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Trade and Environment
The creation of the WTO in 1995 marked a crucial step in the history of multilateral trade helping to open up fresh avenues of dialogue on how trade interacts with the environment and how to ensure that trade and environmental policies work hand in hand. This brochure produced to mark the WTO’s 20th anniversary looks into the interplay between trade and environment.
The Interface between the Trade and Climate Change Regimes
As governments increasingly adopt policies to reduce greenhouse gas emissions concern has grown on two fronts. First carbon leakage can occur when mitigation policies are not the same across countries and producers seek to locate in jurisdictions where production costs are least affected by emission constraints. The risk of carbon leakage raises questions about the efficacy of climate change policies in a global sense. Secondly it is precisely the cost-related consequences of differential mitigation policies that feed industry concerns about competitiveness. We thus have a link between environmental and competitiveness perspectives that fuses climate change and trade regimes in potentially problematic ways as governments contemplate trade actions to manage the environmental and/or competitiveness consequences of differential climate change policies. On the trade side of this relationship we have the reality that the GATT/WTO rules were not originally drafted to accommodate climate change policies and concerns. The purpose of this paper is to analyze the relevance of certain WTO rules to the interface between climate change and trade focusing in particular on border measures technical regulations on trade standards and labelling and subsidies and countervailing duties. It concludes that in the absence of clear international understandings on how to manage the climate change and trade interface we run the risk of a clash that compromises the effectiveness of climate change policies as well as the potential gains from specialization through trade.
Trade and Deforestation
Forest plays a significant role in the overall balance of carbon in the atmosphere. Forest carbon sequestration can potentially reduce the accumulation of greenhouse gases in the atmosphere. However when deforestation takes place carbon is released to the atmosphere again. Globally it has been estimated that about 11% to 39% of all carbon emissions from human origin come from the forest sector (Hao et al. 1990). Regarding global warming the balance between forest conservation and deforestation can change forest sector activities from a solution to a problem and vice versa.
The Relation between International Trade and Freshwater Scarcity
It is becoming increasingly important to put freshwater issues in a global context. Local water depletion and pollution are often closely tied to the structure of the global economy. With increasing trade between nations and continents water is more frequently used to produce exported goods. International trade in commodities implies long-distance transfers of water in virtual form where virtual water is understood as the volume of water that has been used to produce a commodity and that is thus virtually embedded in it. Knowledge about the virtual-water flows entering and leaving a country can cast a completely new light on the actual water scarcity of a country. For example Jordan imports about 5 to 7 billion m3 of virtual water per year which is in sharp contrast with the 1 billion m3 of water withdrawn annually from domestic water sources. This means that people in Jordan apparently survive owing to the import of water-intensive commodities from elsewhere for example the USA.
Trade and Fisheries
In this report we first give a brief overview of trade in seafood and seafood production. We then review the basic bioeconomic theory of the fishery and pinpoint why fisheries are different from most other industries. We next review the theoretical literature on trade and renewable resources that shows how unconventional outcomes from trade liberalization can emerge. Given this background we discuss the most important policy issues in relation to seafood and trade including sections on managing the global commons and domestic trends in management. In the final section we discuss specific issues that are germane to the WTO and its rules.
Conclusions
Th e main purpose of this Report has been to provide the reader with an understanding of the debate on the linkages between trade and climate change. Th e material reviewed shows that trade intersects with climate change in a multitude of ways. In part this is due to the innumerable implications that climate change may have in terms of its potential impacts and the profound regulatory and economic changes that will be required to mitigate and adapt to these impacts.
Trade and climate change: Theory and evidence
Th is part reviews the available economic literature on trade and climate change. It deals with questions such as: “To what extent do trade activities change greenhouse gas emissions?” or “Will trade opening lead to more emissions?”
Foreword
Climate change is one of the greatest challenges facing the international community. Mitigating global warming and adapting to its consequences will require major economic investment and above all unequivocal determination on the part of policy-makers. With a challenge of this magnitude multilateral cooperation is crucial and a successful conclusion to the ongoing global negotiations on climate change would be the fi rst step towards achieving sustainable development for future generations. As we march towards Copenhagen we all have a responsibility to make a success of these negotiations. Climate change is not a problem that can aff ord to wait. It is a threat to future development peace and prosperity that must be tackled with the greatest sense of urgency by the entire community of nations.
