Addressing Climate Change: A WTO Exception to Incorporate Climate Clubs

Despite diverse efforts in the past two decades, countries have not been able to create an international climate change regime that effectively addresses the challenges at stake. Meanwhile, the Arctic Ocean keeps melting, an area the size of Costa Rica is lost to deforestation every year, and low-lying islands could disappear by 2050 due to a rise in sea level. There are several other huge challenges posed by climate change, which urgently call for serious international action.

While a multilateral environmental agreement would be so much desired, year-by-year the realisation that a broad agreement on this matter is not likely to be achieved becomes more apparent. The United Nations Framework Convention for Climate Change (UNFCCC) multilateral conferences are gradually wearing off and the December meeting in Paris might just turn into a wake-up call to look for alternative approaches. If this is the case, countries should not let the best be the enemy of the good and should be ready to take recourse to a practical plan B. For a challenge of this size, we should build on previous experiences, such as the evolution of the multilateral trading system. This regime is perhaps the world’s greatest achievement in terms of human organisation and has proven to be successful in many ways. Yet, it was not built through a single understanding, but over time by small and constant agreements among a limited number of countries, who round-by-round created a legitimate international institution.

As opposed to the General Agreement on Tariffs and Trade, fortunately, this time we are not realising the need to address an issue after a catastrophe, such as a world war. Climate change is already causing havoc and governments and institutions should not wait for a major environmental accident to occur before addressing it. Due to the strong linkage between trade and environmental measures, the multilateral trading system and the World Trade Organization (WTO) could and should become a relevant tool to advance on this matter.

A general and permanent exception to the most-favored nation (MFN) principle under the WTO that permits trade benefits under climate clubs might be a policy option worth exploring by Members. This exception could constitute an incentives-based system that serves as a first step for countries to address climate change. Moreover, it could represent a practical approach, since it is unlikely that the several initiatives proposed are going to be explored or negotiated at once.

Exceptions in the WTO regime, such as GATT Article XXIV and the Enabling Clause, could be a model to design a climate club exception in the WTO. Both constitute an acknowledgment from WTO Members of the necessity to address other legitimate objectives within the organisation while departing from certain established principles. Further, each establishes specific criteria that justify the deviation from WTO obligations, including MFN treatment. However, the history of such exceptions show that they have come only after a momentum was achieved and through the combination of many pressing issues.

The need to address climate change is widely recognised. Nevertheless, a lack of incentives to make countries commit on this matter is evident. A window of opportunity could be sought within current WTO negotiations, mainly due to an impasse in the organisation. By addressing climate change and completing a negotiation that helps to overcome such an impasse, the negotiation of a WTO exception to climate clubs could thus accomplish two goals.

While the negotiation occurs, a perhaps more feasible and complementary alternative in the short term to tackle the stalemate is trading partners negotiating climate change binding commitments within their existing or future free trade agreements or custom unions negotiated under GATT Article XXIV. Through their disciplines, such as market access, subsidies, antidumping, technical standards, government procurement, and services, important contributions could be made to the climate change agenda. The more “mega” the resulting agreements in terms of ambition and inclusion of countries, the more “mega” their contribution will be to the world’s cause.

Tag: Clean Energy Technologies, Climate Change, General Agreement on Tariffs and Trade, General Agreement on Trade in Services, Mega-regionals, Policy Space, Regional Trade Agreements, Regional/Bilateral/Plurilateral, United Nations Framework Convention on Climate Change