The WTO DSM – The dangerous link of Doha stalemate and environmental pressure

Will WTO dispute settlement be impacted by continued non-progression in the multilateral trade negotiations? Could the environmental tensions we see add to such effects?

The Dispute Settlement Mechanism (DSM) is undeniably one of the core functions of
the WTO and perhaps even its most lauded feature. The question of whether or not anything will be taken away from this function with a continuously non-progressing Doha Round is therefore a relevant one, as it goes to the heart of the functioning of the organization.

Generally, the sentiment seems to be that even a failed Doha Round would not in a direct or immediate manner lessen the credibility or the functioning of the DSM. Both the stability of the body of case law as well as WTO Members recognition of its utility seem rather strongly indicative of no such negative effects ensuing, at least not in any immediate fashion. However, the effect on the DSM from a failed Doha Round is not something so simple as to be a non-issue. The important point, which may sound like heresy to the purist lawyer, is that the DSM should not be considered as functioning in a vacuum, complete unto itself. Though it seems evident that few Members have serious quarrels with the mechanism as such, this would only be reassuring it from potential political fallout if the mechanism could be considered as being isolated from the political part of the WTO.

If one is of the opinion, like me, that the DSM may not be immune to political considerations, then any direct impact on the mechanism as such resulting from a more general loss of credibility from a dead Doha may be a red herring. Rather, the future threat to the functioning of the mechanism in the case of a failed Doha may in such a case be more likely to come from forcing certain members closer to the point where they feel compelled to recalculate the benefit of subjecting themselves to decisions that to them represent an unacceptably negative power shift, while being certain that little potential exists for any simultaneous WTO political negotiations yielding ‘offsets’ to this loss in the power dynamic.

This may be considered a political risk more so than a legal one, but if one accepts the above mentioned distinction then such separation may ultimately be impossible. In national politics it is not uncommon for the judiciary to pick up some of the ‘slack’, or at the very least continue to function, when the legislative branch is deadlocked. In the WTO such a situation may represent a double-edged sword where, on the one hand, it speaks to the stability of the system by ensuring its continued functioning in the legal sense but, on the other hand, may also find itself having to shoulder heavier burdens with clearer political undertones than what may be considered comfortable to carry. Put simply, if spill-overs do occur from a political breakdown of the Doha, with contentious issues and areas finding themselves increasingly on the benches of trade judges rather than on negotiating tables, then a failed Doha may indeed impact the DSM by more or less forcing it to take political factors into account in their legal decision-making to avoid results that would be patently unacceptable to certain members. The strong negatives that could ensue from a failure of the Appellate Body to conduct a successful ‘balancing act’ of this sort would not be a vote of confidence on the legal function of the DSM as such, but rather a non-legal political calculation of benefit that has started to yield negative results due to the forced hand of judicial manoeuvring in the WTO DSM.

The burden of carrying out these balancing acts would likely increase at least slightly
for the Appellate Body in the case of a failed Doha. Not necessarily just because of increased conflicts with regards to what is currently in the Doha package being taken away, but perhaps primarily due to the loss of potential and time during which an already existing pressure resulting from political non-progression finds itself unchecked and set to slowly increase for an even longer period. Regardless of how legally robust one holds the DSM to be currently, time is not on the Appellate Body’s side when it comes to political non-progression. Seen from this fundamental perspective, exactly where extra points of pressure requiring further balancing acts by the Appellate Body come to be located is ultimately not the issue. The fundamental issue is that the mechanism is steadily put in a more precarious position the longer it needs to shoulder the burdens of lacking political progress. The successful conclusion of Doha is from this perspective an important balancing force from which the DSM would be able to function with more certainty and less fearfulness of overreaching.

This of course leads one to the grand question: Why are we in this precarious stalemate that may or may not have these consequences for the DSM? Here we enter the realm of power and politics but, again, if one accepts that ultimately the DSM does not function in a vacuum, such a discussion is unavoidable. There may be an element of power shifting between WTO members that has evolved over time, influencing the actions of the Appellate Body. Most seem to agree that there indeed seems to be a greater degree of activism by the Appellate Body in recent times as compared to its earliest decisions. The reason for this is subject to debate, but it is perhaps not implausible that the power dynamic of the WTO was heavily skewed toward a few major players during the early years, as opposed to the more dispersed power landscape we see today. A more activist approach taken in recent times may thus not be the manifestation of increased confidence or security in the body of legal decisions, but rather (or also) be simply a reflection that whatever the Appellate Body decides in recent times will lead to one of many major players being upset. Faced with such a modern bind, it may actually afford the Appellate Body more freedom to focus on reaching the right decision than what they might have dared during the early days. The flipside is that focusing on the ‘right’ decision also often is one and the same with increasing the degree of activism when the dispersed power landscape effectively blocks political progression.

