By Sofia Baliño, Senior Manager, Communications and Engagement, IISD

The digital environment is changing rapidly, altering traditional understandings of how we trade, what we produce, and what we consume. In parallel, the natural environment is facing continued pressures, from the climate crisis to the overexploitation of natural resources and biodiversity loss. Amid this backdrop, the international trade community has, in recent years, been looking more closely at whether and how trade policy should play a role in responding, to what end, and how far this work should go.

These questions took center stage during a session titled, ‘The Trade System is Changing: Can It Deliver for the Future?’ held at this year’s World Trade Organization’s (WTO) Public Forum. The event, which took place on 27 September, both in person and online, was co-organized by the International Institute for Sustainable Development (IISD), the International Chamber of Commerce (ICC), and CUTS International, Geneva.

Moderator Alice Tipping, Lead for Sustainable Trade, IISD, set the stage for the conversation, outlining how the past several years have already seen a sea change in both the substance and practice of trade policy. Two examples of how the substance is changing are the discussions underway among over 80 WTO members on potential rules for digital trade, along with efforts among other WTO member groups to look at where the trading system can contribute to tackling environmental challenges such as climate change or plastic pollution.

Currently, the WTO’s rules on digital economy issues are limited. There has long been in place a moratorium on customs duties on electronic transmissions, which normally must be renewed every two years at the Organization’s ministerial conferences, and there is a work programme on e-commerce that dates back to 1998. However, the moratorium has been dogged with repeated questions over whether it should be scrapped, made permanent, or continue to be renewed on a roughly biennial basis. Discussions under the work programme have also been limited and, in some WTO bodies, infrequent. In 2017, however, a large group of WTO members launched a “joint initiative” towards negotiating binding rules on digital trade, which has advanced significantly in the years since.

While the WTO’s Committee on Trade and Environment (CTE) is an important forum for environmental issues, and multilateral negotiations on select environmental agenda items have taken place in parallel since 2001, there is a growing appetite among WTO members to have a space for more targeted work on select issues. To complement the conversations underway in the CTE, following extensive preparatory work, different WTO member groups launched ministerial statements for three “joint initiatives” – on trade and environmental sustainability, plastic pollution and environmentally sustainable plastics trade, and fossil fuel subsidy reform.

However, the practice of launching joint initiatives is controversial in Geneva circles, given that some WTO members worry that such processes could detract attention from the existing issues on the multilateral agenda that already have agreed mandates. While some of these joint initiatives envision the negotiation of new rules, others have involved sharing experiences, best practices, and ideas for cooperation. These joint initiatives involve a subset of the WTO membership.

“This is not an easy discussion,” said Tipping, noting the tension around the emergence of joint initiatives. This is why, however, “it’s important to think and to talk about what these changes might mean for international cooperation on trade policy in the coming years – both the opportunities that they present, but also the challenges that might be there that we need to acknowledge and address.”

The digital economy: eyes on process, emphasis on capacity building

The Public Forum session began with a deep dive into the digital economy and the role of the trading system, especially in light of the rapid changes seen in the digital landscape over the past few years due to the COVID-19 pandemic. With 87 WTO members now looking to clinch a binding deal on e-commerce rules next year, speakers weighed what the substance and the process of these negotiations should entail, and what implications this would have for developing country members and smaller businesses located in those economies.

Digital trade has great potential in helping address societal and environmental goals “when treated well,” said Kumar Iyer, Director General, Economics, Science, and Technology, Foreign, Commonwealth, and Development Office (FCDO), UK, but it can also hamper achieving those objectives when handled poorly. The question is “how to maximize the advantages and minimize the risks,” especially in such a vital area.

“These are not challenges that can wait. They will overtake us,” he said, explaining that existing rules could risk becoming obsolete, along with putting the WTO’s relevance into question. Bad practices in the digital sphere could also become increasingly commonplace unless WTO members find paths forward to answer the challenges and opportunities being posed by an increasingly digital economy.

Similarly, Ute John, Chair of Trade and Investment Commission, ICC, and who also works at the Mercedes Benz Group, noted that new barriers in digital trade could pose risks to companies and sectors, urging WTO members to make the moratorium on customs duties on electronic transmissions permanent. A car, for example, is now “a computer on wheels,” John noted, meaning that the scope of what an electronic transmission covers is becoming “increasingly intensive,” and introducing such customs duties could have far-reaching ramifications.

“The pandemic has accelerated the digital transition, and this affects all companies, irrespective of size, sector, or region,” John told the audience. The e-commerce negotiations currently underway among a group of WTO members should involve an “ambitious agreement” that includes data governance, such as data flows and cyber privacy. With momentum in the talks picking up, a deal at the WTO’s next ministerial conference (MC13) could be in sight, John said.

Negotiating new rules in this area, however, will be challenging for governments, especially given that this is a negotiation that is not a traditional exercise on market access, noted Ambassador Pimchanok Pitfield of Thailand, who represents the Southeast Asian nation at the WTO. This is a negotiation that involves regulatory issues and regulatory convergence, but “at the same time, compliance costs are high, especially for developing countries, so we need to take that into account.”

John also argued for the value of capacity building, noting it would benefit many companies that are part of the ICC and that are based in developing countries. This support would be important for these companies to take part in the conversation and benefit from the changes underway in the digital economy.

