Some policies countries employed to advance climate and related economic objectives have cross-border effects with the potential to raise equity-related concerns, particularly when they are viewed as disproportionately impacting developing countries. Such trade-related climate measures (TRCMs) include border carbon adjustments, green subsidies, and green product standards. Many of the equity-related concerns arising center on the degree to which a given policy takes into account or provides flexibility for different national circumstances, poses undue technical or cost burdens, or reflects meaningful consultations with affected countries.
This discussion paper seeks to inform discussion of equity-related considerations arising at the intersection of climate and trade by:
1. Neither the climate nor the trade regime defines equity (the former employs the term, while the latter does not). But both regimes include principles that are generally understood as addressing the needs and interests of historically disadvantaged developing countries by allowing them differentiated treatment under the provisions of the regime and/or promoting the provision of support to assist them in fulfilling their commitments.
2. A core principle of the 1992 UN Framework Convention on Climate Change (UNFCCC) is “common but different responsibilities and respective capabilities” (CBDRRC), reaffirmed in the 2015 Paris Agreement, with the addition “in the light of different national circumstances” (ILDNCs).1UN Framework Convention on Climate Change [hereinafter UNFCCC], “Paris Agreement,” Annex, Art. 14.19, December 12, 2015, T.I.A.S. No. 16-1104, https://unfccc.int/resource/docs/2015/cop21/eng/10a01.pdf. CBDRRC has figured into virtually all aspects of UNFCCC negotiations, with its form of application evolving through successive agreements.
3. The Convention differentiated commitments for climate action between countries by employing Annexes that categorized Parties as developed, developing, or in transition. In updating commitments and practices under the climate regime, the Paris Agreement retains the distinction between developed and developing countries but without reference to the Convention’s Annexes. The following are key examples of the way CBDRRC is reflected or operationalized across the Paris Agreement:
4. The preamble to the Marrakesh Agreement establishing the World Trade Organization (WTO) lays out a vision of trade liberalization that promotes sustainable development and protects the environment in a manner consistent with countries’ “respective needs and concerns at different levels of economic development.”6Marrakesh Agreement Establishing the World Trade Organization [hereinafter Marrakesh Agreement], April 15, 1994, 1867 U.N.T.S. 154, https://www.wto.org/english/docs_e/legal_e/downloads_e/WTO_en.pdf.
5. The trade regime is governed by the principle of non-discrimination, reflected in the “most favored nation” (MFN) and national treatment rules outlined in Articles I and III of the General Agreement on Tariffs and Trade (GATT).7General Agreement on Tariffs and Trade 1994 [hereinafter GATT], Apr. 15, 1994, Marrakesh Agreement, Annex 1A, 1867 U.N.T.S. 187, 33 I.L.M. 1153 (1994), https://www.wto.org/english/docs_e/legal_e/06-gatt.pdf. Generally, these rules bar discrimination in trade between countries and between like products.
6. The WTO’s Enabling Clause does, however, allow members to provide more favorable treatment to developing countries and LDCs than to other trading partners.8World Trade Organization [hereinafter WTO], Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (‘Enabling Clause’), Decision of 28 November 1979, L/4903, https://www.wto.org/english/docs_e/legal_e/enabling1979_e.htm. This special and differential treatment (SDT) must facilitate the trade of developing countries, not impede trade liberalization on an MFN basis, and be able to be modified as needed to respond positively to the needs of developing countries. SDT has been applied unilaterally, plurilaterally, and multilaterally.
7. Finally, of relevance in the climate context, GATT Article XX allows an exemption from GATT rules for policies protecting health or the environment provided “such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination…or a disguised restriction on international trade.”14GATT, Art. XX. (The UNFCCC likewise applies virtually identical language to “measures taken to combat climate change, including unilateral ones.”)15UNFCCC, Art. 3.5, May 9, 1992, S. Treaty Doc No. 102-38, 1771 U.N.T.S. 107, https://unfccc.int/resource/docs/convkp/conveng.pdf.
8. Climate–trade issues are arising in an array of multilateral, plurilateral, and bilateral contexts and will likely continue to unfold across all of them. As countries continue to develop and adapt green industrial and other climate-related policies, there will be opportunities to consider measures that can be built into or undertaken in concert with TRCMs to help address equity-related concerns. One important consideration is how such measures can be employed to strengthen overall incentives for collective decarbonization.
9.The following is a preliminary set of ideas for potential approaches to:
10. Both in their design and in their application, TRCMs can incorporate features allowing flexibility or differentiation to account for differences in national circumstances. Such flexibility could be on the basis of set criteria; the form of flexibility would vary across different types of TRCMs.
11. Flexibility could be provided on the basis of criteria such as:
Forms of Flexibility
12. Methods of providing flexibility could include:
13. Whether or not a TRCM provides flexibility based on national circumstance, an implementing country or group of countries could provide different types of support to help developing countries meet TRCM requirements and decarbonize their industries. Possibilities include:
14. Such approaches could in some cases be funded by a TRCM, for instance, by recycling revenue generated under a carbon border measure for these purposes.
15. These policy options are in line with the principles affirmed in the ICJ’s advisory opinion, which holds that states are obligated to cooperate to achieve emissions reductions and to provide financial and technical assistance and capacity-building measures in line with states’ relative capacities and needs.
16. Affording affected countries sufficient opportunity for input on the design or administration of a TRCM could help ease some equity-related concerns. Possibilities include:
17. As developing countries continue to develop green industrial policies of their own, they will be better positioned to comply with other countries’ TRCMs. However, they may hesitate to employ some policy levers that could risk retaliatory trade action if challenged under WTO rules. Such green industrial tools could include export bans and local-content, intellectual property licensing, and joint venture requirements. Agreeing on boundaries for the use of such tools could help address equity-related concerns while strengthening developing country decarbonization.
