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The potential to incorporate climate change provisions into the TPP

Tracey Epps, Faculty of Law, University of Otago

 

This informal paper looks at the possibility of the TPP including provisions dealing with the environment. It looks at both exception clauses and the possibility of positive obligations to ensure environmental protection, as well as the potential effects on and requirements for agriculture and industry.

Background on FTAs and environment

 

-       Trend for FTAs over the last decade to include provisions dealing with the environment

-       Not just in exception clauses, but providing for positive obligations regarding environmental protection, & also preventing countries using environment to distort trade

-       Developing countries wary of including environmental provisions in trade agreements – both at multilateral level, and regional / bilateral level – but often they do not have much choice at regional / bilateral level

 

Climate Change

-       Nearing end of first Kyoto commitment period (2008-2012)

Kyoto: “common but differentiated responsibilities”, Annex I countries  required to reduce their combined emissions to five percent below 1990 levels in the first commitment period; governments allowed to determine what domestic policies and measures to take in order to achieve their targets.

-       NZ emissions remain well above our target

-       Looking towards negotiation of new global agreement, Copenhagen December

-       Not likely to be just the top-down, target & timetable approach of Kyoto – but will also encompass sector-specific actions, and cooperation on technology development and transfer, on a regional and sub-regional scale – recognised by Bali Action Plan (

Trade & Climate Change Linkages

1. Constraints on countries’ climate action

No discrimination between trading partners (MFN)

No discrimination against foreign producers in favour of their own domestic producers (national treatment)

Covers taxes (e.g., carbon taxes, BTAs), regulations (e.g., ETS, labelling, emission limits, maximum carbon intensity limits, banning products according to embedded carbon or carbon emissions)

No illegal subsidies

2. Trade measures to induce climate action

Incentives to encourage climate action e.g., trade preferences, technology transfer, capacity-building

Border measures to neutralize countries’ competitiveness advantage & thereby persuade them they might as well take climate action

Sanctions to force climate change action (against spirit of cooperation)

3. Multilateral solutions

Increase trade in EGS

Cooperation measures e.g., technology transfer, capacity-building, research, etc.

Peace clause?

Perspectives regarding TPP and climate change

Perspectives on the intersection of trade and climate change policies in a regional trade agreement.

Environmental

-       Notion that trade increases welfare, which can be spent on environment (& other social issues)

-       Proposed expansion of the TPP would result in increased trade flows across long distances, resulting in increased greenhouse gas (GHG) emissions from both air freight and ocean shipping.[1]

-       Downward harmonization of environmental standards.

-       The TPP seeks increased economic growth across all partners, which may increase GHG emissions from developing country members in the future.

-       Trade liberalization requirements under TPP may constrain countries in their efforts to mitigate climate change through regulation (e.g., Emissions Trading System or ETS, emissions standards), taxation (carbon taxes), and subsidies.

Trade

-       Climate change measures might be used as a disguised means of trade protection.

-       Different standards may fragment the market, increase transaction costs, generate diseconomies of scale for all producers (producers need special production lines for different countries)

Industry in developed countries

-       NZ - agriculture

-       Competitiveness concerns due to disparity in standards:

  1. one partner’s climate change policies may impose high costs on their industries, reducing their competitiveness within the trading bloc (or, conversely, some countries choose to have low standards, giving their producers a competitive advantage)
  2. possible subsidization of other’s industries e.g., free allocation of ETS permits

-       Carbon-intensive industries shift operations to partners with less costly climate change measures (“leakage”) (little evidence of this in practice) (e.g., this was a concern in NAFTA negotiations, that companies would move to Mexico)

-       Therefore want high standards as part of agreement?

Developing countries

-       Competitiveness concerns as well

-       Equality: echo of the concern expressed at the multilateral level that while their developed country partners grew rich through carbon intensive economies, they will be denied the ability to grow by strictures on GHG emissions. i.e., concerns about their economic growth being hindered by high environmental standards

Current environmental provisions in the P4

Right to regulation – exceptions to the Agreement’s obligations

 

Even where a country’s measures concerning goods are in violation of the Agreement’s obligations, they may be justified if they meet the conditions in Article 19 (the exceptions clause). Article 19 incorporates Articles XX(b) and (g) of the General Agreement on Tariffs and Trade (GATT) which provide that measures may be justified if they are necessary to protect human, animal, or plant life or health and/or relate to the conservation of exhaustible natural resources if such measures are made in conjunction with restrictions on domestic production or consumption. Any such measures must not be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade.

 

The P4 adds to Article XX by specifying that: “The Parties understand that the measures referred to in GATT Article XX(b) include environmental measures necessary to protect human, animal or plant life or health, and that GATT Article XX(g) applies to measures relating to the conservation of living and non-living exhaustible natural resources.” This does not add much to the exceptions. WTO case law has accepted that measures sought to be justified under Article XX(b) may be ‘environmental’ ones, and also that the exception applies to both living and non-living exhaustible natural resources.[2]

 

Regarding measures affecting services, in Article 19.1(4) the TPP incorporates Article XIV of the General Agreement on Trade in Services (GATS).

Environmental Cooperation Agreement (ECA)

 

The P4 is cited as evidence of a willingness on the part of various developing countries to incorporate environmental concerns into their trading relations.[3] The most significant aspect in this regard is the ECA, which is a side-agreement that was negotiated alongside the main Agreement. Commitments are set out in Article 2 which says that the Parties:

 

  1. Reaffirm their intention to continue to pursue high levels of environmental protection and to fulfill their respective multilateral environment commitments
  2. Endeavour to have their environment laws, regulations, policies and practices in harmony with their international environment commitments
  3. Respect the sovereign right of each Party to set, administer and enforce its own environmental laws, regulations and policies according to its priorities
  4. Agree that it is inappropriate to set or use their environmental legislation, policies and practices for trade protectionist purposes
  5. Agree that it is inappropriate to relax, or fail to enforce or administer, their environmental laws and regulations to encourage trade and investment (but what about to increase export competitiveness?)
  6. Shall promote public awareness of its environmental laws, regulations, policies and practices domestically.

 

Article 3 provides for cooperation on ‘mutually agreed environmental issues’, with the intention being to cooperate in areas of ‘common global or domestic concern’. While no mention is made of climate change, it is certainly an issue of global concern and would fall without this mandate.

 

Article 5 provides that disputes are to be resolved through dialogue, consultation and cooperation. Issues regarding interpretation of Article 2 may, if unable to be resolved through consultation, be referred to a ‘special meeting’ of the ‘interested Parties’ who shall produce a report. The affected parties are required to implement the conclusions and recommendations of the report.

Comments on ECA

 

-       No specific reference to climate change.

-       Appears to have been a ‘top-down initiative’ driven by government with fairly minimal involvement with civil society and other interest groups.[4]

-       Article 2: Provisions lack teeth – use of hortatory language, limited concrete obligations (most binding obligation concerns promotion of public awareness of laws).

-       Articles 2(3) and 2(4) don’t seem to add much to GATT Article XX exceptions.

-       Article 2(5) most significant commitment – prevents ratcheting down of standards.

-       Scope of Article 3 cooperation is left relatively open and is to be determined in the implementation phase through discussion among governments / environmental officials. How effective such implementation will be is remains to be seen.

 

Other Agreements /

 

APEC

Sustainable development has been part of agenda, at least notionally (sustainability of marine environment, sustainable cities, clean technology & clean production. Annual reviews but hardly any forum in which environment discussed. Overall, integration of environmental & trade policies not actively pursued within APEC.

Apparently contradictory statements on climate change; supported US Major Economies Meeting on Energy Security and Climate Change (February 2008) but also advocates UN framework.

 

NAFTA

-       Side agreement on environment, requires countries to enforce environmental legislation and ensure that it provides for high levels of environmental protection and strive to improve those levels

-       Commission for Environmental Cooperation, governed by Council consisting of environmental ministers from each state; permanent Secretariat and opportunities for civil engagement. Statement of Intent to Cooperate on Climate Change and Joint Implementation (1995) set out areas of cooperation including joint pursuit of GHG mitigation technologies, conservation and enhancement of carbon sinks, improving GHG emission inventory and forecasting methodologies and climate change research. References the UNFCCC – only seems to have resulted in small number of projects. (Craik & de Mento) Hampered by intergovernmental structure that requires consensus to move forward on any issue.

 

Recent US policy

 

Will require enforceable obligations to comply with environmental agreements: CITES, Montreal Protocol, Convention on Marine Pollution, Inter-American Tropical Tuna Convention, Ramsar Convention on the Wetlands, International Convention for the Regulation of Whaling, Convention on Conservation of Antarctic Marine Living Resources. (Colombia, Peru, Korea, Panama)

 

US-Peru FTA

Specifically lists MEAs to be complied with (as above).

 

How could TPP directly encompass climate change?

