Faced with the climate emergency, acting on international trade

In 2020, global CO2 production nearly reached 2019 levels, after declining 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 around the world. 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 has largely ignored the means to make it more sustainable, regrets Professor Thomas Cottier, long active within the World Trade Organization (WTO).

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

The products that each and every one of us consume come from all over the world. And for the majority, they are not the result of sustainable processes. Ex-boss of the World Trade Institute, former Swiss negotiator then player in the WTO system, Thomas Cottier appeals to governments.

By taking the right decisions to regulate trade, by rewarding imported goods produced in a sustainable way, the Swiss believe it is possible to contribute significantly to the climate objectives set by the last UN climate conference (COP26). As a reminder, there is talk of limiting global warming to 1.5 degrees C compared to pre-industrial levels and of mobilizing at least 100 billion dollars per year to finance the climate transition of 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 Cottier.

However, the question of how trade measures would be able to curb climate change was only touched on at the last COP in Glasgow last November. A missed opportunity, judges the professor emeritus of the University of Bern. For him, governments must focus their action on green infrastructure and industrial production rather than consumers. What conclusions do you draw from the decisions taken?

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 do not make a clear commitment, it is difficult to do much. Moreover, too little funding has been secured for climate change adaptation measures in developing countries. Not to mention that industrialized countries still have 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 should 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 the ongoing fisheries negotiations, which seek to reduce fossil fuel subsidies to fleets.

What business issues do you think need to be tackled 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 depending on the sustainability of the production cycle.

Recognition of PMPs facilitates, for example, market access for steel produced in a sustainable manner using hydraulic and thermal energy, wind and solar hydrogen. On the other hand, it imposes higher customs duties for polluting products resulting from the use of fossil fuels.

WTO dispute settlement makes it possible, under certain conditions, to take this into account, but the question deserves to be negotiated in a broader way.

The Importance of Processes and Production Methods

According to the Organization for Economic Co-operation and Development (OECD), the term PPM (Processes and Production Methods) is defined as the way in which products are produced or transformed and how natural resources are taken 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, likely to 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 for promoting sustainable development. For example, they provide that producers bear the costs of environmental damage.

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Is it fair to say that PMPs are useful tools to understand the entire supply chain of a product and to assess 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, the 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 like climate change and biodiversity are now taking center stage.

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

At this stage, we are still too dependent on voluntary and unilateral commitments, which removes any obligation under international law. That is why we need to fine-tune the system with the help of trade measures and create an adequate framework for this purpose within the WTO or, along the same lines, in an integrated manner in preferential bilateral agreements.

What might these measures look like?

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 tied to sustainable production methods and agreed standards.

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

The rejection of the CO2 law should teach us the importance of adopting technology transfer measures that are compatible with social justice. It is difficult to treat cities with dense public transport networks in the same way as rural areas where people depend on cars or district heating. Approaches that focus too much on consumers are difficult to get adopted by referendum. It would be better to focus on infrastructure, production, industry and longer 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 followed the same path, temperatures could rise by 4 degrees C by the end of the century. What’s more, imports have increased sharply in recent years, resulting in a larger carbon footprint. The outlook is rather bleak…

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

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