What can WTO Law do for Climate Change Mitigation: Potentials and Limits

1. What can WTO Law do for Climate Change Mitigation: Potentials and Limits Thomas Cottier Sadeq Bigdeli Olga Nartova Sofya Berkutova NCCR – Trade Regulation IP6 Project on Energy in WTO Law and Policy World Trade Institute, Bern

2. Agenda • Tariff Issues • Border Tax Adjustment • Subsidies • TRIPS • Energy Services • Potential of EGS Negotiations

3. Tariffs • A new function for tariffs to achieve level playing fields? • How to define environmentally non-friendly goods? (How to link tariffs with emissions?) • Would this be allowed under GATT XX (b) or (g) or the TBT (necessity test)? • How to avoid sheer protectionism? • or should Article XXVIII procedure be sought?

4. Border Tax Adjustment • GATT II:2 (a) allows for BTA not in excess of an internal tax on a product or a tax on input articles • GATT superfund in principleallowed for an adjustment for a tax on ‘certain chemicals’ used in the process of producing products the polluting effect of which happened abroad (a PPM-based tax?) • However, the AB may find a violation of Article III (Alcohol cases and likeness issue) raising the question of permissibility under ‘general exceptions’.

5. Production Process Methods • Trade and environment debate • Did the AB on Shrimp give a carte blanche for PPM-based measures? • Article III national treatment violation to be justified under GATT XX? • Implication: burden of proof shifted to the importing country • Back to aims and effect?

6. Industrial Subsidies: ASCM Disciplines • Prohibited subsidies: • export subsidies and import- substitution subsidies • Actionable subsidies: all ‘specific’ subsidies if they cause ‘adverse effect’ • Non-actionable: expired in 1999 • limited R&D, Environmental subsidies and regional subsidies

7. Agricultural Subsidies:Agreement on Agriculture Domestic Support 1) Export subsidies (Article 9) 2) Domestic support: • Amber Box • Blue Box • Green Box Trade distortive (Commitment levels) Reduce distortion (production-limiting programme) Zero/minimal distortion Images source: WTO

8. Potential Constraints of Subsidies • Do the ASCM and AoA allow for climate-friendly subsidies? -- Kyoto 2.1.a (iv): • Subsidies for energy conservation • Subsidies for RE production or consumption • Subsidies for R&D grants for climate technologies • Subsidies for carbon capture & storage • Kyoto 2.1 subsidies are not excluded by ASCM (actionable subsidies – yellow light) • Reviving the green light category (non actionable subsidies) in the ASCM agreement?

9. WTO and (post)-Kyoto Coherence • Kyoto 2.1.a (v): “Progressive reduction or phasing out of … subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention…” • High political sensitivity: • Developed countries: linked to energy security (and vested interest: Bush’s veto threat) • Developing countries: energy consumption subsidies are a major source of CO2 emissions

10. TRIPs and Climate Change • Art 66.2 TRIPS – LDC’s technology transfer obligation (“shall”) • MEAs weak technology transfer obligations • CDM: incentive for technology transfer • Incentives schemes for knowledge transfer required (tax reductions v. export subsidy)

11. Energy Services • Liberalization of services, energy efficiency and environment – a triple win agenda • UR insufficient classification in the field of energy • New classification proposals and climate change: • promotion of cleaner energy - less CO2 emissions • harmonisation of standards - common energy efficiency thresholds

12. Energy and Environmental Services • Both have influence on efficiency of climate change mitigation measures • Both underwent structural reform and open to private operators • Both need more appropriate classification under GATS • Both imply considerable investment • For both the issue of public service is crucial

13. EGS Negotiation - Art. 31(iii) DDA • With a view to enhancing the mutual supportiveness of trade and environment, we agree to negotiations, without prejudging their outcome: • ….. • (iii) The reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services.

14. The Environmental Area Initiative (EIA) Approach • Multilaterally agreed environmental area • Services, goods incl. EPPs, TBTs, IPRs, domestic regulation and other areas‏ • Goals and targets may be adopted from Millenium Development Goals (MDGs), MEAs, and other international agreements • Result in binding WTO commitments (GATT and GATS)

15. Possible Target Areas and Clusters • Supply of drinking water • Drainage • Sanitation and disposal of sewage • Waste disposal, in particular hazardous waste • Reduction of carbon emission • Promotion of renewable energies, in particular water, solar, wind and tidal

16. (2) Modalities within an Environmental Area • Members may negotiate any of the following • Definition of relevant services and scheduling • minimum number of relevant goods subject to mandatory reduction (sectoral initiative) • Tariff elimination on relevant goods • an overall average tariff cut with minimum cuts at tariff line level • minimum number of goods with minimum tariff cut • Separate modalities for EPPs where reductions will be mandatory • Coordination across negotiating

17. (3) Drafting an EGS Framework Agreement • Framework and modalities for undertaking commitments • Linkages with existing commitments and scheduling • Issues relevant to the environmental sector (technology transfer, TBTs, IPRs, etc) • Provisions on transparency, notification, and dispute settlement

18. Linking EGS Negotiations and Climate Change • Sectors covered by Kyoto Protocol may provide specific environmental areas and targets; may adopt from other parallel initiatives, e.g. Global Environment Facility • Under the Kyoto Protocol, Members can unilaterally define priorities and seek CDM projects within the given structure of service regulations, tariff and NTBs relating to corresponding products • EAI approach offers a basis and methodology to do this multilaterally • Members can decide on the selection and prioritization of above project areas for inclusion in EGS negotiations

19. Thank you for your attention!