Faced with the climate emergency, acting in international trade

In 2020, global CO2 production has almost reached 2019 levels, after decreasing during periods of pandemic lockdown. According to a new study by the Global Carbon Project, a total of 36.4 billion metric tons of invisible carbon dioxide is about to be emitted worldwide. Copyright 2021 The Associated Press. All rights reserved

The production of goods and services is at the heart of our globalized economies and its environmental impact is more than significant. However, COP26 largely ignored the means to make it more sustainable, laments Professor Thomas Cottier, long active in the World Trade Organization (WTO).

This content was posted on January 18, 2022 – 10:08 AM

The products that each of us consumes come from all over the world. And, for most, they are not the result of sustainable processes. Former head of the World Trade Institute, former Swiss negotiator and then participant in the WTO system, Thomas Cottier appeals to governments.

By making the right decisions to regulate trade, rewarding sustainably produced imported goods, the Swiss believe it is possible to make a significant contribution to the climate goals set by the latest UN climate conference (COP26). As a reminder, there is talk of limiting global warming to 1.5°C above pre-industrial levels and mobilizing at least $100 billion a year to finance the climate transition in developing countries.

Thomas Cottier illustrates his point with the recent free trade agreement between Switzerland (with EFTA) and Indonesia, which authorizes the subsidized import of palm oil as long as it is produced according to sustainability standards.

Thomas Cotier. wto.org

However, the question of how trade measures would be able to contain climate change was only addressed at the last COP in Glasgow last November. A missed opportunity, assesses the professor emeritus at the University of Bern. For him, governments should focus their action on green infrastructure and industrial production, and not on consumers.

swissinfo.ch: What conclusions do you draw from the decisions you make?

Thomas Cottier: The decisions taken in Glasgow on the basis of the 2015 Paris Agreement are essentially unilateral commitments by states. The international community does not really have the means to make them binding. If countries like India or China don’t make a clear commitment, it will be difficult to do much. In addition, very little funding was secured for climate change adaptation measures in developing countries. Not to mention that industrialized countries still need to commit to their contributions to the Green Climate Fund. [une plateforme globale destinée à répondre au changement climatique par l’investissement dans des projets à faibles émissions] and other tools.

In other words, more needs to be done…

Absolutely, I would say yes. At COP2, there was no real discussion of trade measures that would advance the conference’s objectives. Many measures taken by countries will have an impact on international trade in goods and services. Countries must seek common ground within the WTO. So far, this Geneva-based organization and its members have taken a rather passive approach. They refrain from proactively addressing climate change or biodiversity issues, except in ongoing fisheries negotiations, which seek to reduce fossil fuel subsidies for fleets.

What business problems do you think need to be solved first?

The most important concerns the recognition of production processes and methods (PMP). These define the production of goods and services. Whether or not a product is sustainable is increasingly important. Market conditions vary according to the sustainability of the production cycle.

Recognition of PMPs facilitates, for example, access to the market for steel produced sustainably using hydrogen hydro and thermal, wind and solar energy. On the other hand, it imposes higher tariffs on polluting products resulting from the use of fossil fuels.

WTO dispute settlement allows, under certain conditions, to take this into account, but the issue deserves to be negotiated more broadly.

The Importance of Production Processes and Methods

According to the Organization for Economic Co-operation and Development (OECD), the term PPM (Production Processes and Methods) is defined as the way products are produced or transformed and the way natural resources are extracted or harvested. They can have a profound impact on the environment. The processes and methods used in a production can affect the characteristics of a product, and can pollute or degrade the environment during its use. A method or process can also directly harm the environment by releasing pollutants into the atmosphere or water.

PPM policies are important tools to promote sustainable development. For example, they predict that producers bear the costs of environmental damage.

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Is it fair to say that PMPs are useful tools for understanding a product’s entire supply chain and assessing its sustainability? How can we determine the real environmental impact of a product?

Under traditional non-discrimination rules, imported products are subject to the same taxes and regulations as domestic products. In theory, modes of production are irrelevant. The principle of sustainability, which balances economic, social and environmental requirements, changes this equation. Protecting labor standards and environmental concerns such as climate change and biodiversity are now in the spotlight.

PMPs allow importing countries to assess the environmental and social impact in the country of production. It will not be a matter of tracing the origins of all products, their components and manufacturing methods. Which would be impossible in practice. This involves focusing on a range of highly polluting products such as cement, steel and other metals, electricity and other commodities.

At this stage, we are still heavily dependent on voluntary and unilateral commitments, which eliminates any obligation under international law. That is why we need to adjust the system with the help of trade measures and create a suitable framework for this purpose within the WTO or, in the same sense, integrated in preferential bilateral agreements.

How can these measures be?

The Palm Oil Free Trade Agreement between Switzerland and EFTA [l’Association européenne de libre-échange] on the one hand, Indonesia, on the other, is a recent example. This agreement implements the PMP paradigm shift. Preferential tariff quotas on palm oil imported from Indonesia are linked to sustainable production methods and agreed standards.

You mention a positive example from Switzerland, but Swiss voters rejected the proposed CO2 law. In what areas can Switzerland improve?

The rejection of the CO2 law should teach us the importance of adopting technology transfer measures compatible with social justice. It is difficult to treat cities with dense public transport networks in the same way as rural areas where people rely on cars or district heating. Approaches that focus too much on consumers are difficult to adopt by referendum. It would be better to focus on infrastructure, production, industry and long-term transitions. This offers opportunities to create growth, new technologies and new jobs.

According to an assessment by the think tank Climate Analytics, the efforts made by Switzerland to combat climate change are insufficient. If other countries follow suit, temperatures could rise by 4 degrees C by the end of the century. In addition, imports have increased sharply in recent years, resulting in a larger carbon footprint. The prospects are quite bleak…

If imports are included in the overall footprint, Switzerland really has a lot of work to do, at all levels of governance, federal and cantonal. Much depends on the policies adopted by large cities, which need to be strengthened. The energy transition is a major challenge for all countries, but especially for a direct democracy. Switzerland will have to cooperate closely with the EU to meet its climate targets. At the international level, the country could present trade initiatives to the WTO and seriously engage in profiling its global financial sector on sustainable investments. Corporate social responsibility remains on the agenda.

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