Economic research and trade policy analysis
The role of trade in adapting to climate change
While reducing greenhouse gas emissions is essential to limit the consequences of climate change climate change is already having a major impact on the environment people and as a result the global economy. This chapter explores the impacts of climate change on international trade and discusses the role that trade trade policy and international cooperation can play in supporting climate change adaptation strategies. Climate change increases trade costs and disrupts production and supply chains. However trade and trade policies in conjunction with relevant policies and international cooperation can help to alleviate some of the impacts of climate change including on food security by contributing to enhancing economic resilience.
Foreword by the WTO Director-General
Climate change is an existential threat to people’s lives and is dramatically reshaping economic activity and trade. This year alone from the Horn of Africa to China from Europe to the Americas we have seen increasing heat and prolonged drought damage crops and reduce electricity production while low water levels in major rivers have made it difficult to transport industrial and agricultural goods. Severe flooding left a third of Pakistan under water devastating key export crops and putting the country’s food and economic security at risk.
Conclusion
Climate change is having a damaging effect on people the environment and the economy globally. Major economic investment and ambitious policy actions will be required to steer the economy towards a sustainable low-carbon growth trajectory which is necessary to mitigate climate change and adapt to its disruptive and costly consequences. Thus both climate change and climate policies will have significant consequences for international trade and trade policies.
Carbon pricing and international trade
Although different instruments can be used to mitigate climate change carbon pricing has attracted increasing attention. This chapter explores the role of carbon pricing in reducing greenhouse gas emissions and its implication on international trade and trade policies. Carbon pricing puts a price on carbon emissions which can motivate firms and individuals to make more climate-friendly investing and purchasing decisions. While the proliferation of carbon pricing schemes highlights the urgency to tackle climate change they may lead to an unnecessary complex patchwork of domestic and regional schemes. Greater international cooperation is essential to find common solutions to carbon pricing and the WTO remains an appropriate forum to contribute to these efforts.
World Trade Report 2022
Climate change is having a profound impact on people’s lives across the world. Mitigating and adapting to climate change will require major economic investment and coordinated action to transition to a sustainable low-carbon economy. The World Trade Report 2022 explores the complex interlinkages between climate change international trade and climate and trade policies. Although international trade generates greenhouse gas emissions which contribute to climate-related natural disasters it can also play an essential role in helping countries reduce emissions by increasing the availability and affordability of environmental goods services and technologies. International trade can also play a key role in helping countries adapt to the impacts of climate change and build future resilience. The World Trade Report 2022 shows how international trade and trade rules can contribute to addressing climate change. Ensuring trade and climate change policies are mutually supportive requires global coordination and transparency about government measures. The WTO already plays an important role in helping countries tackle climate change by maintaining a predictable trading environment underpinned by WTO rules that allow for international trade in critical goods and services needed to cope with the consequences of climate change and to reduce emissions. Further international cooperation at the WTO could strengthen the mutual supportiveness of trade and climate change policies so that the world is better equipped to transition to a low-carbon economy.
Acknowledgements
The World Trade Report 2022 was prepared under the general responsibility and guidance of Anabel González and Jean-Marie Paugam WTO Deputy Directors-General and was coordinated by José-Antonio Monteiro and Ankai Xu.
The decarbonization of international trade
The transition to a low-carbon economy will require the transformation of many economic activities including international trade. This chapter looks at the extent to which trade contributes to greenhouse gas emissions but also assesses its importance for the diffusion of the technology and know-how needed to make production transportation and consumption cleaner. Although carbon emissions associated with international trade have tended to decrease in recent years bold steps are needed to further reduce trade-related emissions. Greater international cooperation is needed to support efforts to decarbonize supply chains and modes of international transport.
Executive summary
Climate change represents a severe pervasive and potentially irreversible threat to people ecosystems public health infrastructure and the global economy. Left unabated it could undo much of the progress made over recent decades in development poverty reduction and prosperity creation. Developing countries – in particular small-island developing states and least-developed countries (LDCs) – are likely to suffer the most due to their greater exposure and vulnerability to climate risks and natural disasters and their more limited capacity to adapt to climate change. Leveraging trade to tackle climate change presents several development and growth opportunities and will require significant policy actions to advance a just transition towards a low-carbon inclusive and resilient future.