Capacity building would also be key for governments, the audience heard. “These are new issues” and therefore not all delegations will have the technical expertise they need, said Pitfield. “Because these are different rules, they require different skills to negotiate,” Tipping concurred, noting a new report from the TradeExperettes network that named capacity building one of the recommended “quick wins” that WTO members should consider on digital trade.

Ambassador George Mina of Australia reminded participants that the digital economy, while long a part of our daily lives, is still a comparatively nascent area in international rule making. “We have a long way to go on digital trade,” said Mina, noting that the moratorium on customs duties on electronic transmissions remains the only specific rule at the WTO on e-commerce, though some existing rules in areas such as services trade may intersect with the digital economy. The joint initiative on electronic commerce provides a platform that WTO members can build from, he said.

Trade and environment: tackling existential threats

The other major substantive theme of the session was the role of trade cooperation in tackling pressing environmental challenges, especially the climate crisis.

“Climate change is the single biggest threat facing all of our nations. It is existential in nature,” said Iyer, pointing to recent examples of flooding in Pakistan, droughts in Europe, and hurricanes in the Caribbean as cases where communities are feeling the impacts of the climate crisis in their daily lives. These extreme weather events also affect the poorest the hardest. “It is imperative for us to find solutions here. Trade is not the only lever, but it is absolutely a part of the solution set,” he said.

Examples of where the trading system could help, Iyer noted, would be a “coordinated approach to carbon leakage” and liberalizing trade in environmental goods and services, noting that the trading system will not always be “the answer to all of our targets” and should not be treated as such.

While the trading system can help in tackling threats such as climate change, it can also be a hindrance to those same objectives if not handled carefully. “We can’t let the trading system be the way that you can evade” commitments made in the UN climate talks or other international forums, said Iyer. Initiatives such as the trade and environmental sustainability structured discussions (TESSD) underway among a large group of WTO members can be a source of excellent work in this vein, he urged.

John concurred, referring also to the informal dialogue on plastic pollution and environmentally sustainable trade (IDP) underway by another group of WTO members, which has some overlapping membership with the TESSD initiative. These informal initiatives, Tipping indicated, are a space where governments are “sharing best practices on how trade can contribute,” and while some may lead to negotiations, that is not their sole purpose and may not be the ultimate outcome.

One of the big challenges, however, is the current narrative around environmental protection. Pitfield, recounting the evolution of trade and environment issues since the 1992 Rio Earth Summit, indicated that one of the big problems has been in making the benefits of these policymaking efforts evident. “It is easier if you can demonstrate the benefits of why you have to negotiate on the digital economy. The benefits are more tangible.”

Today, as extreme weather events make the impact of climate change increasingly apparent, that conversation is beginning to show real progress. But that does not mean that the road ahead will be easy. For instance, while Thailand is an advanced economy and has taken important policy steps like establishing a carbon credit market, it cannot necessarily keep the pace of larger economies like the EU. The narrative here, unlike the digital economy, can easily become negative. For example, there are concerns that the changes in economic policy laws and frameworks needed to tackle the climate crisis are “difficult, burdensome, and high cost.”

“I think we need to find a new way to present these issues,” said Pitfield, highlighting the importance of multilateral cooperation for the environment, as well as that of capacity building and access to technologies, though this does not have to entail no-cost technology transfer. It also means acknowledging that while some terms, such as the circular economy, have become common parlance in policy circles, these issues may not be as clear-cut to small and medium-sized enterprises (SMEs) in smaller economies, she said.

While the narrative around environmental issues is complex, the advances seen at the international level on cooperation in trade policy for environmental protection are showing promise, panelists noted. “There is something very positive emerging here in Geneva” on trade and environment, confirmed Mina. Thirty years ago, “Geneva was the capital for trade negotiations globally.” “Today, I would say it is a key capital for trade negotiations and a key capital for trade policy and what trade policy can bring to broader global goals,” he said.

“Cooperation doesn’t necessarily mean jumping into rule making […] and we aren’t just jumping into rule-making,” Mina emphasized. An important area where trade policy can help is addressing environmentally harmful subsidies, Mina said. This would be “one of the most urgent things we can do to help the climate” and achieve the objective of net-zero emissions.

More broadly, Mina affirmed, policymakers must across the board ensure that in times of conflict and crisis, they “keep power out of international economic relations” and keep their focus instead on cooperation on imperatives such as food security, the digital economy, and the environment.

“The fact of cooperation needs to be treated as a precious thing in a world where multilateral regimes are under enormous pressure,” said Mina. “This cooperation needs to be fostered, and governments need to be open to different avenues for achieving that.”

Crucial in this international cooperation is talking not just to like-minded governments but also to the “un-likeminded,” said Pitfield. “Cooperation will start if you open your mind as well” and are willing to engage and exchange ideas, even when a given government is not ready to become an active participant in a particular initiative or negotiation.

The importance of speaking not just with those who agree, but with those who hold different views, was reiterated by fellow panelists, as well as event organizers. Rashid Kaukab, Executive Director, CUTS International, Geneva, flagged that transparency in these processes is crucial to have meaningful engagement by all those affected, as is capacity building. “Can we get out of our comfort modes and talk to the un-likeminded?” he asked. It is worth a try, cautiously and thoughtfully, especially when we are no longer “in a static world.”

Moving ahead in groups: considering systemic and development implications

During the question-and-answer session, some participants referred to the tension inherent in pursuing new rules in areas such as e-commerce among groups of WTO members, while many crucial issues on the existing multilateral agenda for negotiations have long struggled to advance.

For instance, Buddhi Prasad Upadhyaya, