To address the challenge of climate change, the World Trade Organization must become more flexible – without meaningful reform, its legitimacy will continue to wane, Wendi Wiliyanto writes.
Climate change is a major hazard in the international trade system, with increasingly severe and frequent disasters disrupting the economic activity that has underpinned global growth in recent decades. But despite the significant risks, the World Trade Organization (WTO) – the preeminent multilateral global trade body – has been unable to adapt.
Dealing with climate change is essential to achieving sustainable global development and poverty reduction, and international trade plays an important role in addressing this challenge.
However, global trade is also part of the problem. This is because greenhouse gas emissions are integrated into global production and supply chains – as trade volumes have increased, so have emissions.
The wealthiest countries – those that have benefitted most from the current global trade regime – are the worst offenders. According to a 2020 report on carbon dioxide emissions in international trade by the Organisation for Economic Co-operation and Development (OECD), the per capita emissions of its member countries were around 2.5 times higher than the world average and 3.6 times higher than non-OECD countries.
Moreover, as citizens of developing countries become wealthier, they naturally consume more resources and thereby contribute more to global temperature rise. One only needs to look at the increase in emissions from China since its integration into the global economy to see this in action.
However, it is this very economic development via increased trade that developing countries need to successfully mitigate the worst impacts of climate change. So, more sustainable global trade is needed to fund the fight against the very climate impacts globalisation has created.
A well-regulated trading regime could be a net benefit in the fight against climate change – via the promotion of environmentally sustainable goods and services – rather than the anchor on global emissions reduction it is today.
The WTO and its 164 member states have a critical role to playing climate change mitigation efforts, but the organisation’s inefficiencies are preventing it from making progress.
The largest impediment is the ‘single undertaking principle’, which requires complete consensus for the adoption of new rules, and that every member of the WTO abide by all the same agreements, regardless of circumstance. In other words, nothing is agreed upon until everything is agreed upon.
Ideally, the single undertaking principle should promote fairness in the international system, but in reality, it does the exact opposite. It slows down negotiations significantly and raises the risk of them failing.
As a result of this requirement for consensus, no specific WTO framework addressing climate change has been adopted. This inaction poses unacceptable risks to lives and livelihoods. Worse still, existing WTO agreements can hinder member state’s efforts to avert climate change and environmental damage.
This is not just detrimental for developing countries, but also for the WTO itself. Due to the obvious inadequacies within the single undertaking principle, many countries are increasingly turning to bilateral agreements, and even new forums, to negotiate green trade agreements. This undermines the legitimacy of the organisation at a time when it is critical make significant strides in climate change mitigation efforts.
In response, reform is needed, for the future of both the planet and the WTO.
One option for the organisation is to pursue ‘plurilateral’ trade agreements, whereby members would have the freedom to choose which agreements they wish to pursue and adopt. Contrary to the single undertaking principle, plurilateral trade agreements are not hampered by the need to be approved by every member.
Freed from the strict single undertaking principle, this plurilateral model has led to some successful negotiations around specific issues, particularly anti-counterfeit measures. If this success can be translated to climate change mitigation efforts, a sustainable trade system could be within reach.
The international trading system urgently needs to find ways to further environmental sustainability, but so long as the WTO remains inflexible and blind to the disparities between the most and least developed countries, it’s hard to see significant progress being made.