Climate Policy's Unwelcome House Guest

One of the aspects of climate-change policy rarely discussed outside of very specialized circles is the compatibility of carbon reduction schemes with WTO rules. Indeed, even many in the environmental community don't know about the potential conflicts, and those that do wish like heck that the issue would just go away.

But corporations and pro-corporate think-tanks are paying attention to this issue, and a lot of what they are advocating would take us farther away from a just and sustainable international economic and climate architecture.

Take a recent book by Gary Hufbauer, Steve Charnovitz and Jisun Kim entitled "Global Warming and the World Trading System." In the book, they provide one of the most thorough outlines I've seen yet regarding the potential WTO constraints on climate-change policies, in particular those being debated in Congress and in the lead-up to the Copenhagen summit on climate this December 2009.

They offer up a number of ways of reconciling trade and climate constraints, including

1. Simply letting WTO members challenge each others' climate measures in the WTO dispute settlement body. The advantage to this approach is that it would help build up "case law" that could settle "once and for all" the question of how restrictive the WTO is with regards to environmental measures. The disadvantage, in the authors' view, is that this "could inspire greater criticism of the already-fragile WTO system" if the panels privilege commerce over climate; "could open the door to widespread opportunistic protectionism and rent-seeking behavior" if the panels privilege climate over commerce; and even a middle ground of balancing the two objectives would not be desirable because those "with a different sense of balance will challenge the outcome as illegitimate." (page 96).
2. A never-before used Permanent Group of Experts contemplated under the WTO's subsidy agreement could give an opinion as to whether certain climate measures might be considered a subsidy under WTO rules. The disadvantage of this approach is that the opinion would be advisory and perhaps also confidential.
3. Another option is to renegotiate the WTO, but this would require unanimity among the member countries. (An option they don't consider is for the U.S. to pull out of the WTO.)
4. WTO members could negotiate a waiver from WTO requirements, with the disadvantage being that a three-quarters majority vote would be necessary.
5. WTO members could negotiate an optional "code" that certain members could join to allow deviations from WTO requirements on climate reduction policies. While all WTO members would have to approve this code, the authors consider it likely that this approval would be granted, because not all countries would be required to comply with the code's rules. This is the approach favored by the authors.
6. Nations could ignore the WTO, and simply create a multilateral environmental agreement (MEA) at Copenhagen that conflicts with WTO rules. Obviously, the disadvantage to this approach is that a country that signed onto the MEA would not be immune from a WTO challenge from a country not party to the MEA.
7. Countries could negotiate a WTO round that would drop tariffs further on products reclassified by their carbon intensity. This is not mutually exclusive from the alternatives outlined above, and in fact a modest version of this is being advocated by the Obama administration, like the Bush administration before it. This is encountering opposition from many development groups that believe that it would deprive developing nations of infant industry protection for green industries.
8. A final option contemplated in the book is a WTO sectoral agreement on climate-intensive industries, like steel. This model has been used in the past to provide tariff protection for sectors like textiles, one reason the authors seem to dislike this option. Moreover, it would have to be approved by all WTO members.
   

The problem I see with their idea for a code, and I've just read the book and may not be understanding it correctly, is that it would not be binding on non-code countries. So, what's to keep a non-code country from launching a WTO dispute against a code country? In other words, if the U.S. were in the Code, along with Europe, but China were not, and a U.S. cap-and-trade / green jobs program hurt Chinese "dirtier" steel to the benefit of U.S. "greener" steel, what would insulate the U.S. from a WTO challenge from China? (Given what Paul Krugman reports on Chinese official attitudes on climate in his column today, such an outcome would not seem unlikely.)

We've argued, on the other hand, that the better option is to shrink or sink the WTO. It already has little popular support, as Hufbauer et. al's point 1 shows: anything short of a gutting of the WTO will fuel anger at the institution. The WTO moreover is serving as an obstacle rather than an enabler of finding climate solutions, which inevitably will require messy domestic and international political compromises, as we are seeing currently in the debate around the Waxman-Markey climate bill. The climate emergency means, at a minimum, that the WTO must be kicked to the side, and then renegotiated to be compatible with the climate regime that results from the real give and take between and within nations. After all, even if you like the World Trade Organization, what good is it if there's no world left?