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Info Service on WTO and Trade Issues (Dec23/03) Geneva, 6 Dec (D. Ravi Kanth) — The World Trade Organization’s Director-General, Ms Ngozi Okonjo-Iweala, made a strong case for integrating trade into the complex commitments of the Paris Climate Change Agreement of 2015 based on the preamble of the Marrakesh Agreement, at the margins of the ongoing United Nations Climate Change Conference (COP28) in Dubai on 4 December. However, she remained somewhat silent on mentioning “carbon pricing” in her keynote address during the launch of “Trade Day” at COP28 on 4 December. A day before the launch of “Trade Day” at COP28, the DG wrote a joint article with the chiefs of the European Commission and the International Monetary Fund (IMF) in the Financial Times (FT) on 3 December, driving home a strong message that “a growing number of countries are looking to carbon pricing to achieve climate objectives while raising revenues.” Significantly, by penning that joint article in the FT, the DG seems to have breached paragraph 4 of Article VI of the Marrakesh Agreement in openly siding with one of the WTO’s members, i.e., the European Union, which is currently advancing the controversial unilateral carbon border adjustment mechanism based on carbon pricing, said people familiar with the development. 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.” While the DG reckons that it is important to cite the preamble of the Marrakesh Agreement in integrating the trade component into the nationally determined contributions (NDCs) of the Parties to the 2015 Paris Climate Change Agreement, she must also be aware that openly promoting “carbon pricing” with the head of the European Commission is an apparent breach of the same Marrakesh Agreement, said a member, which had opposed carbon pricing at the WTO. In the run-up to the Dubai meeting, several key members including the United States, Brazil, Paraguay, India, Australia, and the European Union criticized the menu of options proposed in the WTO Secretariat’s “Trade Policy Tools for Climate Action” initiative, as well as its funding by the private trade lobby, the International Chamber of Commerce (ICC), at a meeting of the WTO’s Committee on Trade and Environment last month (see SUNS #9910 dated 5 December 2023). “TRADE DAY” According to information posted by the WTO Secretariat on its website on 4 December, the WTO DG, along with the United Arab Emirates (UAE), the United Nations Conference on Trade and Development (UNCTAD), the International Chamber of Commerce (ICC), the World Economic Forum (WEF) and the Abu Dhabi Department of Economic Development (ADDED), spoke about the need to integrate trade into the climate change commitments. Under the headline, “DG Okonjo-Iweala: We need to use every weapon in our arsenal to fight the climate crisis,” the information note posted on the WTO’s website said that “the DG highlighted that the international community remains well short of the Paris Agreement targets.” She lamented that “the trillions of dollars of low-carbon investments needed to achieve those targets are now facing higher borrowing costs.” Against this background, the DG made a strong case for how trade can help deliver greater emission reductions for each dollar spent and re-purpose harmful subsidies to assist climate action. “The fact is, we cannot get to net zero without trade because it is indispensable for spreading low-carbon technology to everywhere it is needed,” she emphasized. She expressed her sharp concern over the apparent failure of the 2015 Paris Climate Change Agreement to integrate a strong trade component into its commitments. “Trade is about people, a tool for improving their lives and their livelihoods, and for promoting sustainable development as enshrined in the Marrakesh Agreement that set up the World Trade Organization,” the DG said. The preamble of the Marrakesh Agreement that established the WTO in 1995 begins by stating unambiguously that “the Parties to this Agreement” recognize that “their relations in the field of trade and economic endeavor should be conducted to raise standards of living, ensure full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development.” The two key aspects of this recognition are that parties to the Marrakesh Agreement work towards the goal of “the optimal use of world resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development.” Ms Okonjo-Iweala claimed at the launch of “Trade Day” that she is the first DG to highlight the role of trade in addressing climate change. She said the WTO has been working consistently over the past three years, starting with COP26 in Glasgow, Scotland, and COP27 in Sharm-el-Sheikh in Egypt, and now at COP28. At the launch of “Trade Day”, the DG referred to the menu of options contained in the “Trade Policy Tools for Climate Action”, which were presented at COP28 on 2 December. As previously reported in the SUNS, the ten options highlighted in the “Trade Policy Tools for Climate Action” include: (1) introducing trade facilitation measures to reduce greenhouse gas emissions associated with cumbersome border customs procedures; (2) deploying green government procurement policies; (3) using international standards to avoid fragmentation when upgrading energy efficiency regulations; (4) reviewing regulations and restrictions on providers of climate-related