School of Law

University of Petroleum and Energy Studies

Dehradun

SEMESTER VIII; PROGRAM: B.A., LL.B. (HONS.) ENERGY LAW

INTERNATIONAL TRADE AND CLIMATE CHANGE

Name: ROHAN PATHAK

Enrolment Number: R450215081

SAP ID: 500044988

Submitted under the guidance of: Prof. A.K. Tyagi

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 CERTIFICATE

This is to certify that the seminar paper titled “__International Trade and Climate Change
___________” is the original work done by _____Rohan Pathak________ under my guidance
and supervision.

Signature & Name of Mentor

Designation

Date

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 DECLARATION

I declare that the Seminar Paper titled “_International Trade and Climate
Change________________” is the outcome of my/our own work conducted under the
supervision of Ms. / Mr ./Dr./Prof.__A.K. Tyagi_____________, at School of Law, University
of Petroleum and Energy Studies, Dehradun.

I/We declare that the Seminar Paper comprises only of my/our original work and due
acknowledgement has been made in the text to all other material used.

Rohan Pathak

B.A. LLB SEMESTER VIII.

Date : 08-04-2019

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TOPIC PAGE

INTRODUCTION 5

How does trade effect the 6

greenhouse gas emission?

The Paris Agreement 8

United Nations and WTO… 10

A coherent Partnership.

COMMITTEE ON TRADE 13
AND ENVIROMENT
CHANGE

CONCLUSION 14

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 International Trade and Climate Change

Introduction

The main objective of the research paper is to analyse as to how actually the International Trade
is degrading the environment and how harmful weapon it came become in the near future.

Today, almost every country in this world is racing, racing amongst each other to become a
superpower itself and the ones which are in the developing phase, let us consider India for that
reason, is completely involved and depended upon the day to day International Trade it makes
from across the globe. A growing economy always want to seek the path of prosperity and from
where ever it can gain profits and the ones who are controlling the whole market, the ones
which are the developed countries and superpower themselves do not even bother about the
society, climate and its surrounding much.

However, the International Organisation, specially, United Nations, here in. U.N. has played a
very important role when it comes the climate change, and with the help of WTO, U.N.s data
base has this strong hold that it is trying to regulate every trade happing tin the international
market, not only because of the misuse but also because it is causing a real harm to the
environment, which cannot be neglected.

The past half century has been marked by an unprecedented expansion of international trade.
Since 1950, world trade has grown more than twenty-seven-fold in volume terms. By way of
comparison, the level of world GDP rose eight-fold during the same period. As a consequence,
the share of international trade in world GDP has risen from 5.5 per cent in 1950 to 20.5 per
cent in 2006. A number of factors have given rise to this spectacular expansion in world trade.
Foremost is technological change, which has considerably reduced the cost of transportation
and communications. In the second half of the 20th century, the introduction of the jet engine
and containerization significantly reduced the cost of air and maritime transportation, thereby
expanding the range and volume of goods that are traded. The information technology
revolution has made it easier to trade and to coordinate production of parts and components of
a final good in different countries.

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A second factor is more open trade and investment policies. Countries have opened up their
trade regimes unilaterally, bilaterally, regionally, and multilaterally. Measures that taxed,
restricted or prohibited trade have either been eliminated or reduced significantly. These
changes in economic policies have not only facilitated trade, they have also broadened the
number of countries participating in global trade expansion. In particular, developing countries
now account for 36 per cent of world exports, about double their share in the early 1960s.

Thus, technological innovations and changes in trade and investment policies have both
democratized trade and made it easier to “unbundle” production. The parts and components
that make up the final product can be manufactured in different locations around the globe.
Many of these manufacturing plants are located in developing countries that, in turn, have
become increasingly integrated in global supply chains. Compared to the past, more trade can
be embodied in the manufacture of a final product and more countries can be involved in the
process.1

We need to understand one every important thing in this aspect, that this rapid pace on which
the international trade has gained popularity and is increasing day by day, its worst impact is
on greenhouse gas emission.

