Outdated Multilateral Trade System Challenged By Climate Change, Regionalisation, Speakers Say

Climate change measures might impact competitiveness and the multilateral trade system in its current form might not be equipped to address the issue, according to speakers at a parallel event to the World Trade Organization (WTO) ministerial meeting today. At the same time, regional trade agreements might constitute free electrons in the multilateral trade system, obeying to their own rules, said speakers at other sessions of the event.

The International Centre for Trade and Sustainable Development is holding the Geneva Trade and Development Symposium, convening stakeholders to discuss a variety of issues such as climate change, competitiveness, agriculture, strengthening the multilateral system, the Doha Development Round, and patents and clean energy.

Carbon leakage is a major issue, debated in Australia, the United States and elsewhere, and unilateral border measures are not enough to resolve the issue, according to Tim Groser, New Zealand minister. Carbon leakage is brought on by differential climate change regulations in countries, which could lead to an increase in carbon dioxide emissions in one country as a result of an emissions reduction in another country, according to Wikipedia. However, he said, a choice between trade and climate change is a wrong starting point, as “we need both.”

If a second commitment can be agreed at the Copenhagen conference on climate change next week, the consistency of the WTO rules with this commitment will be brought into question, he said. A possible partial solution would be to launch a temporary moratorium, but in any case, the WTO should be preserved.

There is an erosion of multilateralism, said Flavio Damico, permanent representative of Brazil to the WTO. If the Copenhagen conference has a positive outcome, WTO should be examined to determine if it is ready to receive this package, he said. Discussions about national rules on emissions are related to subsidies, and that might affect competitiveness between industries. At the moment, he said, there is huge stress on the multilateral system and an unfavourable political environment to take on all of those challenges. “Forward-looking thinking is more necessary than ever,” he said.

From an industry point of view, competitiveness is the key issue for many developed countries said Jake Colvin, vice president for global trade issues of the Washington, DC-based National Foreign Trade Council. Carbon tariffs are very problematic for the industry, he said.

US industry is worried about the potential harmful effects of border measures and is sceptical as to whether the use of such measures would not bring a retaliation risk.

The alternative to border measures would be free allowances which would avoid creating concerns with trading partners, Colvin said. If there is high pressure on carbon, there will be transition costs and trade effects as consumers will ask for products with no carbon because they will be cheaper, he said, urging US politicians to take a broader view on competitiveness.

High transition costs are attached to climate change measures, said Indonesian minister Mari Pangestu, who asked how developing countries were to respond on recent measures on climate change and what trade and policy actions should be taken by those countries to address the issue. It has been determined that the costs to reduce carbon emission could lead to job losses and developing countries would need more investments to compensate the costs, she said.

In order to reach the climate change objectives, developing countries would need a timeline and to be able to determine what capacity building they need. On the practical side, developing countries also would need a solid method to determine the carbon content of their products. Lowering tariffs on clean energy products is not going to be enough, she said. Developing countries need capacity building on financial and technical issues.

For Russell Mills, global director of energy and climate change policy of Dow Chemical, future challenges call for changing the usual business model. Although climate change implies costs, it also implies many benefits, he said. For example, resource efficiency is cost-saving, he said, and companies that ignore this will risk bankruptcy. However, the low carbon race is a “race that no one wants to win,” he said. The main issue to justify this reluctance is cost and the substantial upfront investment necessitated by adjustments, although in the longer term, those adjustments would yield benefits.

Transitional measures must be taken and free allowance programmes should be set up as they appear better suited than border tax adjustments which do not have the favour of companies, Mills said.

The opening of markets for environment-friendly products has to be pursued, according to Anders Ahnlid, director general for trade in Sweden’s Ministry of Foreign Affairs, and tariff-free solutions on those products are not enough, he added.

The first best solution would be to have a global price on carbon, according to Anhlid, and the overall objective would be to ensure that climate measures and trade policies continue to be mutually supportive.

Agricultural Trade Liberalisation, Regional Trade Agreements

If the Doha negotiations stall, an exit strategy will be needed, according to Tim Josling from Stanford University. One possible solution would be a second version of the Uruguay Round agreement on agriculture, he said, including in particular export competition issues and domestic support.

That would allow shedding the ambitious tariff cuts package of the Doha Round, simplifying the agenda by focusing on issues that are generally agreed, and introducing export restriction restraints.

For Carlos Perez Del Castillo, international consultant, regional trade agreements are complementary to the global trade system and their proliferation is not only due to the slowness of the multilateral system. The mulitlateral and regional tracks will co-exist in the future, he said.

From a market access point of view, regional trade agreements can go further than the multilateral trading system and be a good way to improving trade liberalisation in agriculture, he said.

The future trend might be a proliferation of preferential agreements between large countries. The European Union has agreements with China, with Japan, for example and the “US are not going to sit idle,” he said. If that trend is confirmed, the multilateralism could be subject to further erosion.

For Carlo Trojan, the International Food and Agriculture Trade Policy Council chairman, the world has changed and agriculture is encountering a triple challenge with the financial crisis, climate change and major food security concerns.

Keeping markets open is of great importance, far greater importance than eight years ago, he said, and even though the Doha Round is a negotiation on an outdated baseline, it needs to be concluded to address the challenges of tomorrow. As protectionist pressures are on the rise, the most effective policy response would be the speedy conclusion of the Doha Round because it would be a political signal of rejection of protectionism and global collaboration.

In a changing trade environment, a large number of regional trade agreements have been adopted in Latin America, according to Antoni Estevadeordal, manager of integration and trade at the Inter American Development Bank, and countries are working towards the harmonisation of some rules.

Trade liberalisation has been achieved by lateral deals, he said. Preferential liberalisation has led to unilateral liberalisation, he added. However, the proliferation of those agreements brings complexity – notably because of the rules of origin used to determine the national source of a product, he said – and can bring higher costs for companies.

Kunio Mikuriya, secretary general of the World Customs Organisation (WCO), said the WCO plays a central role in the management and application of the rules of origin and they are a key area of the WCO activity, to insure compliance.

The fact that more than one tariff rate could be associated with different rules of origin applicable to the same goods makes it very confusing for customs officers on the ground, he said.