services to support climate mitigation and adaptation efforts; (5) re-balancing import tariffs to increase the uptake of low-carbon technologies; (6) reforming environmentally harmful subsidies to unlock additional resources for climate action; (7) facilitating and increasing trade finance to support the diffusion of climate-related technologies and equipment; (8) improving how food and agricultural markets function to support climate adaptation and mitigation by easing trade in food; (9) strengthening sanitary and phytosanitary systems to protect economies from the spread of disease, pests and other related risks heightened by climate change; and (10) improving the coordination of climate-related internal taxes, including carbon pricing and equivalent policies, to reduce policy fragmentation and compliance costs. The DG said: “We hope that you find it useful as we move towards dealing with this existential threat that is climate change.” In her address, she highlighted three issues, namely, reviewing and re-balancing import tariffs, rethinking government procurement, and facilitating trade, according to the information note. She said currently carbon-intensive goods often face lower import duties than low-carbon alternatives. The DG pointed out that, “Renewable energy equipment faces average tariffs that are twice as high as those for coal, and low-carbon vehicles often face higher tariffs than those for vehicles running with internal combustion engines. Correcting that would help increase the uptake of green technologies.” On government procurement, which is a closed plurilateral agreement at the WTO limited to the signatories to the agreement, the DG said that governments spend around US$13 trillion in public procurement every year, accounting for roughly 13% of global GDP and 15% of global greenhouse gas emissions. However, “by bringing climate sensitive criteria such as low-carbon requirements into public tenders, combined with open competition in line with the WTO Government Procurement Agreement, would also help ensure value for taxpayers’ money,” the DG said. In a similar vein, she said: “By implementing trade facilitation measures like those set out in the WTO Trade Facilitation Agreement, things like encouraging electronic documentation and streamlining inefficient customs procedures, countries can help reduce border control delays and related energy consumption. This has led to reductions of up to 85% of trade-related emissions at certain land border crossings that we’ve monitored.” “All these issues go to the heart of delivering a people-centred green transition, bringing down the cost of clean energy, decarbonizing supply chains, and creating new job and business opportunities in the emerging low- carbon economy,” the DG emphasized. The DG’s intervention was preceded by a statement from Dr Thani Al Zeyoudi, Minister of State for Foreign Trade of the UAE and Chair of the upcoming WTO’s 13th Ministerial Conference (MC13), to be held in Abu Dhabi in February 2024. The UAE minister emphasized the importance of embracing a new policy framework to address sustainability issues. He said his government aims at accelerating sustainable trade through a “carrot and stick” approach, diversifying the economy, and advanced technology adoption. Interestingly, the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), Dr Rebeca Grynspan, called for a multilateral approach to avoid the existing “spaghetti bowl” of climate and environment regulations that small and medium-sized enterprises (SMEs) and vulnerable countries cannot navigate. JOINT FT ARTICLE In contrast to the DG’s above comments that cite the preamble of the Marrakesh Agreement, the joint article written by the DG along with Ms Ursula von der Leyen, the European Commission President, and Ms Kristalina Georgieva, the managing director of the International Monetary Fund, in the Financial Times on 3 December, advances the need for global understanding on carbon pricing. The joint article talks about the changes brought about by the European Union’s emissions trading scheme (ETS) wherein companies are required to purchase tradable allowances to cover their emissions. It says that carbon pricing would work to cut emissions and provide incentives to shift to cleaner energy sources, “reduce overall energy use and invest in clean technology.” The authors argue that “emissions in sectors covered by the EU’s Emissions Trading System have declined by over 37 percent since 2005.” The three authors claimed that “momentum” in favour of carbon pricing “is growing”, as “experience shows that, once the first step is taken, countries can make steady progress.” At the WTO, the European Union’s unilateral Carbon Border Adjustment Mechanism based on its carbon pricing framework has raised huge opposition from almost all developing countries over the past several months. While the IMF chief may well be within her rights to associate with the European Commission president, the WTO’s DG, according to paragraph 4 of Article VI of the Marrakesh Agreement, is seemingly not permitted to openly identify with a scheme of one member, said people familiar with the development. In short, the joint FT article on carbon pricing in which the DG is a signatory seems like an open breach of the Marrakesh Agreement, said people, who asked not to be quoted. +
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