Economists have developed certain concepts as to how and why is the International Trade
effecting the environment on such high rate

How does trade effect the greenhouse gas emission?

The first study to this, was made on North American Free Trade Agreement (NAFTA),
categorises the impact of trade liberalization into three independent effects:

 Scale

 Composition and

 Technique.

This framework can be used therefore to study the link between trade opening and climate
change.

1
The impact of trade opening on climate change, WTO, available at
https://www.wto.org/english/tratop_e/envir_e/climate_impact_e.htm

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The “scale” effect refers to the impact on greenhouse gas emissions from the increased output
or economic activity resulting from freer trade. The general presumption is that trade opening
will increase economic activity and hence energy use. Everything else being equal, this increase
in the scale of economic activity and energy use will lead to higher levels of greenhouse gas
emissions.

The “composition” effect refers to the way that trade liberalization changes the mix of a
country’s production towards those products where it has a comparative advantage. This re-
allocation of resources within a country is how trade improves economic efficiency. The effect
on greenhouse gas emissions will depend on the sectors in which a country has comparative
advantage. The composition effect will result in less greenhouse gas emissions if the expanding
sectors are less energy intensive than the contracting sectors. Whether the composition effect
results in higher or lower greenhouse gas emissions is therefore difficult to predict in advance.

Finally, trade opening can lead to improvements in energy efficiency — the “technique” effect
— so that the production of goods and services generates less greenhouse gas emissions. This
decline in emission intensity can come about in two ways. First, freer trade will increase the
availability and lower the cost of environmentally-friendly goods, services and technologies.
This is particularly important for countries that do not have access to these goods, services and
technologies or whose domestic industries do not produce them in sufficient scale or at
affordable prices. For exporters, additional market access can provide incentives to develop
new products, services and technologies to mitigate climate change. Second, the increase in
income that trade brings about can lead society to demand better environmental quality in other
words, less greenhouse gas emissions.2

With the increasing competitiveness concerns in countries that are now racing to reduce
greenhouse gas emissions to meet Kyoto 2012 targets and beyond. These concerns have led to
proposals for tariff or border tax adjustments to offset any adverse impact of capping carbon
dioxide (CO2) emissions. There is also a concern about “leakage” of carbon-intensive
industries into countries that are not implementing the Kyoto Protocol. The broad objective of
bettering current and future human welfare is shared by both global trade and climate regimes.
Just as the World Trade Organization (WTO) recognizes the importance of seeking to “protect
and preserve the environment,” the Kyoto Protocol states that parties should “strive to

2
The impact of trade opening on climate change, WTO, available at
https://www.wto.org/english/tratop_e/envir_e/climate_impact_e.htm

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implement policies and measures in such a way as to minimize adverse effect on international
trade.” The United Nations Framework Convention on Climate Change (UNFCCC) features
similar language in several places, and the Doha Communiqué specifically states that “the aims
of upholding and safeguarding an open and non-discriminatory multilateral trading system,
and acting for the protection of the environment and promotion of sustainable development
can and must be mutually supportive.” Both treaties thus recognize and respect each other’s
mandate.3

The Paris Agreement

The post-2015 development agenda underpinned by the Sustainable Development Goals and
the Paris Agreement bring together the two grand frontiers - climate change and sustainable
development. The Paris Agreement and Parties' commitments - the so-called Nationally
Determined Contributions will mean big changes for their trading partners as the effects of
those commitments start playing out in trade flows and trade policies around the world. A
spectrum of alternative ways of reacting to this new reality has already been foreshadowed by
competitiveness concerns, with trade traditionally being treated as part of the problem. It is
even more important is to take a closer look at the large - and largely unexplored - potential for
trade to be part of the solution. In Paris, Parties agreed to continue addressing the economic
and social impact of response measures to climate change, taking fully into account the special
needs of developing countries. It was also agreed to continue with the work of the Forum on
Response Measures. A three-year work programme, adopted in May 2016, focuses on
"economic diversification" and on "a just transition of the workforce and the creation of decent
work and quality jobs".

