TCS Daily

Storms on the Trade Horizon

By Roger Bate - July 18, 2003 12:00 AM

'Climate Change has always been the implicit driving force in the trade and environment debate. From the EU perspective, the economic imperative to achieve WTO cover for protectionist actions, which might be taken pursuant to the Climate Change Convention, has always been strong' says trade expert Jane Drake-Brockman.

Miss Drake-Brockman was speaking at the Commonwealth Business Council meeting in London last week and she is concerned that green protectionism will fatally derail a new trade round. As an Australian trade economist she is acutely aware that the entire trade and environment debate 'should never have been on the WTO agenda'. Her thesis is that businesses, predominantly but not entirely in Europe, are using the WTO to shift the heavy domestic costs of transition to 'environmental sustainability' onto actual and potential international competitors, through the use of trade measures.

This trade-environment process began in the late 1980s, and became a matter of close official scrutiny in the early 1990s. The UN and the OECD started paying attention as various GATT disputes began to unfold. The infamous US-Mexico tuna dispute launched interest that was further fueled by the signing of an environmental side agreement to the North American Free Trade Agreement, the ongoing implementation of trade restrictions pursuant to the Montreal Protocol, and the commencement of negotiations for the Climate Change and Biodiversity Conventions.

The trade policy community was aware that the unholy alliance of protectionists and grass roots environmentalists wanted to use trade restrictions for environmental purposes. Other commentators were concerned that the EU would use trade restrictions to promote an imperialist and extra territorial agenda. As Miss Drake-Brockman puts it: 'there was concern that the missionary zeal accompanying the quest for global environmental standards could entail considerable costs for national sovereignty especially for developing countries'.

But she also considers that there was the suspicion within the trade community of a European-led push, driven by climate politics, to undermine the autonomy of the GATT. The question the Europeans were asking was whether the multilateral trading system could, would or should get in the way of international negotiation of an effective enforcement procedure under the Framework Convention on Climate Change? Many in Europe thought that the GATT should serve that function.

To achieve this aim the Europeans (and a strongly motivated part of a smaller anti-trade American constituency) developed the idea that NGOs could help create better understanding of 'civil society' at the WTO. These NGOs often employing uncivil actions, reached their peak performance at the 1999 Seattle WTO Ministerial meeting, where they disrupted activities for over 24 hours. Their bad behavior did not cause the failure of the meeting to agree the start of a new trade round -- that was due to European intransigence on agriculture -- but the media mistakenly thought the activists had brought the world's capitalists to their knees.

NGOs have cajoled and the EU has pushed countries to agree to policies on greenhouse gas emissions. The Kyoto Protocol was critical in establishing the lines over which countries would oppose or rejoice at activist NGOs being brought into WTO negotiations. Japan, who had the moral duty as host to sign onto the climate agreement (coupled with its absurd rice subsidies), was the only Asian nation to be on the wrong side of this issue, and is more happy than any other Asian country to have NGOs 'helping' the process to greater sustainability.

Given the differing positions on Kyoto across the Atlantic, the EU, bolstered by activist support, has written language, so far unapproved, to have trade restrictions placed on countries non-compliant with the Protocol. The EU admits that 'trade measures might not always represent the best available option to address a global environmental problem but they represent undoubtedly one mean to reach the objective'. The EU argues that the relationship between WTO rules and trade measures in agreements like the Kyoto Protocol should be the result of negotiated 'political consensus' rather than left to the results imposed through dispute settlement.

So far the US has held firm and has not allowed such NGO-driven 'political consensus' to dominate WTO proceedings. In frustration the EU recently refused to allow US and Australian companies to play in the European carbon credits market. As Miss Drake-Brockman says: 'This action is nakedly designed as a big stick to encourage others, through ratifying the Kyoto Protocol, to share the economic burden of the shift to sustainability in Europe, hence protecting European firms' competitiveness. Arguably, as trade rules are currently written, the US and Australia could take the EU to WTO dispute settlement on this issue.'

There is little doubt that the US should complain to WTO about this EU action if for no other reason than it will maintain the rules based systems' main function, keeping 'political consensus' at bay for a little longer.

Dr Roger Bate is a fellow of the International Policy Network.

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