of allegedly unilateral trade initiatives being pursued by Brussels at the World Trade Organization, said people familiar with the development. At the just concluded EU’s 15th trade policy review (TPR) on 7 June, a large number of members emphasized that the EU’s trade-rlated environment and climate change measures “should not result in barriers to trade.” In his concluding remarks on the EU’s TPR on 7 June, the chair of the Trade Policy Review Body (TPRB), Ambassador Saqer Abdullah Almoqbel of Saudi Arabia, observed that “a large number of Members referred in their interventions to the EU’s environmental and climate policies, and those regarding digital transformation, which are cross-cutting across several WTO disciplines.” At the end of the EU’s trade policy review, the chair issued his conclusions in a restricted unofficial room document (RD/TPR/1567*), seen by the SUNS. The “mild” observations of the chair on the interventions made by many developing and some industrialized countries on the EU’s green agenda imply that there is growing concern over the apparently unilateral trade measures being pursued by Brussels, said several members, who asked not to be quoted. The TPRB chair said, “While members appreciated the broader goals of achieving climate goals and improving the environment, it was stressed that these initiatives should not result in barriers to trade.” According to the chair, “the European Green Deal, covering a number of trade initiatives, was mentioned in many interventions.” Ambassador Almoqbel said, “Members were particularly interested in and expressed some concerns regarding the Carbon Border Adjustment Mechanism (CBAM), green taxation, and green government procurement.” He said the members “emphasized that these initiatives should be carefully addressed bearing in mind their coherence with WTO rules.” One of the justifications provided by the EU for applying the CBAM is to minimize carbon leakage, said a developing country trade official. However, instead of regulating their own polluting industries and minimizing their incentives to shift their operations outside the region, the EU has penalized all developing country exporters, the official said. “A simple way to minimize carbon leakage from the EU could have been to apply a carbon tax on the EU firms wherever they operate,” the official said. Exporters of developing countries say that they have limited capacities in measuring the carbon footprints of the products they export to the EU, the official added. Consequently, they have to “accept the carbon tariffs applied by the EU, which are product-specific and are estimated by using the same models for all the countries.” Further, “many exportable products use a high value of imported inputs which are sourced from other developing and developed countries and which may not have the carbon footprints like the inputs produced within the developing countries,” the official said. How would an exporter from a developing country be able to measure the carbon footprints of these inputs which are used in final exports, the official asked. It is also important to note that there are no studies yet that estimate the cost of compliance of the CBAM for developing countries, the official said. In his conclusions, the TPRB chair said that Members further enquired about the Global Arrangement on Sustainable Steel and Aluminium between the United States and the EU. “Concerns were raised regarding the Foreign Subsidies Regulation,” the chair noted. In a similar vein, several leading South American farm producers (where vast tracts of rainforest are situated) expressed concern “with respect to the Deforestation-Free Commodities Regulation,” the chair said. These trade-related deforestation measures “could potentially have a negative impact on trade.” Further, he said, “members raised a number of other important issues and initiatives with an impact on trade including the Regulation of the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH); the Waste Shipment Regulation; the Anti-Coercion Instrument (ACI); the Revised Enforcement Regulation; the European Critical Raw Materials Act; the Cyber Resilience Act; the Net-Zero Industry Act; and the Temporary Crisis and Transition Framework.” On the EU’s digitization drive, according to the chair, “members were of the view that the adoption of the Digital Strategy along with the Digital Services Act and the Digital Market Act created opportunities but also challenges regarding their implementation.” US ISSUES “MIXED” STATEMENT In its intervention, the United States apparently sided with the EU’s trade policy over the past two years. The US looked forward to working “constructively with the EU to better understand the approach and impacts of climate and environmental policy on its trade policy.” Apparently, the US mentioned the different approaches to dispute settlement. Washington pointed to the EU’s close cooperation in finding solutions to a number of issues. It apparently expressed interest in continuing to work together across a range of issues, including the following: * improving adequate opportunities for stakeholders to offer meaningful comments on proposed regulations and decisions; * addressing concerns regarding the hazard-based approach to regulations; * resolving long-standing agricultural market access barriers; * addressing stakeholder feedback regarding the cyber security certification scheme for cloud services; * the exclusionary approach to standards-related measures including conformity assessment framework; and * ensuring uniform application of customs administration across EU member states. The US appears to have said that it looked forward to continued close partnership with the EU and its member states in reforming the WTO and it appreciated the EU leadership in the WTO, including the important but often overlooked technical work on WTO accessions and in the many Joint Statement Initiatives (JSIs) where it is involved. The two Trans-Atlantic trade partners seem determined to pursue their partnership on dispute settlement reform, and advancing the agenda of the WTO, including