Climate change and trade policy: from legal complications to time factor

Author:Khalid Ahmed
Position:Wuhan University of Technology, Wuhan, China

Purpose – The purpose of this paper is to analyze the legal complications prevail towards the architecture of mutual policy design between trade and climate change regimes. The recent literature on this topic is mainly focused on commons and has significantly ignored the existing regulatory constraints between both the regimes. Therefore, in this study relevant WTO and environmental laws are critically examined in order to bring another side of literally work on trade-climate policy framework. Moreover, the time factor, role of developing countries and two approaches are also discussed that are important constituents to be considered during ongoing climate change... (see full summary)

1 Introduction

The economies of world have just crossed the financial crisis but growth sustainability is continuing because of globalization and being optimistic this growth will continue as long as international trading system is working at its best ( de Melo and Mathys, 2010 ). Meanwhile, the climate change issue is getting more attention due to its increasing adverse effects on human and earth. Consequently, the efforts of emission control and adaptability to climate change risks have gotten more momentum recently. There are continuous talks between the nations to not only address this issue but also to achieve the multilateral agreement. The increasing participation in climate change talks is a healthy development. The nations are recognizing the climate change threat and its future implications on society, geography and economy. This concern over the past developed a climate change circle that is putting quick efforts towards carbon emission. Recently that circle has shaped a effective climate change regime which is advocating and arranging the negotiations to cop this issue as soon as possible. Unfortunately, the consecutive failure of climate change talks has created panic in the climate change community ( Ismail, 2009 ; Dimitrov, 2010 ). Although the efforts have failed to produce remarkable joint outcome by not creating mutual consensus, but the growing concern regarding climate change impacts on human race amongst several nations is a success ( Stern, 2008 ; Bulkeley, 2010 ). The most worrying and challenging thing for world economies in upcoming years will be the clash between climate change and world trade communities over policy conflicts.

Over the past, the climate change regime has been pointing out trade liberalization as the biggest source of pollution and now for the failure of talks. The climate change community tends to believe that world trade policies create hurdles in domestic and national efforts to climate change. It has brought both the regimes face to face in recent talks and the sounds of the possible dispute may be observed in recent climate change (Copenhagen) and trade (Doha) negotiations. Despite all the facts, the climate change community must not forget the success of existing trade regime is an outcome of long journey spread over 60 years. It started in shape of General Agreement on Trade and Tariffs (GATT) in 1948. After passing through the vicissitudes of around half centaury, it succeeded to produce World Trade Organization (WTO) commenced on January 1, 1995 under the Marrakech Agreement, replacing GATT. On the contrary, the real work on climate change started after Earth Summit held in Rio de Jeneiro, 1992, which formally produce the treaty called United Nations Framework Convention on Climate Change (UNFCCC)1.

On the contrary, the unilateral and discriminated policy formulation by climate change agencies is seen with suspicion in trade communities. Because, the world trade regime believed that such policies may harm the world trading system. However, the recent literature ( Stern, 2007 ; Subramanian et al., 2009 ; Hufbauer and Kim, 2010a, b ; Messerlin, 2012 ) has produced much positive behavior to set joint policy outcome for mutual interests because the international trade and as well as climate change are important for socio-economic progress of the world ( Stern, 2007 ; Hufbauer and Kim, 2010a, b ). It is also largely believed that there is lot of commons in international trade and climate change ( Messerlin, 2012 ). Climate change must benefit from the world trade experience ( Subramanian et al., 2009 ). In these literatures, different policy options are discussed and assessed, and one of the strong arguments is to develop climate change policy on the pattern of international trade policy. For example, it is argued that while developing the climate change policy, the GATT Article I of most favored nations (MFN) and Article III national treatment (NT) should be considered. The recent literature on the relationship of trade climate regime is mainly focused on this perspective. Several other commons and positive aspects can be considered while mapping trade-climate policy. There is ample literature available ( Shackley and Wynne, 1995 ; Viguier, 2001 ; Böhringer et al., 2006 ; Pittel and Rübbelke, 2008 ; Hufbauer et al., 2009 ; Messerlin, 2012 ; Meltzer, 2012 ), where the strong hypotheses are being made to benefit the global climate change efforts on the world trade criterion. Hence, there are many reasons to buttress each other. However, the possibility of world trade vulnerability still cannot be excluded.

While discussing the climate change policy and efforts of running the climate change negotiations towards successful joint outcome, the role of developing countries is crucial. There are two key reasons for this statement. First, the developing countries are the growing stakeholders in carbon emission and there is no doubt that in near future the largest part of GHG emission will be from them ( The World Bank, 2008 ; Raupach et al., 2007 ). Second, they are the top beneficiary of international trade and most of the developing countries' economic growth is export oriented. Therefore, any policy towards the climate change issue will be useless without the participation of developing countries. Moreover, during recent global talks on climate change (Copenhagen, 2009; Bonn, 2010; Durban, 2011; Doha, 2012), there has been a strong resistance from developing countries regarding proposed climate change initiatives. Almost all developing countries hold similar reservations because they believe any regulation either multilateral of unilateral that compromise their growth is unacceptable. Another argument they pass-on for their stand is, all the developed countries of today have been polluting the global environment and the adverse effects of environmental change today are mainly the outcome of their past emissions ( Raupach et al., 2007 ; IEA, 2008 ; The World Bank, 2008 ). This notion further strengthens the demand of trade friendly climate policy and vice versa. However, to do so require patience, time, and deep considerations to patch-up legal bindings with mutual consensus.

This chapter enumerates legal complications between the regimes, how international trade has upper edge over climate change regime, and why developing countries are important and to be dealt with special treatment. We mentions particular environmental clauses and WTO articles which are in contrast. These legal hurdles must be resolved with mutual consensus and role of developing countries in that process. While considering the trade dimensions in creating the climate change treaty the climate change community has to show the temperament and follow the easygoing policy. They must be cautious of factors, which can harm the well working world trade regime. We have pointed out four issues, which are liable to be concerned.

First, the climate change policies give excuse to certain countries to protect their domestic industry, which violate the rules of WTO. It can produce severe concerns amongst the WTO member countries. Second, due to climate change policy the world trade policies would be more stringent, consequently it can emerge series of disputes amongst the member countries, which would be an additional challenge to WTO. Third, the GATT Article XX (general exception) and agreement on subsidies and countervailing measures (ASCM) is undefined under climate change issue as it would create more legal issues on the doorsteps of WTO. Fourth, the developing and least developed countries LDC's are the most affected through climate change policies, but there is no policy implication or road map to protect their sustainability.

2 Review of relevant WTO and climate change regulations

According to the current literature on climate change, it is believed that the foundation of climate change regime can be made on the prototype of world trade system. This part will define the relevant articles of WTO, general agreement on tariffs and trade (GATT), and WTO Appellate Body2 and GATT panel decisions3. These articles and decisions are expected to be used in potential climate change agreements and disputes.

2. 1 Pertinent GATT/WTO rules
2.1. 1 GATT Article I (MFN treatment)

The principle of MFN treatment in GATT Article I states that any advantage granted to an imported product has to be granted to a “like” product from any WTO member country. Article I covers customs duties and charges, import and export formalities, and respect to all matters related to the paragraphs 2 and 4 of Article III (NT measures). Note, however, that if a measure is covered by GATT Article III, but is not a violation of Article III because GATT Article III:8(b) permits the payment of subsidies exclusively to domestic producers, such a measure would not come within the discipline of GATT Article I:1.

2.1. 2...

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