Trade Restrictions Can Give The Paris Agreement Some Teeth

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The adoption of the Paris Agreement — the culmination of the 21st conference of the Parties to the United Nations Framework Convention on Climate Change — has produced mixed reactions.

Optimists observe that the agreement represents the first truly global initiative to address climate change. Getting nearly 200 countries at different stages of economic development to agree on the importance of taking steps to reduce carbon emissions is, they argue, an achievement in and of itself.

Moreover, the fact that these countries agreed to ensure that the increase in average global temperature is held to “well below” two degrees Celsius above pre-industrial levels has been touted as an indication that the world is ready to take meaningful action to reduce greenhouse gas emissions.

Skeptics, on the other hand, look to what isn’t included in the agreement. Some point out the lack of clear emissions targets and policy prescriptions. Others highlight that the $100 billion a year earmarked to help poor countries cope with the transition to renewable energy is encouraged, but not guaranteed. Much attention is paid to the fact that, like its predecessors, the Paris Agreement is “toothless” because it isn’t backed up by an enforcement mechanism.

This pessimism is understandable. Without clear and binding targets, how can any of the signatories be assured that their sacrifices will lead to meaningful emissions reductions? How can they know that the potentially difficult transition towards renewable energy will be a shared burden? What’s to stop other countries from taking advantage of their counterparts’ altruism and gaining a competitive advantage through continued use of cheap and dirty energy sources, such as coal?

The bad news is that the Paris Agreement is unlikely to introduce strict targets or develop an enforcement mechanism in the foreseeable future. There is a reason that these were not included to begin with: sovereign states are extremely reluctant to relinquish control over matters related to energy security and economic performance.

The good news is that those committed to reducing emissions do have some options available to both encourage their counterparts to do the same, and to prevent economic competitors from undercutting their products through use of carbon-intensive manufacturing processes.

Perhaps the most straightforward of these is to unilaterally impose trade restrictions in the form of elevated tariffs, or even import bans, on products produced via carbon-intensive processes.

Generally, such forms of economic discrimination are prohibited by the General Agreement on Tariffs and Trade (GATT), the legal agreement that underpins the World Trade Organization (WTO). Because most of the signatories to the Paris Agreement are also Members of the WTO, this could present some problems.

“Trade restrictions are not a silver bullet. Unless they are adopted by economic powers with significant purchasing power, such restrictions may do little to encourage compliance.

Fortunately, an exception embedded within the GATT may allow countries to restrict the entry of goods produced using carbon-intensive processes.

Article XX of the GATT provides a list of general exceptions that, under certain prescribed circumstances, allow members to take action that would otherwise go against their WTO obligations. It has been speculated that Article XX could be used to justify tariffs or import bans established as part of a wider policy initiative to help prevent climate change.

This theory is bolstered by the strong language contained in the text of the Paris Agreement. The WTO draws from other international legal norms and agreements when interpreting its own rules. As such, the Paris Agreement puts another arrow in the quiver of countries that wish to argue that trade restrictions designed to mitigate climate change are WTO-legal.

The preamble to the Paris Agreement emphasizes that “climate change represents an urgent and potentially irreversible threat to human societies and the planet.” This wording links efforts to combat climate change with GATT Article XX(b), which stipulates that members shall be allowed the freedom to take measures “necessary to protect human, animal or plant life or health.”

Members may only take advantage of the exceptions contained in Article XX if their policy choices are not applied arbitrarily or used as disguised restrictions on international trade. Therefore, to take advantage of the exception contained in Article XX(b), a WTO Member would have to be able to prove that their policy choices do not constitute arbitrary discrimination or a disguised restriction on trade.

Plainly put, they would have to demonstrate that any tariffs or restrictions imposed on foreign products are also applied to their domestic market. For example, if a country wanted to ban products made with power generated from coal plants, they would have to have a domestic ban on coal power plants. Otherwise, said restriction would likely be found arbitrary, discriminatory or a disguised restriction on trade.

While they certainly hold the potential to encourage compliance with the objectives established in the Paris Agreement, trade restrictions are not a silver bullet. Unless they are adopted by economic powers with significant purchasing power (such as the United States or the European Union), such restrictions may do little to encourage compliance.

Moreover, because of the special treatment accorded to developing countries within both the Paris Agreement and the WTO, wealthier nations in Europe and North America may not yet be able to impose stringent restrictions on goods originating from the developing world. Given that two of the world’s largest emitters — India and China — are considered developing countries, trade restrictions would likely have to be combined with other policy tools in order to promote meaningful reductions in global emissions.

While not a perfect solution, unilateral trade restrictions could help give the Paris Agreement some teeth. They could also offer a measure of protection for countries that are taking steps to reduce emissions and don’t want domestic industries to suffer at the hands of foreign competitors taking advantage of cheap and dirty energy.

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Source: HP

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