The trade implications of a low-carbon economy
The global economy needs to effect wide-ranging and immediate changes to reduce its greenhouse gas emissions sufficiently to limit climate change. This chapter explores how the transition to a low-carbon economy could impact international trade patterns and outlines the role that trade trade policy and international cooperation can play in supporting a just low-carbon transition. Although a low-carbon transition entails short-term investment and adjustment costs it can also provide important economic benefits and opportunities. The WTO has an important role to play in increasing the ambition and viability of climate change mitigation actions.
The contribution of trade in environmental goods and services
The transition to a low-carbon economy depends among other things on the development adoption and diffusion of environmental goods services and technologies. This chapter looks at the extent to which trade in environmental goods and services can contribute to the low-carbon transition. Although international trade in environmental goods is uneven across regions the sector is very dynamic. While the WTO agreements ensure that trade in environmental goods and services flows as smoothly predictably and freely as possible the WTO could make an even greater contribution to the development and deployment of environmental technologies by addressing relevant trade barriers and improving data quality on trade and trade policy of environmental goods and services.
Introduction
Tackling climate change requires a transformation of the global economy. While limiting consumption and changing lifestyles would help reducing greenhouse gas emissions to net zero will be impossible without technological and structural change on a global scale. This transformation will involve costs but also opportunities – not just to head off an environmental catastrophe but to reinvent the way the world generates energy manufactures products and grows food. Just as trade helped to drive economic progress in the past – by incentivizing innovation leveraging comparative advantages and expanding access to resources and technologies – trade can play a central role in driving progress towards a low-carbon global economy. But harnessing the potential of trade will demand new policies and more cooperation.
Global Trade Outlook and Statistics
The WTO’s “Global Trade Outlook and Statistics” analyses recent global trade developments up to the fourth quarter of 2022 and presents the organization’s forecasts for world trade in 2023 and 2024. Breakdowns of merchandise and commercial services trade by sector and region are provided together with details on leading traders. The report is timed to coincide with the release of the WTO’s latest quarterly and annual trade statistics which can be downloaded from the WTO’s online database at stats.wto.org.
Subsidies, Trade, and International Cooperation
Dealing constructively with subsidies in global commerce is central to G20 leaders’ goal of reforming and strengthening the multilateral trading system. The growing use of distortive subsidies alters trade and investment flows detracts from the value of tariff bindings and other market access commitments and undercuts public support for open trade. This publication finds that governments need to cooperate more on subsidies. It seeks to highlight the potential benefits of closer cooperation and considers some areas where this might be pursued constructively.
Introduction
Governments need to cooperate more on subsidies. This is for several reasons. Extensive subsidies influence production and trade. Important new issues have arisen including the role of subsidies in addressing climate change in global value chains in the digital transformation and in economic and health emergencies. New forms of government support have gained importance. Despite much effort subsidy practices often remain opaque. Disagreements over subsidies are a major source of tension in some key bilateral relationships and existing multilateral subsidy disciplines are criticized in some quarters as being of limited effectiveness; calls to reform them have been voiced. Unilateral policy responses have not deterred foreign subsidy practices and while providing relief to some domestic industries they may disadvantage other domestic industries that compete internationally. While these issues may seem ripe for multilateral solutions ironically sharp differences over subsidy practices contribute to broader trade tensions that can have significant macroeconomic costs. They are also a key factor impeding discussions on these and other potential areas of trade reform.
The International Policy Debate
Discussions on new and improved rules to discipline subsidies are important to addressing trade tensions and building a stronger multilateral trading system. Current debates are occurring at different speeds with varying membership and differences in ambition and urgency. These include subsidies to fisheries agriculture and industry with a specific focus on certain areas such as subsidy notification requirements at the WTO SOEs or export credit practices and competition policy instruments developed by the OECD. Sectoral discussions e.g. on fossil-fuel subsidies or steel also take place in other inter-governmental fora notably the G7 and G20.
Global Landscape of Subsidy Measures
Our understanding of subsidies remains uneven and incomplete. There are important gaps in our knowledge of subsidy practices; while information for some sectors is relatively developed in others it remains at an earlier stage. At the global level we have a better picture of the number of subsidy measures than of their relative size or importance but numerical counts can be misleading—for example when one country reports many small subsidy measures while another reports only one (very large) aggregate program. The picture is also affected by the uneven transparency of subsidy measures across sectors and countries. Drawing on the available information this section sets out what we know—and don’t know—about the use of subsidies.