‘Climate Waiver’ Needed to Avoid ‘Collision’ with Global Trade Rules

A looming “collision” between the “rules frameworks” of global trade and the international community’s emerging climate response means nations need to embed a “climate waiver” on the trade side of the house, the Waterloo, Ontario-based Centre for International Governance Innovation (CIGI) writes in a new white paper.

“Links between trade and climate change can no longer be ignored by either the World Trade Organization (WTO) or the Conference of the Parties (COP) of the United Nations Framework Convention on Climate Change (UNFCCC),” CIGI asserts.

Neither regime “has considered the consequences of the trade restrictions that are likely to be part of many national measures enacted to address climate change, which will fall within the scope of the WTO Agreement.”

The paper examines at length how policies responding to climate change—such as border carbon adjustments—could fall afoul of commitments first framed when environmentalism was still decades into the future, intended mainly to support fair and transparent trade relations.

Border adjustments, for example could violate both national treatment commitments—which forbid WTO members from imposing a tax on foreign companies that it does not place on its own—and a long-standing ban on discriminating among different production processes.

Furthermore, if the 164 countries that are parties to both Paris and the WTO Agreement don’t clarify what climate measures are acceptable under WTO rules before the two regimes come into conflict, the inevitable disputes will be settled in the only arena available: WTO-sanctioned trade tribunals. This will in part be faute de mieux: Paris provides no parallel binding dispute settlement mechanism.

International trade agreements have provided exemptions for national measures taken to protect public health and security since their inception in the wake of the Second World War. More recent agreements like the Canada-Europe Comprehensive Economic and Trade Agreement (CETA), have amplified those.

But when future climate measures appear to conflict with core trade regime values, CIGI’s James Bacchus writes, trade tribunals will make their judgments based on antecedents drawn entirely from trade jurisprudence, in which arguments for climate security have no standing.

“To help avoid the prolonged political pain and the largely unforeseeable outcome of (resorting to) WTO dispute settlement over a national carbon adjustment measure or, if not that, at least help shape the outcome of dispute settlement by providing WTO judges with some much-needed guidance on how they should clarify the legal line between climate action and trade obligation, the members of the WTO should adopt a carefully-crafted and clearly-delineated WTO climate waiver,” Bacchus urges.

To get there, several steps are required.

First, Bacchus says, “WTO members must be persuaded that a multilateral effort to frame a climate waiver is far better for the world trading system than waiting for the approaching legal collision that may topple it.” Then “the separate silos of trade and climate change must be united by bringing together the negotiators on both topics to discuss the nexus between the two.”

As such a waiver takes shape, “the topic of the relationship between trade and climate change must be placed on the WTO agenda (and) a group of members must request a collective waiver of the Multilateral Trade Agreements due to the ‘exceptional circumstances’ created by climate change.”

The WTO would then assign a working group to draft waiver language that members of the WTO would vote on.

“The links between trade and climate change cannot be ignored much longer by either the climate or the trade regimes,” CIGI’s paper emphasizes, since current global economic and political circumstances are hurtling toward a legal showdown between the two frameworks for global governance.”