UNCTAD calls for climate waiver, peace clause for developing nations’ trade-related green measures

Ahead of the upcoming UN COP26 climate summit, the United Nations Conference on Trade and Development (UNCTAD) on Thursday suggested a limited climate waiver of World Trade Organization (WTO) trade and environment rules combined with a ‘peace clause’ for disputes on trade-related environmental measures of developing countries.

In the second part of its Trade and Development Report, 2021, UNCTAD pitched that international community could support initiatives to transform rules governing intellectual property rights, such as through a WTO Ministerial Declaration on Trade-Related aspects of Intellectual Property Rights and Climate Change, with a view to expanding TRIPS flexibilities for developing countries in relation to climate-related goods and services.

It said that trade policy has a limited scope to contribute to a global green growth agenda, and instead pushed for an approach based on special different treatment (SDT) and the ‘common but differentiated responsibilities’ (CBDR).

The report comes at a time when many WTO members are pushing to include environment related issues in its agenda by linking it with trade, in the upcoming ministerial conference.

UNCTAD said that trade liberalisation of environmental goods and services will lead to a revenue loss for developing countries which earned $15 billion through tariffs on these in 2019.

Most of the developed economies like Australia, Canada, European Union, Germany, Japan, and the United States, have higher carbon dioxide emissions per capita compared to developing countries like China, India, Indonesia, and Malaysia, UNCTAD said.

Moreover, though climate adaptation remains a priority for developing countries, greenhouse emissions in

traded goods and services account for only 27% of global carbon emissions.

”National trade policies can be at best play a complementary role but international trading rules that are being proposed in the WTO can constrain developing countries’ progress towards environmentally sustainable growth,” said Rashmi Banga, Senior Economic Affairs Officer, UNCTAD.

As per the report, developing countries are standing on the edge of another lost decade in the aftermath of the pandemic, and it is a “clear contradiction for the world’s most advanced economies to restrict what policy space is available to them through SDT or industrial policy tools while expecting them to meet increasingly demanding climate goals”.

As per the report, should carbon border adjustment mechanisms actually be implemented, much of their impact on structural transformation in developing countries will depend on their detailed technical specifications, with one of that he major legal challenges being to make these mechanisms compatible with WTO rules.

“Yet, independent of these details, the principle on which these mechanisms are based is to impose on developing countries the environmental standards that developed countries are choosing. This goes against the principle of common but differentiated responsibility enshrined in the Paris Agreement,” UNCTAD said.

Climate waiver, patent protection

A narrowly defined waiver and peace clause would give countries the assurance that they will not face disputes for

climate and development-friendly initiatives such as prioritizing a transition to renewable energy, green procurement, and green jobs programmes – all initiatives that advanced economies are also prioritizing but that could be challenged under the WTO-dispute mechanism, according to UNCTAD.

The Doha Declaration on the TRIPS Agreement and Public Health adopted by the WTO Ministerial Conference of 2001 reaffirmed flexibility of TRIPS member states in circumventing patent rights for better access to essential medicines.

“This could provide a basis for innovative mechanisms for promoting access to patent-protected critical green technologies,” UNCTAD said that other initiatives that could support this agenda include the open-sourcing of key green technologies as global public goods, South-South cooperation on low-emission research and design, and green investment strategies that include technology transfer.

It also said that incentive-based approaches such as optional preference schemes that provide ringfenced climate financing additional to ODA or preferential market access in exchange for progress towards nationally determined contributions could accelerate climate action without recurring to punitive measures with anti-developmental effects.

New financing support could be provided through a Trade and Environment Fund, as proposed by some WTO members in 2011 as it could finance the incremental costs of sourcing critical technologies, provide grants for specific green technologies, finance joint research, development and demonstrations, as well as the establishment of technology transfer centres, exchanges and mechanisms.

Should negotiations on carbon tariffs proceed at the WTO, UNCTAD cautioned that it will be important to ensure that this issue remains in the multilateral rules-based system, and that no decision should be taken between smaller groups of developed economies, as this would risk further undermining the trust of other WTO members, particularly those impacted most, in the ability of the multilateral trading system and global climate.

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