Historically related to compensation to oil-producing countries for not exploiting their

reserves, the notion of response measures has evolved and is now seen in the context of
sustainable development and as a form of international cooperation. Trade serves as a
transmission mechanism for cross-border impacts and is traditionally seen through the lens of
a competitive relationship, but it has an enormous cooperation potential, too. The challenge is
to change the approach from one of allocating or shifting burdens among countries through

3
Trade and climate change, Focus C, Available at
http://siteresources.worldbank.org/INTWDRS/Resources/477365-1327504426766/8389626-
1327510418796/Focus-C.pdf

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trade restrictive measures, to figuring out ways in which trade could help all countries share
the benefits of transforming their economies.4

Existing international economic law places limitations on the right of national and sub-national
governments to regulate to address climate change. Given the current difficulty in reaching
multilateral agreements, for the most part countries will have to develop climate change policy
and law within the constraints of the existing legal, economic and financial framework. The
shifting fortunes of developed and emerging economies have altered the dynamics of global
governance. The ensuing multilateral negotiation paralysis means that unilateral action will be
necessary to create incentives to address climate change. However, the risk of regulatory
capture needs to be addressed to ensure that these unilateral measures are consistent with
international law and are economically viable.

It is important to identify policy issues and options and ways to overcome negotiation obstacles.
One proposal, with respect to WTO negotiations, is to make negotiations less ambitious, by
abandoning the rule that ‘nothing is agreed until everything is agreed’, and to abandon decision
making by consensus. There are precedents for this approach at the WTO, in which a limited
number of Members agreed to liberalize specific sectors once enough Members were on board
to cover ninety percent of trade in the sector. The most-favoured-nation rule extends
concessions to all WTO Members and the resulting agreement is left open for other Members
to join. The same approach to environmental goods and services would reduce barriers to
technology diffusion for climate change. A similar approach could be taken with respect to
GHG emissions, by seeking agreement among the countries that account for the overwhelming
majority of emissions, and by leaving it open for other countries to join. However, even this
approach may be difficult to achieve in a reasonable period of time.

4
Climate Change and Trade, available at https://unctad.org/en/Pages/DITC/ClimateChange/Climate-
Change.aspx

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United Nations and WTO… A coherent Partnership.

In the current political and economic context, multilateralism is not working in the UNFCCC
and WTO systems. This requires unilateralism, but in a well-considered approach that creates
economic incentives to engage the private sector and to push governments into effective
multilateral agreements. For example, funding for adaptation and technology transfer should
be made conditional on recipients implementing PPP-based mitigation measures, in order to
channel funding and technology to combat climate change. This can be accompanied by
unilateral trade measures on goods and services to create political will in developing countries;
the private industry that opposes climate change action based on competitive concerns might
change their stance if unilateral trade measures begin to affect market access and
competitiveness. However, unilateral measures to combat climate change need to be taken in a
manner that is consistent with existing obligations and principles of international
environmental and economic law, as far as possible, in order to more effectively address this
urgent global issue.

One country or one region cannot reduce the greenhouse gas emissions of other regions or
countries. In theory, it may be possible to create incentives for other countries, for example
with unilateral trade restrictions or foreign aid that is conditional upon emissions reductions.
However, trade restrictions do not just impose costs on the exporting country. They also impose
costs on the importing country, where importers are affected by the increased cost of inputs. In
addition, few domestic markets are large enough for trade barriers to have an economic impact
that would be sufficient to create an adequate incentive to reduce emissions. Foreign aid that
is conditioned upon the use of inputs from the donor country also may violate WTO law.
Moreover, foreign aid costs money for donor countries, too. Even if we resolve the problems
of cost and WTO consistency of trade barriers and foreign aid, they remain partial solutions
only because they will not achieve the desired level of emissions reductions.5

The World Trade Organisation in collaboration with the United Nation is taking every step
possible to curb this problem of climate change with and in affect to trade. However, the
developed nations and superpowers like USA have now started to export the much outdated
and rejected technological equipment’s which even they do not use generally. Such

5
Climate Change and International Economic Law, Bradley Condon and Yahir Acosta available at
https://www.wto.org/english/tratop_e/devel_e/train_e/Mexico.pdf

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equipment’s have been found to be anti-climate friendly. The heavy machineries they are build
built upon consists of such materials which are harmful for the society and the climate as well.