Bringing this into perspective a bit, perhaps it is easy to take for granted just how far
we have come with regards to the multilateral trading system. The staggering amount of
liberalization that has occurred under the aegis of the WTO must surely be considered one of the true success stories of multilateralism during the 20th century. But perhaps we are also starting to reach the point of having come as far as we currently can with single undertaking type multilateralism and its foundation of generalized circumstances, with the future instead lying in progress that is more tailored to specifics and recognition of a less tidy political power dynamic.

In such a world, the WTO as a multilateral institution could play a crucial role as a stabilizer that makes sure the successes of the organization are kept while hopefully also affording sufficient room for progress outside its frame. Put simply, to have the WTO as the ‘marble floor’ that avoids deep protectionism beyond its set points while the ‘ceiling’ is being built elsewhere where more adaptation and fluidity is possible. Here I must for full disclosure also say that Prof. Joost Pauwelyn helped me greatly in seeing this dynamic.

If we indeed are moving toward such circumstances, the focus of the WTO might become less as a forum to negotiate reductions and more of one that prevents deep swings of protectionism. Of course, the WTO as a potential negotiating forum would not go away and in widely agreed problem areas such as subsidies, anti-dumping and fisheries we might still even see a strong enough momentum to see multilateral progress of some kind, while overall evolution becomes driven more from attunement to the specific policy environment of each member and outside the WTO frame.

In such a scenario, there is however a rather precarious time of transition to be dealt with,
especially for the WTO and its DSM. For it to play such a ‘marble floor’ role, it is important
that it also keeps firm political backing for not only its rules, but also their application in the
DSM. If the Appellate Body finds itself forced to further restrict interpretation space in the very incomplete contract of the WTO, the discord between judicial evolution and the amount of politics backing up that legalization may become problematic given enough time.

Cases that can be relevant to climate change have already seeped into the DSM. The fear
of the environmental movement that continued multilateral non-progression would lead to
climate relevant issues being decided (and restricted) by trade judges in the WTO is nothing new, but there is a distinct extra layer of palpability to it at the moment. The ‘Shrimp/Turtle’ case was widely recognized as a watershed case for the ability of the WTO to handle environmental issues in a reasoned fashion, and with it died a lot of the fervour of the environmental movement that came after the ‘Tuna/Dolphin’ case.

Though it currently would seem unlikely, it is far from impossible to imagine that such fervour could reignite with one or several careless decisions. From a more structural standpoint, an interesting question is whether these ‘environmental’ cases are likely to build up a pressure that bring us closer to destabilizing the balancing act of the Appellate Body. Most likely, the Appellate Body will continue to focus on simple solutions to hard problems in contentious areas to keep sovereignty, political backing and member discretion as intact as possible.

Still, if one subscribes to the notion that time may not be the Appellate Body’s friend at the moment with regards to the alleviating of pressure, it is tempting to ask the question how far one can go in gracefully ducking hard choices in the name of systemic integrity.

In the next post, i’ll explore how the much discussed “move towards regionalism” might come to affect trade and environment issues. Thanks for reading. 

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The Multilateral Link – UNFCCC and Doha

Today I’ll continue my big-picture look on trade & climate change by studying some of the challenges facing the multilateral negotiations on climate and how they relate to the multilateral negotiations on trade. 

With a huge amount of political investment in both the Doha Round and the UNFCCC
negotiations, what are some of the important sequencing and overlap issues in these two sets of negotiations? In the event of a shifting policy focus by members due to failing progress in the multilateral negotiations, would the sequencing of such events in the WTO vis-à-vis UNFCCC frames affect each other?

It is of course important to remember that these negotiations are completely different in
many respects. The WTO negotiations are very topical and constitute a very intentional effort to liberalize trade, for example with agricultural trade and NAMAs. Climate change
multilateralism is a different beast as it deals, at its core, with placing necessary restraints
upon the current forms of human economic activity. The two negotiations are both hugely
complex multilateral undertakings, but clearly with qualitative differences in their character.

Despite this difference, multilateral action on trade can be very important for
multilateral action on climate change and it is difficult to think that there will be some kind of sustainable multilateral action on climate change without some kind of multilateral goodwill action on trade in some form.

