Climate issues at WTO may lead to ‘trade war’

Business Standard, June 14, 2010
Though the Doha Round of global trade talks is unlikely to be over this year, leading developing countries like India, China and Brazil are apprehensive of the renewed emphasis on environment and climate change issues in the form of carbon cap-and-trade system and border tax adjustments measures on imports.

Experts say this will mean another form of protectionism, generating trade disputes, which may lead to a “trade war”.

The developing countries also fear that any attempt to introduce provisions such as carbon taxes or levies in the guise of environment protection will hit export growth.

On the occasion of the World Environment Day on June 5, World Trade Organization (WTO) Director General Pascal Lamy said that opening of trade could play a vital role in environment protection. Increased trade ensured economic growth, which would boost demand for higher environmental standards, he added.

Lamy underscored the need for production and use of environment-friendly products and technologies in the long run to reduce pollution.

“Trade liberalisation per se will not ensure that resources are used optimally unless market distortions are removed. As a rules-based organisation, WTO should ensure that rapid steps are taken for removing distortions such as those caused by the presence of agricultural subsidies, in the Doha Round and beyond. Use of agricultural subsidies has encouraged several inefficient producers to continue with highly resource-intensive and environmentally-damaging agricultural systems,” Biswajit Dhar, director-general, Research and Information System for Developing Countries (RIS), told Business Standard.

Senior commerce ministry officials actively engaged in WTO negotiations said any effort to resolve the climate change issue through trade measures would not only give rise to a number of trade disputes but also undermine the basic ethos of free and fair trade that the 153 WTO members hoped to achieve through the Doha Round.

RS Ratna from the Centre of WTO Studies, Indian Institute of Foreign Trade (IIFT), highlighted that environment issues were an integral part of the Doha Development Agenda in the form of sanitary and phytosanitary measures and technical barriers to trade, both of which recognised protection of environment as an objective of a more open trade. “Efforts to address climate change through unilateral trade measures will lead to tit-for-tat trade restrictions. This will spark a trade war and lead to massive, justified, WTO legal retaliation by the affected countries,” he said.

In a recent interaction with Business Standard, WTO Deputy Director General Harsha Vardhana Singh said the way to address climate change was also through a different forum and once it got a road map at those forums, the issue could be brought before WTO.

“For developing countries, we need to be cautious as the move will mean legitimising non-trade concerns like carbon tax and box shifting for the cause of environment and may further deflect the conclusion of the Doha Round. However, the silver lining would be that it would reduce the market access ambition incorporating the climate change component and help provide legitimate flexibility to the developing countries and thereby protect vulnerable ecosystems.

Developing countries need to bargain for the climate change perspective with a bigger aid and compensatory mechanism in trade,” said Linu Mathew Philip, research fellow, Centre for Trade and Development. Pradeep Mehta of CUTS International said these were attempts by the developed world to bring in provisions such as carbon tax that would amount to non-trade barriers. For countries like India and China, the challenge was to see that their exports did not become subjected to such levies as the environment agenda in the Doha mandate was very limited, he said.

Lamy also linked the issue of fisheries subsidies with that of environmental protection. He said excess fishing activities was the main reason for diminishing fish stocks in oceans. “Reducing fisheries subsidies could significantly reduce over-fishing and foster species preservation, which is why WTO members are presently negotiating stronger international disciplines in this field. A deal in WTO will mean richer oceans for future generations and constitute a triple-win for trade, environment and development,” he said.

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