the consideration of the environment, climate change and state intervention in the global marketplace. CHINA VOICES CONCERNS OVER EU’S ANTI-COERCION POLICY China raised its sharp concerns over the EU’s anti-coercion policy, which in its view, opens another door for the EU to use unilateral actions, effectively constituting a potential coercion of other members and even companies. China also said it hopes that whether it is the CBAM or export controls or other initiatives, the specific measures adopted by the EU for the purpose of defending its own interests will not undermine the benefits of others, especially developing members. China urged the EU to avoid taking unilateral actions which completely run counter to the WTO’s rule-book. The Russian Federation reiterated that the EU has violated its transparency obligations within the WTO, as it decided to ignore advanced written questions by the Russian delegation — “evidently out of political pettiness,” said the Russian representative. DG’S EARLIER REMARKS ON CARBON MEASURE In a note sent to members on 21 March, as reported in the SUNS, the WTO DG, Ms Ngozi Okonjo-Iweala, informed them about the Secretariat’s work on the global carbon pricing framework. In the note sent to members, seen by the SUNS, it is suggested that the “rationale for developing the framework [on] Carbon policies are increasingly fragmented.” The note says that “at present, there are about 70 different carbon pricing schemes, including carbon border adjustment mechanism (acknowledging the EU’s CBAM)”. 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.” As previously reported in the SUNS on the CBAM, India had 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.” “A key question for consideration,” according to India, “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.” Meanwhile, the DG’s note sent to members says that “the introduction of such 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, “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 DG’s 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 tensions,” the note says, in sharp contrast to the arguments advanced against the WTO getting involved in trade-related climate change measures. The note states that its “model is consistent with the principles of the Paris climate agreement”, which, 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 agreement. The note says 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 WTO 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.” Writing in Project Syndicate, 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 their [commitment] 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.” TPRB CHAIR PRAISES EU’S OTHER MEASURES In his conclusions, the TPRB chair said the EU’s 15th TPR “has been conducted with the active participation of the European Union’s delegation, headed by Ms Sabine Weyand, Director-General, Directorate-General for Trade, European Commission on the first day and by H. E. Joao Aguiar Machado, Permanent Representative of the European Union to the WTO on the second day.” According to the chair, “members noted that the European Union continued to be one of the world’s main traders in goods and services, as well as the single largest investor abroad.” Given the maze of developments in the EU’s trade, investment, and related policies during the period under review, including those in reaction to challenges due to global developments and economic shocks, the chair observed that “the impact of EU policies on WTO Members’ trade was highlighted by numerous delegations as it is the top trading partner for a reported 53 economies around the world.” “Members commended the EU’s response to the pandemic, which was seen as promoting growth, diversification, and the sustainability of value chains,” the chair said. According to the TPRB chair, “there was strong appreciation for the European Union’s highly active role in the WTO and for its leadership role across a number of areas including WTO reform, dispute settlement and the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).” He said several developing countries and LDCs appreciated “the EU’s Everything but Arms (EBA) initiative, and its GSP and GSP+ schemes, which allowed favourable access to the EU market for their exports.” NON-TARIFF BARRIERS In another area of sharp concern over the EU’s standards and technical regulations and sanitary and phyto-sanitary measures (SPS), several members sought advance notice of proposed measures and opportunities for comments and further engagement in matters relating to conformity assessment, the European Standardization Strategy, and notification of standards related to environmental initiatives. The chair said that several members also raised concerns on the implementation of the EU’s SPS measures, particularly, the “change of maximum residue limits (MRLs) for pesticides was raised as a particular trade concern by numerous Members.” The farm-exporting countries also raised concerns on the EU’s high and complex tariffs as well as tariff rate quotas on agriculture imports. “It was noted that agricultural products continued to face relatively high and complex tariffs entering EU markets as well as tariff quotas.” The chair said some of the farm-exporting countries pressed the EU “to engage in reform of domestic support in the direction of greater market orientation and reduction of trade distortions.” “Other issues mentioned by Members included the Farm to Fork Strategy, the approval process for genetically engineered crops, and food security issues,” the chair said. The EU’s safeguard measures on steel had been in place for several years and their recent extension was of particular concern, the chair added. Apparently, members expressed concerns on the “implementation of the unitary patent system and the expansion of the number of products subject to Geographical Indication protection.” In short, the EU, which is the largest trading bloc in the WTO, seems to have suffered from “ignominy” on its growing barriers to trade in its 15th TPR at the WTO. +
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