One should probably be careful here not to make an assumption of specific trade issues
ever being definitively ‘solved’ within the UNFCCC framework. From a multilateral
perspective, this will almost surely happen in the WTO if it happens since tackling trade
issues is generally seen as a purview of the WTO in the UNFCCC negotiations.

In this way, the focus and force of policy resulting from the UNFCCC framework can
be significant for the WTO as a signal to start negotiating on some contentious issues such as border carbon measures. The important point of sequencing is that a clear signal has to come from the UNFCCC first for anything like that to happen, productively, in the WTO.

Before any meaningful agreements in the UNFCCC have been made, it would be a strangely premature and unlikely action, particularly in the light of an unfinished Doha, to start negotiating on this in the WTO. Even without the leviathan that is Doha looming over the organization, which may or may not make such a task harder, there is clearly a desirable sequencing to such a development where it would seem the horse of climate change agreement must come before the cart of allowable climate trade measures negotiated in the WTO. However, as a matter of sequence, there is slim chance at the moment of writing that the UNFCCC negotiations anytime soon will progress sufficiently far as to send such clear signals about where the WTO needs to ‘get busy’ on creating allowable specifics regarding domestic and international climate change action. Be that as it may, my opinion is that the WTO cannot, and should not, take the lead on this, since they are unlikely to be able to do so constructively while lacking UNFCCC progress. I’ll be exploring the implications of this a bit more in coming posts.

A goodwill agreement of some sort in the WTO is the aftermath of the real climate battle, which is appropriately to take place, at least multilaterally, in the UNFCCC negotiations. In other words, when one looks at the role of the WTO in this sequencing, they do have a very important part to play in creating a situation down the line where trade law does not stand in the way of performing on agreements made on climate change. But the appropriate sequencing of creating such a situation would suggest that one should not mislabel the role of the WTO with regards to climate change or lament inaction as they are wont to appropriately follow, not lead, in this area. For full disclosure, It’s very important to note that not everyone agrees with me on this and think that WTO could have fruitful and productive discussions on things like PPM:s and border carbon measures without any agreement whatsoever in the UNFCCC. I disagree, but that’s my opinion.

Seen from this “horse before the cart” perspective, the only blocking potential of the Doha with regards to trade and climate synchronization would be if it in some way lingered on for an extremely long time and consumed so much resources that even despite clear signals on specific areas being sent from highly successful UNFCCC negotiations, the organizational capacity of the WTO were to be overstretched to the point of preventing such aftermath negotiations. Needless to say, we are a very long way from such a situation and it does not seem likely that it would ever arise.

Some separation of concepts is also valid to insert here when talking about sequencing
of action and the role of the WTO with regard to climate change. It is important not to
confuse the institutional role and function of the WTO with the motivations and fears of some nations on the climate side of negotiations. Climate change mitigation occurs domestically. When countries in climate negotiations are eager to look at trade implications to motivate non-action, it usually says very little about the WTO as such and very much about how serious and willing these countries actually are about confronting climate change. It is to be resisted to ever judge trade and the WTO as an external reason for why domestic action is impossible. This type of false scapegoating unfortunately still surfaces from time to time as it provides a convenient ‘out there’ reason taken to imply a lessening of responsibility by providing a “boogey-man” to blame all ills on.

Ultimately, it is unfortunate that there is still such a hard divide between trade and climate issues and their respective multilateral undertakings, as this separation does not really speak to how these issues are thought of in reality. Trade & climate change forms a single entity in how it needs to be tackled and should ideally be treated as such. But we do not have the luxury of ideal world governance, so we do the best with what we’ve got.

I’ll continue tomorrow with the impact all these things might have on WTO dispute settlement.


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Does the Doha Round matter to Trade & Climate Change issues?

What is the link, if any, between the Doha Round and progress in linking trade & climate
change concerns? Are we losing or gaining anything in the trade and climate intersection by not concluding the Doha?

