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Blueprint for a green trade agenda

A series of papers published by the think tank Europe Jacques Delors puts forward proposals that aim to strengthen environmental protection within an open international trading system. Borderlex’s Iana Dreyer exchanged views with one of the papers’ co-authors Geneviève Pons.  

Geneviève Pons, Director General of Europe – Jacques Delors in Brussels: EU carbon border measure should not be about creating own EU financial resources or protecting industries, but only about tackling climate change.

“There is demand for greener policies at EU level. And trade policy should not escape this transformation,” Geneviève Pons said.

The vice president of Europe Jacques Delors believes that trade policy and environmental policy should – and can – work together.

“Trade policy is neither a panacea in the fight against global warming, nor a guarantor of environmental protection and biodiversity, it must nevertheless accompany domestic dynamics of ecological transition,” the authors write.

The authors’ proposals are mainly directed at the EU but they also include detailed proposals for the World Trade Organization to harness today’s environmental challenges.

Carbon border adjustment – follow a WTO Code of Conduct

The von der Leyen Commission’s flagship trade and environment measure is expected to be a carbon border adjustment mechanism. The EU is considering several options in this regard, including a border tax, customs duties and/or the inclusion of non-EU firms in the EU’s existing Emissions Trading Scheme.

Lamy, Leturcq and Pons believe that the EU’s CBM should be fully WTO-compatible. Their preferred solution is the extension of the ETS to non-EU companies. The EU should start by a pilot scheme in certain high-CO2 emitting industries electricity and cement. If this works well, the scheme could be expanded.

Whatever measure the EU will choose, Geneviève Pons insisted that the objective “should really be an environmental objective and should be more specifically to avoid carbon leakage.”

“The main objective should not be to create new [EU own] resources. Also, we should not put the emphasis on safeguarding competitiveness of our industries, but rather on avoiding carbon leakage. We are trying to tackle a planet-wide challenge,” said Pons.

“Something that needs to be avoided is the perpetuation of free allowances [under the ETS]. They have proven totally inefficient.” In carbon-intensive sectors that have enjoyed free CO2 emissions allowances there has been “no evolution at all” in carbon intensity”.

“If the idea is to compensate for the burden for a higher CO2 price “you can only compensate once. You cannot compensate twice,” Pons said.

The EU should not act alone here and reach out the WTO. The global trade institution Geneva should work to establish a ‘code of conduct’ on border carbon adjustment measures – at least among a subset of members, the authors suggest.

“The proposal could be initiated without delay within the WTO framework and executed by the EU and other members that have already introduced a CO2 pricing system”, such as Canada or New Zealand, the paper’s authors believe.

“This initiative would also promote the idea of establishing an independent evaluation agency.”

WTO reform – help poor countries adjust

Pascal Lamy, former WTO director-general and co-author of the Europe Jacques Delors series of papers on trade and the environment. Credit: WTO.

Some of the authors’ proposals are echoed in two environment and trade initiatives initiated in Geneva in November 2020.

One strand of action the authors envisage is improving compliance with environmental treaties that aim to preserve wildlife and biodiversity such as CITES, the Cartagena Protocol on Biosafety or the Basel Convention on hazardous waste – which all restrict the trade in endangered species or hazardous products.

“The lack of efficiency plaguing multilateral environmental agreements is not characterised by the willingness of some signatory members to shirk their obligations under the provisions of these agreements,” the authors reckon.

The problem is “persistence of illegal and underground phenomena against which members with the least developed economies have little to no means of combating.”

“One possible solution (…) could be to direct development aid towards the capacity building objectives of recipient states. This could involve opening a specific chapter in the work programme of the WTO’s ‘Aid for Trade’ initiative,” Lamy, Pons and Leturcq suggest.

WTO members should also seek “intensified dialogue between the WTO and MEA governance bodies.”

Consolidate WTO case law

There is even more that can be done at the WTO.

The authors do not recommend renegotiating the current treaties. Instead WTO members could consolidate the body’s dispute settlement jurisprudence, which has overall proven to be permissive of member governments environmental measures.

There could be a ‘ministerial declaration’ and an ‘authoritative interpretation’ of the GATT’s Article XX on general exceptions to this end.

Other measures the members could take is to increase transparency of environmental trade measures in the WTO’s trade and environmental committee and have the Trade Policy Reviews of WTO members include a chapter on this issue.

Environment in EU trade agreements

Co author Pierre Leturcq. Credit: Europe Jacques Delors.

The authors further dwell on the EU’s unilateral trade policies such as the General System of Preferences and its bilateral trade agreements.

Pons and her co-authors support the notion brought forward by France and the Netherlands to make compliance with the Paris Agreement on climate change an ‘essential element’ in the EU’s international treaties.

Asked if this is not too much of a ‘nuclear’ solution that would potentially never apply, Pons said: “This is a process. With the threat of this measure you can make progress in the mutual understanding of the situation and  hopefully in the solving of the problems. It can be like a nuclear weapon used as a deterrent”.

There can be fixes in future trade agreements, the authors reckon – such as turning around a burden of proof in labour and environment disputes in bilateral dispute panels. At the moment EU texts tie such obligations to a link to trade. The authors suggest obliging not the complainant, but the respondent to prove there is no link to trade.

The authors further support the idea of reducing tariffs in bilateral trade agreements to products made according to specified environmental norms – a proposal that is also winding its way in Brussels at the moment.

EU-Mercosur in all this

The first victim of the new approach to trade and environment could be the EU Mercosur trade agreement concluded in 2019.

“We know that in the present situation, there is not possibility for the EU-Mercosur agreement to be ratified. It will not happen. Public opinion does not want it,” said Ms Pons.

Is there a way out?

“I see two possibilities: either renegotiation to make the sustainable development provisions more enforceable. Or that Brazil’s president Jair Bolsonaro stops deforesting and that we have sufficient evidence that deforestation has stopped. We have unfortunately sufficient evidence that deforestation is accelerating [under his administration]”.

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