Allow policy space

-       Opportunity for leadership in terms of tweaking Article XX to reflect climate change concerns, including measures that distinguish goods based on process and production methods (PPMs)

-       Harmonization of standards (rather than relying on dispute settlement to find when measures in violation of obligations)

-       Specific reference to parties’ multilateral climate change obligations (e.g., in Article 2 of the ECA)

-       Provision for harmonisation of climate-related environmental standards e.g., eco-labelling.

 

Induce countries to take climate change action

-       Binding provision for capacity-building and technology transfer from developed to developing partners.

Cooperative measures

-       Reduction of tariffs on environmental goods and services (US Trade Act 2002 says market access for EGS is specific trade negotiation objective)

-       Specific cooperation provisions dealing with climate change e.g., provide for cooperation regarding implementation of multilateral climate change obligations (note that the US-Peru FTA requires parties to ‘adopt, maintain, and implement laws, regulations, and all other measures to fulfill its obligations under the multilateral environmental agreements listed’ – Kyoto Protocol is not listed, as it has not been ratified by the US)

-       Climate impact assessment to anticipate and manage impacts associated with increased trade volume.[5]

-       Environmental / climate obligations to be incorporated into investment chapter, including exceptions.

Obtain buy-in from all partners

-       Developing partners: provision of capacity-building, technology transfer

-       Developed partners: ‘equitable’ burden-sharing; address competitiveness concerns

-       US will want environmental provisions – but not clear that new administration will want specificity around climate change

 

NZ agricultural sector

Concerned about competitiveness; won’t want to lose competitive edge to foreign producers if climate change regulations here impose additional costs on them. Therefore they’d want to see either equally high standards in TPP partners (commitment to meeting targets by those partners?) and/or ability for NZ to impose border tax adjustments in order to maintain their competitiveness (under GATT-type national treatment rule & Article XX exception, can apply border tax adjustments but question whether can do so in relation to non-product-related PPMs).

Environmental perspective –

Desirable to have some climate change provisions in TPP because: problems associated with climate change that transcend boundaries; economic integration (competitiveness concerns, concerns around leakage – leakage more likely where capital is mobile (market access & investment provisions under TPP); opportunity for cost-effective reductions – integrated carbon markets?

 

Final note –

Trade rules and efforts to address climate change do not necessarily have to be in conflict. The TPP should work towards mutually supportive arrangements between the two regimes. From a climate perspective, something that should be considered is the prospect of imposing trade measures such as border tax adjustments in order to neutralize any competitive advantage gained by trading partners who do not have an emissions reduction programme (such as an emissions trading system or carbon tariffs). This may have the benefit of quelling opposition to climate action from domestic entities who are concerned with losing their competitive advantage to foreign competitors. However, caution must also be exercised in imposing any such measures if they are likely to have a negative impact on developing country trading partners. Issues of justice and equity will arise whenever such adjustments are considered.



[1] The submission from Public Citizen highlights the fact that not all trade necessarily appears to be advancing comparative advantage: “… Britain, for example, imports – and exports – 15,000 tons of waffles a year, and similarly exchanges 20 tons of bottled water with Australia”.  Elizabeth Rosenthal, “Environmental Cost of Shipping Groceries Around the World”, New York Times, April 26, 2008.  Cited in Public Citizen, “Testimony Regarding the Proposed United States – Pacific Partnership Free Trade Agreement”, Docket Number USTR-2009-0002, (Washington DC, March 4, 2009) at 13.

[2] See US – Measures Concerning Shrimp WTO Doc No. WT/DS58/AB/R, 6 November 1998 (Appellate Body Report).

[3] See for example Joy A. Kim, Harnessing the Regional Trade Agreements for the Post-2012 Climate Change Regime (Paris: OECD, Environmental Directorate, 2008), Lorend Bartels, "Social Issues: Labour, Environment, and Human Rights" in Simon Lester & Bryan Mercurio, eds., Bilateral and Regional Trade Agreements: Commentary, Analysis and Case Studies (Cambridge: Cambridge University Press, 2008).

[4] Astrid Fritz Carrapatoso, "Environmental Aspects in Free Trade Agreements in the Asia-Pacific Region" (2008) 6:2 Asia Europe Journal 230 at 238.

[5] Joy A. Kim, Harnessing the Regional Trade Agreements for the Post-2012 Climate Change Regime (Paris: OECD, Environmental Directorate, 2008) at 6.

Last Updated on Tuesday, 16 March 2010 02:07
 

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