It is helpful to perhaps divide this link into two separate categories. One concerning
what is concretely at the table at the present moment and another regarding what may be lost in somewhat broader sense if the non-progression of Doha lingers on, thus also encompassing the time after Doha. Regarding the first category, Doha does not seem to bring all that much to the table. The obvious area of focus is Environmental Goods and Services (EGS). There does not, however, actually exist a specific climate change category of environmental goods in the Doha negotiations. Renewable energy is a category and there is a proposal put forth by Saudi Arabia to also make carbon capture and storage a separate category, but there is none specifically targeting climate change as such. Concretely speaking, some informal calculations that have been made on what a complete liberalization of all environmental goods and services in the negotiations would actually mean show rather scant results in and of themselves. Performing complete tariff-liberalization of the 153 products in the Harmonized System (HS) that are on the so-called ‘Friends’ list has shown to be of marginal climate change mitigation relevance. Of concern is that out of the products on the list that seem to be most climate relevant, the threat to their wider dissemination seems not to be tariffs, but rather non-tariff barriers (NTB). Thus, an initial appraisal of even highly successful EGS negotiations seem to show that the impact on climate change is limited at best. It is of course important to interject with a reminder that this does not mean there would not be other very beneficial environmental effects resulting from such successful negotiations. However, in relation to the challenge of climate change and considering what is actually on the negotiating table at the moment, the Doha Round cannot be called an exceedingly important set of negotiations for the trade and climate intersection.

With regards to the possibility of creating new channels of interpretation and
coordination in the WTO and MEA intersection, there is also little real progress likely to be
made from the Doha side of things. The UNEP and WTO secretariats have already had
official coordination channels open for years, so any further contribution from Doha in this
respect would be soft at best. Regarding what is on the table in the negotiations for climate
change purposes, slight though it may be, the effects of Doha non-progression will depend on the specifics of that non-progression. In any event, there is likely to be a good deal of anger from developing countries, and least developed countries (LDCs) in particular. There is a feeling among these nations that the main stumbling blocks to Doha progression is not a result of their actions or demands and that they are unfairly losing potential from the Doha package due to tensions and differences between the developed nations and the advanced developing nations.

In the case of continued non-progression or even breakdown of negotiations, whatever salvaging package that may be adopted in its stead will also likely leave a complex aftermath for developing nations to deal with. The difficulty would lie in establishing a different prospect for progress that has balance for this part of the negotiations. This may not sound too dramatic, but this balancing act contains many strategic negotiating concerns that may not be entirely intuitive to address. Put simply, everything in the negotiations is connected to everything else. No matter what form a hypothetical attempted salvaging of the Doha may take at this point, whether it be ‘mini-deals’, sectoral deals or even plurilateral and bilateral deals, the point is that it is difficult to just ‘make a deal’ on EGS both inside the round due to the larger tensions associated with it, but also outside of it due to balancing concerns. Most environmental goods and services are produced in developed countries and China, with many countries not necessarily willing to single out this area and liberalize further in a way that would create commercially unattractive conditions for their own infant industries. Thus, it would not be unexpected for developing countries to demand further balancing measures to further their own green industrialization if the EGS negotiations were to be singled out in some way, regardless of the ultimate fate of Doha. For example, demands for greater flexibility on TRIPS in the way of performance requirements and greater flexibility on subsidies for clean energy development and green industries may be cautiously predicted as prioritized areas for such demands. It is important to remember that for developing countries, the issue of EGS in the Doha falls somewhere between industrialization and green industrial policy, and this is clearly reflected in negotiations.

Looking from a broader paradigm of what continued Doha non-progression may mean, there are certain areas that from a climate change perspective, and indeed from a trade perspective also, might be made significantly harder to pursue if Doha is not concluded successfully. Subsidies are one of those areas, for example determining the appropriateness and delimitations of subsidies in green energy promotion. Progress regarding greater flexibility in TRIMS for certain climate change relevant energy requirements would perhaps also be affected negatively. The lack of a coherent negotiation frame surrounding these, especially subsidies, which may result from a failing Doha will likely make any progress in ‘singling out’ much more difficult. Regarding these specific areas there is a relatively good level of problem insight, most everybody seems to agree that subsidies regulations are in need of improvement, and here climate change concerns has a potentially easier time of simply being swept along the tide of more general trade concerns. However, with regards to areas that tend to be very important to the environmental movement yet whose status in actual negotiations seem to be all but intractable, such as border carbon adjustments and PPM carbon standards, a failure of Doha would likely transform an already herculean task into more or less a virtual guarantee for multilateral non-progression for the foreseeable future.

This is of course presupposing that there at all even exists a fundamental opportunity for negotiating balance with regards to these measures in a multilateral setting, something that is still up for debate.

Ultimately, what may be more important than the direct link between Doha and climate
change is the general link between the WTO and Multilateral Environmental Agreements
(MEAs). Concluding Doha may send a positive signal to other negotiations and dispel some
of the cynicism that now envelops both negotiations, thus providing some general momentum for multilateralism. For purposes of combating climate change and removing trade from being an obstacle to it, this is probably much more important than the actual topics being discussed in the Doha Round.

