Climate & Trade
Pascal Lamy: Simon Reisman Lecture
Ottawa The following is the Simon Reisman Lecture by Pascal Lamy, director-general of the World Trade Organization. The title is Climate First, Trade Second: GATTzilla is Long Gone. The talk was delivered to a packed house at Carlton University on November 2, 2009.
Ladies and gentlemen:
In 2007, I attended the Trade Ministers’ meeting in Bali on the relationship between trade and climate change. In Bali, I sent a simple message: climate first, and trade second. And that message still stands today. It was, and continues to be, a message that is designed to uphold the Copenhagen Climate Summit at the end of this year.
Ladies and gentlemen, the climate crisis that we are witnessing today is the single biggest challenge to civilization as we know it. Responding to that crisis is urgent, and is a top priority on the international agenda. Because that crisis is so serious, responding to it requires that we unleash all our resourcefulness and creativity.
While the multilateral trading system has a key role to play on the international economic and political landscape, that trading system is designed to enhance, and not reduce, human welfare. It cannot stand as a barrier to the fight against climate change - in particular, to the conclusion of a “global” environmental accord.
My message in Bali, therefore, was that climate negotiators needed to conclude an international treaty from which the WTO would take its cue. To truly enhance human welfare, the trading system needs to respond to the signals that would be sent to it by a successful Copenhagen accord. A trading system that ignores the emerging carbon price - that ignores the damage to our planet that greenhouse gas emissions cause - would reduce our welfare. No wonder then that the creators of the WTO enshrined the concept of Sustainable Development, right in the Preamble of the WTO accord.
Now, I must confess to you, that back in Bali, my message was greeted with a sense of relief by the environmental community. Many environmentalists had anticipated a heavy-handed WTO - a “GATTzilla” as we were once called. One that would step into the climate debate clumsily to impose its “trade-will” on the whole. Instead, they found a compliant WTO. One that was willing to greet with open arms a new international climate accord.
But I must explain to you why this position was as necessary for the WTO back then, as it is now. And, this, despite the fact that, since Bali, various academics and government officials have informally knocked on my door to ask that I revisit that message. Why do they wish to see this message revisited, you may very well ask. Because, they say, in some quarters, unilateral legislation is being crafted to fight climate change, that may include trade measures. And those who see themselves as the targets of these measures, would like the WTO to reign them in. While those who are themselves crafting these measures, would like the WTO to bless them.
My response to them has been as follows. First, that it is important to distinguish between the climate mitigation measures that exist today, and those that are still being contemplated. Within the cap-and-trade schemes some have either already introduced, or may introduce in future, various flexibilities to reduce the compliance pain for their industries. The free allocation of pollution permits, is one such example, and could be WTO-related.
Others are contemplating “border adjustments,” of various sorts, for the future. These measures may take the form of a requirement upon importers to purchase pollution permits at the border, or of carbon tax, to encourage exporters to account for their emissions. Options of this nature are embodied in European climate directives, and in some of the bills currently being contemplated in the US. With the Waxman-Markey and Boxer-Kerry bills being the most recent.
These “border measures” stem from the philosophy that since the Copenhagen Summit may fail, the “first-movers” on climate change must themselves take action to “level the carbon playing field.” They must offset the competitive disadvantage that their industry may suffer from enduring the costs of climate mitigation.
Intertwined with the competitiveness argument, which is the dominant argument in most political discourse, is the fear of “carbon leakage.” The fear that carbon emissions will simply shift from the part of our planet that will take commitments, to the part that will not, thereby negating the environmental benefits.
Clearly, therefore, some countries are hedging their bets against the failure of a Copenhagen accord. But should this hedging of bets translate into a: trade first, climate second, solution - as some of my visitors have suggested? I would say no.
Ladies and gentlemen, there is no better way to offset a competitive disadvantage, or to fight carbon leakage, than an international accord that includes as many players as possible. Will a simple tax at the border here, or a simple requirement to purchase pollution permits there, level the carbon playing field? If taxes and permits could do the job, I can assure you, the world would have never embarked on the long road to Copenhagen!
It is precisely because no form of unilateral action can solve climate change - it is because no form of unilateral action can fully address the competitiveness problem - that we need to bring everyone onboard. This should reinforce the call for a Copenhagen accord.
But some have also come up to me in recent days to suggest that the WTO needs a climate-specific “subsidies code.” With their principal concern being, of course, the free allocation of pollution permits. My response has been to say: tell me exactly where you think that the shortfall lies in current rules. Ladies and gentlemen, these issues need to be responded to with clarity, before we send negotiators from 153 members down a negotiating trail.
And let us be under no illusion. If there is no accord in Copenhagen or soon afterwards, an accord in the WTO on the trade measures that may be used to fight climate change will be extremely difficult to reach. Why? Because many would resist that trade be used as the international bargaining tool, and the source of leverage, that would define the contours of the climate debate.
This takes me to my next message: the relationship between trade and climate change must not exclusively be viewed through a negative prism, there is tremendous scope for complementarity between a climate agenda and trade agenda.
First, let us all recall that the WTO has an environmental negotiation taking place as we speak. Part of the Doha Round of trade negotiations includes a chapter to accelerate market opening for environmentally-friendly goods and services. Many climate-friendly goods and services are being penalized upon importation, rather than encouraged, and this is a situation that we must change.
But there is further scope for complementarity between a climate and a trade agenda. The International Energy Agency has highlighted many trade barriers that stand in the way of the Clean Development Mechanism. They include clean technologies that get stuck at the border, and which do not reach CDM projects on time, either because of tariffs, non-tariff barriers, or cumbersome customs procedures.
Let us join hands in addressing these barriers at the WTO. All the CDM issues that I have mentioned are addressable through existing WTO rules and the current Doha mandate.
Allow me to also mention that, the WTO has recently issued a joint report with the United Nations Environment Program on the relationship between trade and climate change. The report is intended to show the many linkages that there can be between a trade and a climate agenda. While the press had seized on the border tax portion of the report, since it is the “sexiest” of the linkages, such taxes were hardly the core. I would encourage you to appraise yourselves of this report.
Ladies and gentlemen, some final thoughts before I close. Climate policy-makers tell me that the world has never been closer to a global deal. Today, both developed and developing countries alike want to tackle climate change. It is the details of how they do so, that remain to be closed.
The climate negotiation has my full support. Part of that support will continue to manifest itself in not reducing the climate agenda to one on trade.
Plan A is a world in which clear climate commitments are assigned to all - under common but differentiated responsibilities - and where WTO toolbox is only explored at the implementation stage.
Plan B is a unilateral, go-it-alone approach to climate change, that mistakenly places the implementation toolbox at center stage. We must fight for the only real plan that we have, which is Plan A.
Thank you for your attention.