In the context of the carbon footprint of international transportation, “food miles” is an

emerging concept that involves the calculation of CO2 emissions associated with the transport
of food over long distances to arrive at the final consumer. Therefore, some advocate that
products should be sourced as much as possible locally and that labels of food products should
include information on the origin of the product.
However, the real “carbon footprint” of domestically produced versus imported foodstuffs is
very complex. Transport mode (air, road, maritime or rail) and distance are not the only
significant contributors to CO2 emissions. Life cycle of the products, including production
methods (e.g. heated greenhouses vs. open-air production; energy-intensive modern techniques
vs. hand labour) also plays a big part.
In the Marrakesh Agreement establishing the WTO, members established a clear link between
sustainable development and disciplined trade liberalization in order to ensure that market
opening goes hand in hand with environmental and social objectives. In the ongoing Doha
Round, members went further in their pledge to pursue a sustainable development path by
launching the first ever multilateral trade.
Aimed at furthering trade opening, a number of aspects of the Doha Round have a direct
bearing on sustainable development and can therefore contribute positively to efforts to
mitigate and adapt to climate change. As well, WTO's regular work provides a platform for
addressing the linkages between trade and climate change.

Under the ongoing negotiations on mutual supportiveness of trade opening with the
environment, WTO members are working to eliminate trade barriers in the goods and services
that can benefit the environment. Facilitating access to products and services in this area can
help improve energy efficiency, reduce greenhouse gas emissions and have a positive impact
on air quality, water, soil and natural resources conservation. A successful outcome of the
negotiations on environmental goods and services could deliver a triple-win for WTO
members: a win for the environment, a win for trade and development.

Environmental goods can cover a number of key technologies that may contribute positively
to the fight against climate change. Reducing or eliminating import tariffs and non-tariff
barriers in these types of products will reduce their price and make them more accessible.
Increased competition will foster technological innovation in areas related to protection of the

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environment and combating climate change. According to a recent World Bank study on trade
and climate change, elimination of both tariffs and non-tariff barriers to clean technologies
could result in a 14 per cent increase. To illustrate, the Intergovernmental Panel on Climate
Change has identified a range of mitigation and adaptation technologies that can assist in the
challenge of climate change. Many of these technologies involve products currently being
negotiated in the Doha negotiations. These include wind and hydropower turbines, solar water
heaters, tanks for the production of biogas, and landfill liners for methane collection. A
submission by the European Communities and the United States in December 2007 proposes
to give priority in the WTO negotiations to climate-friendly goods and to services linked to
addressing climate change. These climate-friendly products comprise about one-third of the
environmental goods already identified by a group of delegations.6

The TBT Committee provides an important forum to discuss technical regulations adopted by
governments to mitigate climate change. Technical specifications and labelling requirements
related to climate change are not new to the WTO. Indeed, they fall squarely within the
disciplines of the TBT Agreement which imposes, among other things, rules on avoidance of
unnecessary obstacles to trade and harmonization. In addition, the TBT Agreement requires
members to share information on technical regulations that may have an impact on trade.

In recent years, a number of product standards and labelling requirements targeted at energy
efficiency or emissions control were notified. The climate change-related technical regulations
discussed in the TBT Committee so far appear to principally concern product requirements.
Examples of regulations discussed so far include: fuel economy standards for cars; eco-design
requirements for energy-using products; energy efficiency programmes for consumer products
andengines.

The Committee looks at climate change measures to ensure they do not pose unnecessary
obstacles to international trade, while still achieving the legitimate objective of protecting the
environment, and encourages harmonization.

6
Activities of the WTO and the challenge of climate change, available at
https://www.wto.org/english/tratop_e/envir_e/climate_challenge_e.htm

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COMMITTEE ON TRADE AND ENVIROMENT CHANGE
The work programme of the Committee on Trade and Environment (CTE) covers the main
issues at the intersection of trade and environment. A number of issues indirectly relating to
climate change, such as the environmental benefits of removing trade restrictions in the energy
and forestry sectors and the effect of energy efficiency labelling on market access, have been
discussed in the CTE. The Committee serves as an incubator for ideas to advance the trade and
environment agenda and is the main gateway should members decide to explore further the
linkages between climate change and trade.