I’ll be continuing this discussion in a few posts to come.

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The WTO sets its sights on Rio+20

To be honest, nobody had high hopes for Durban. Indeed, the way things were going, the final result must be said to have been somewhat better than expected.

The really exciting opportunity for progress, especially with regards to the so called Green Economy, lies with the upcoming Rio+20 meeting which will take place this summer.

To prepare for this much anticipated meeting, the WTO has released a very interesting new brochure where they lay out a couple of messages on the linkage between trade and sustainable development. Essentially, this is meant as a “what does the WTO think going into Rio+20”.

Available here, I am impressed by the clarity of this brief position paper of the WTO. It touches, albeit briefly, on the major trade issues as they relate to the Green Economy. Of course, for anyone following Trade & Environment in the WTO, none of their positions come as a shock (support multilateral trading system, no green protectionism etc) but it is great to see that the organization is taking such an active interest in Rio+20. They are right to do so, since the general feeling is that this is where the “action” is right now with regards to multilateral progress. Indeed, hopes are getting quite amped for June in Rio de Janeiro.

Anyone interested in how trade issues might come to play out at Rio+20 should check out this brief paper to get an understanding of the WTO:s own thinking on these issues.

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Border carbon adjustments – the studies never end

Lawyers love to poke about in the GATT and other WTO agreements to try and figure out how border carbon adjustments would square with current trade rules. I have seen umpteen studies made on this, and I myself am guilty of having written my master thesis about it. I know of one Ph.D candidate at the World Trade Institute who is writing their dissertation on it and in the latest issue of the journal I was published in there was another study on it. Further, at least two environmental think tanks that i’ve randomly come across are currently doing work on it.

I understand the fascination. Looking at this area tends to fill you with the feeling that there are “hard” answers to be found here. Of course, as has been established over and over again, permissibility of border carbon measures will come to depend on the specifics of the measure. The very incomplete agreement of the WTO does give room for border carbon measures, but ultimately political progress is what to hope for, not lenient trade judges.

It’s actually somewhat distressing that many seem so cavalier about the fact that trade judges would sit and decide on the appropriateness of environmental measures in the WTO. Yes, technically they would decide “only” on the trade implications, but as is perfectly clear to anyone who has looked at this area, separating one from the other without including political concerns might be difficult indeed. I have explored this theme before, and to recap quickly: It’s none too great of an idea to have the Appellate Body decide the environmental trajectory of the WTO. The fervour of the Tuna/Dolphin case may have died down a bit when the Appellate Body gave a reasonable ruling in Shrimp/Turtle, but these issues ultimately belong on the negotiating table.

But of course, the studies are likely to keep coming in. It is an important area after all though pretty much everything has been said at this point barring further progress. In my personal opinion, little new has actually been said after 2009, when Steve Charnovitz, Gary Hufbauer and Jisun Kim released “Global Warming and the World Trading System“, which is still the best book i’ve read on this topic.

My own opinions and technical exposé from 2010 when I went deep into this can be found here: Westberg – The WTO permissibility of border trade measures in climate change mitigation

And Happy New Year!

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Trade & Environment Beyond Doha – New Article Published

I just had an article published in the Manchester Journal of International Economic Law.

Put simply, it explores the link between the Doha Round of trade negotiations and its impact and importance for the link between Trade & Climate Change.

Of course, it quickly becomes a bit more subtle than that and in the article I put forward the suggestion that what we are actually seeing is a greater shift occurring with regards to multilateral governance. It will be a very uncertain, and rather dangerous, time ahead where multilateral institutions are struggling to find a comfortable fit with the problems that they are attempting to solve.

My conclusion in the article was the following:

“We are at an important transition period with regards to multilateral progress in the areas of both trade and climate change. A “messier” landscape of international governance seems to be emerging  with current institutions struggling to find a new role while trying to account for changed power dynamics and novel avenues for progress. What is certain at this point is that it will take time for such a new landscape to fully emerge, let alone to figure out what melding, if any, there will be with current multilateral institutions. Affording long periods of time, however, may prove to be problematic. This transition phase and the time it will require includes components of volatility, which may be particularly relevant for the Dispute Settlement Mechanism of the WTO. Seen as an own multilateral area, the intersection of trade and climate change is still in its infancy with neither side of the trade and climate interface currently able to manage a meaningful linkage without significant further progress and appropriate sequencing of events.”

I will be exploring some of these themes in a few posts to come and also try to make the article itself available here on the site. Needless to say, very interesting times lie ahead for the field of trade and environment.

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