Executive summary
Th is Report provides an overview of the key linkages between trade and climate change based on a review of available literature and a survey of relevant national policies.
National policies to mitigate, and adapt to, climate change, and their trade implications
Climate change mitigation and adaptation measures and policies intersect with international trade in a number of ways. Th is part reviews the range of policies to mitigate and adapt to the eff ects of climate change. It provides examples of national eff orts on climate change mitigation and adaptation whether voluntary or mandatory public or private. It is based mainly on national experiences and key literature on the topic. In broad terms it provides an overview of the rationale behind these mitigation and adaptation policies and their potential implications for the environment and trade. Th e key aspects in the design of climate change related measures are presented in order to draw a clearer picture of their overall potential and eff ects on environmental protection development and trade.
Climate change: The current state of knowledge
Th e scientifi c evidence on climate change and its impacts is compelling and continues to evolve. Th e Fourth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC 2007a) states that our planet’s climate is indisputably warming and the Stern Review (2006) on the economics of climate change concludes that climate change presents very serious global risks and demands an urgent global response.
Trade and Climate Change
What do we know about climate change? What is the relationship between trade and climate change? How does trade affect greenhouse gas emissions and can more open trade help to address climate change? What is the range of national measures that can contribute to global mitigation efforts? These are just some of the questions discussed by this report by the World Trade Organization and the United Nations Environment Programme.
The Impact of Disasters on International Trade
In this paper we examine the impact of major disasters on international trade flows using a gravity model. Our panel data consists of more than 170 countries for the years 1962-2004 yielding approximately 300000 observations. We find that the driving forces determining the impact of such events are the democracy level and to a lesser extent the area of the affected country. The less democratic and the smaller a country the more are its trade flows reduced in case it is struck by a disaster. We are also able to distinguish between the effect of a disaster on an importing and an exporting country.
Environmental Quality Provision and Eco-Labelling
This paper is a literature survey of some relevant issues arising from environmental quality provision and eco-labelling schemes. First of all it is shown how the two topics are strictly related. Firms adopting a production process (or producing a good) more environmentally friendly than others (environmental quality provision aspect) may want to make it public (eco-labelling aspect). The survey addresses the question of optimal environmental quality provision (also as a policy tool) and firms compliance. With regard to eco-labelling its impacts on market structure are analysed. It hasn’t been possible to consider all issues like for example that of moral hazard in providing non truthful information. Different issues related to trade are also analysed even if the literature is not abundant on this yet. In the literature both aspects of environmental quality provision and eco-labelling are analysed using product differentiation models. The usual result is that multiple equilibria arise depending also on the parameters. Models are also not robust to different assumptions. Environmental quality provision and eco-labelling are also compared to more traditional policy instruments like taxes (or subsidies) and standards. From the empirical evidence it can be concluded that information plays a crucial role both for consumers’ and producers’ decisions. Consumers are willing to pay a higher price to be informed about the greenness of a good and a label can really be a determinant in their choice of which brand to purchase. On the supply side disclosing information about the environmental performance of a firm can affect investment decisions and its stock value.
The effects of trade liberalization on the environment
In the 1996 Singapore Report of the CTE Members expressed an interest in undertaking further work to broaden the analysis of the potential environmental benefits of removing trade restrictions and distortions in specific sectors. It is considered that trade liberalization in certain sectors has the potential to yield benefits for both the multilateral trading system and the environment.
Market access and environmental requirements
This item is particularly important to the work of the CTE in that it holds the key to the complementarities that exist between sound trade and environmental policy-making. Improved market access for developing countries' products is key to the goal of achieving sustainable development. According to Principle 11 of the 1992 Rio Declaration on Environment and Development environmental standards objectives and priorities need to reflect the particular environmental and developmental context to which they apply. This means that environmental standards applied by some countries could be inappropriate and of unwarranted economic and social cost to others particularly developing countries. Small and medium sized enterprises (SMEs) are especially vulnerable in this regard.
The Doha mandate on trade and environment
At the Doha Ministerial Conference WTO Members reaffirmed their commitment to health and environmental protection and agreed to embark on a new round of trade negotiations including negotiations on certain aspects of the linkage between trade and environment. In addition to launching new negotiations the Doha Ministerial Declaration requested the CTE in pursuing work on all items in its terms of reference to focus on three of those items and together with the Commitee on Trade and Development to act as a forum in which the environmental and developmental aspects of the negotiations can be debated.