The Committee on Trade and Environment (CTE) is a group within the World Trade
Organization (WTO) tasked with identifying and understanding the balance of environmental
concerns against the interests of international trade.

The CTE was created as a result of the 1994 Ministerial Decision on Trade and Environment
and is available to all members of the WTO. The committee engages in discussions with
international governments about the impact environmental policies and international trade
policies have on each other. The CTE balances these economic negotiations against WTO
concerns about protecting the environment. It encourages this through the promotion of
sustainability in both business and development and the goal of an open, impartial and non-
discriminatory multilateral trading system.

In 2001, the CTE released the Doha Declaration, which created the landscape for current
negotiations through the committee. In the declaration, the WTO mandated multilateral
environmental agreements (MEA) that aim to emphasize the importance of trade and
environmental policies working together to benefit each other. The CTE has also encouraged
members to discuss eliminating trade barriers on environmental goods and services to create a
mutually beneficial situation for trade, the environment and development. For example, all
three sides would benefit from the easier sale, procurement and implementation of
environmental technologies. Trade wins because products become less costly and producers
can find new markets. With an increase of availability, environmental technologies can help
less advantaged countries with sustainable development and stimulate innovation.

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While there are no specific agreements with members that deal with the environment, the WTO
notes that members are free to adopt rules to protect the environment, providing they do not
enable protectionism.7

CONCLUSION

Effective environmental policies and institutional frameworks are needed at the local, regional,
national, and international levels. The impact of trade liberalisation on a country’s welfare
depends on whether appropriate environmental policies are in place within the country in
question (e.g. correctly pricing exhaustible environmental resources). Stringent environmental
policies are compatible with an open

trade regime as they create markets for environmental goods that can subsequently be exported
to countries that follow suit on environmental strandards – the so-called first-mover advantage.
This is especially true for complex technologies such as renewable energies.

Countries have undertaken a number of environment-related efforts under the World Trade
Organization (WTO) framework including negotiating tariff reductions in environmental
goods and services, seeking more clarity on the relationship between existing WTO rules and
specific trade obligations in multilateral environmental agreements, and seeking disciplines on
fisheries subsidies. In this way, the WTO is building a multilateral framework for international
trade that also discourages any misguided temptation to engage in a “race to the bottom”.

Direct consequences of climate change on trade could come from more frequent extreme
weather events and rising sea levels. Supply, transport and distribution chains infrastructure
are likely to become more vulnerable to disruptions due to climate change. Maritime shipping,
which accounts for around 80% of global trade by volume, could experience negative
consequences, for instance from more frequent port closures due to extreme events. More
importantly, climate change is expected to decrease the productivity of all production factors
(i.e. labor, capital and land), which will ultimately result in output losses and a decrease in the
volume of global trade.

At the same time, there could also be positive economic impacts on maritime shipping through
the potential further opening of Arctic shipping routes, albeit at the cost of environmental
degradation.

7
Committee on Trade and Environment (CTE), available at
https://whatis.techtarget.com/definition/Committee-on-Trade-and-the-Environment

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The inclusion of environmental provisions in bilateral and regional trade agreements has also
helped harmonise environmental regulations between developed and developing countries.
More advanced economies can provide resources and institutions for capacity building, and
can encourage less-developed partners to strengthen environmental regulations. The OECD
has addressed many issues on trade and environment such as the drivers of environmental
provisions in Regional Trade Agreements (RTAs), as well as the stringency of environmental
policies as a driver for trade in goods in environmental goods and services. We are also
currently developing a set of policy indicators on trade and environment to help monitor
progress towards more policy coherence, and to identify policy priorities at the intersection of
trade and environment.8

8
Trade and the environment, Available at http://www.oecd.org/trade/topics/trade-and-the-environment/

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