The move to regionalism – trade and climate as symptoms of a greater shift

How will the trade and climate intersection be affected by a more regional world in the face of the continually stalling multilateralism that we are seeing? What are the positives and negatives of this new landscape?

That we are seeing significant regional action in national trade and investment policy
seems rather clear at this point and is a phenomenon that has increased its pace for some time already. Whether or not we would see the triggering of a trade ‘spurt’ of new bilateral and regional trade agreements in the case of a conclusively withered Doha Round seems less clear however. The Round is already at a serious stalemate and further certainty of this stalemate continuing is not likely to be a deciding force in providing extra momentum for regionally customized progress. Indeed, Doha generally does not seem to exert much force at all on regional and customized progress. What is clear, and problematic, at this point is that we currently lack an up-to-date and accurate theoretical model for analysing the current state of trade and any trajectory it might signify towards a new state of normality. With regards to the positives and negatives of such an uncertain landscape, a few overall points can probably still be made regarding the role of Doha and the potential impact of regionalism on trade and climate concerns. First, countries are well aware of who their main trading partners are, and any potential move towards a lessening focus on multilateralism is not likely to change overall trade flows in any drastic manner in the near future. However, with regards to increase in trade, it is beyond question that regional progress has added to absolute trade figures and liberalization ‘booming’ despite the intractable multilateral situation.

Exclusion issues, transparency, and the resurgence of power politics in trade
negotiations are often put forward as the potential negatives that may come out of this new
landscape. These concerns are probably not wholly unfounded as negotiating costs for trade agreements are rather high and WTO accession especially for smaller and poorer countries provides an exceedingly good deal of value in relation to time invested in negotiations. In a world of greater regional customization, repeatedly bearing these costs toward an entire diaspora of new trade hubs might have the effect of unevening the playing field for certain countries, as some would simply lack the economic and political force to ensure the degree of fairness and transparency that is available in the WTO. Of course, this is not saying that the current WTO framework is perfectly fair to all nations, and neither are the UNFCCC negotiations for that matter. Generally speaking though, there does seem to be some legitimately founded concern that a move towards non-multilateralism would negatively impact the voices of small and, particularly, LDC nations. Quickly zooming out a bit from such worries, it would seem crucial however not to fall into an ‘either-or’ mind-set when discussing these issues. It is perfectly natural that a country is engaging in regionalism to some degree, while also keeping and taking seriously their WTO commitments. The more interesting point may be that the regionalism we now see no longer concerns ‘market access for market access’ type regionalism but rather one of ‘foreign factories for domestic reform’. In other words, the ‘prize’ of the new regionalism may no longer just be market access, but domestic political reforms that facilitate business and investment.

Undoubtedly, such negotiations have difficulties of their own, and jumping to the
conclusion that this new landscape, were it to be accurate, is an ‘easy’ way forward in the face of stalled multilateralism is decidedly premature. Despite such caution, it is striking to note that especially developing countries seem to be much more willing to engage in dealing with issues such as NTB outside the WTO than inside. At UNCTAD developing countries are fully engaged in, for example, questions of labour and competition law and how to deal with their problems in these areas, whereas within the WTO framework such discussions are less than likely to be fruitful. Obviously, the ‘hard’ consequences that can result in the WTO are a major reason for this, but the same seems to hold true for investment treaties and other types of customized agreements in which developing countries seem much more willing to engage in reform. This once again comes down to WTO-centricity and the potential loosening of it. It is important to remember that such loosening is not a moral issue to be judged good or bad but probably more simply has to do with the logical mechanics of negotiation, where less players typically mean less wills to align and thus having an easier time reaching an agreement. The days when a handful of very powerful countries with relatively homogenous interests effectively set the WTO agenda are clearly over. The trading system today is characterized by many important players and very diverse interests, making the collective action problem harder and more intractable.

Why is this important for the intersection of trade and climate change? Among other
things, these developments may affect which fora for discussions on the link between trade
and environment that is ultimately chosen. As mentioned above, specific text concerning
legalization of climate change related trade measures is very unlikely to originate from the
UNFCCC negotiations, although a clear signal can be sent from such negotiations concerning what needs to be done to remove trade as a barrier to climate change mitigation. The orthodox view seems to be that WTO really is the only place that could effectively receive and translate such signals into effectively removing trade barriers as it is the only place with enough credibility, institutional leverage and participation to effectively carry through such proceedings. Though this may be persuasive from an institutional standpoint, one should perhaps not wholly rule out the possibility of such progress being made elsewhere, particularly if we do see an increase in the move towards ‘local customization’ of both trade and environment solutions. It is interesting to recall that if one talks to ‘old GATT hands’, not infrequently these veterans are upset that the WTO handles environmental issues at all, seeing this as a failure of the environmental movement and an usurpation away from the original purpose of the international trading system. Such criticism may be indicative that negotiating the legal permissibility of trade-related climate change measures in other fora than the WTO, though at the moment unlikely, is not quite so dramatic a proposition as one might instinctively think it to be. Indeed, on the trade side of things, environmental provisions contained in FTAs and RTAs are often more progressive than what is feasible within the WTO. If the climate negotiations stall continuously, it would not be surprising to perhaps see a similar trend of exogenous deepening there.

Seeing more regional climate agreements with deeper trade provisions included is an
intriguing yet still highly uncertain avenue for progress. The possibility for stronger and more customized elements of capacity building that could be included in such agreements
(compared to multilateral negotiations) is often lifted out as a positive of this approach. Yet, if any such agreements were to be deep and serious, it would surely have to deal with the issue of competitiveness and carbon leakage in some way. If a multitude of such regional climate agreements started taking form due to perpetually intractable UNFCCC negotiations, and thus came to include some form of competitiveness provisions against third countries, such agreements could put tremendous pressure on the WTO and even act as a rupturing force within the organization. Assuming that such regional agreements would be likely to divide along the lines already visible in the UNFCCC negotiations, a ‘business-as-usual’ WTO could then be put in the severely unenviable position of trying to tidy up the unresolved issues of various UNFCCC negotiation positions as subsequently embodied in regional agreements.

In the next post, I will tie up my big-picture exposé on the link between the trade and climate negotiations.

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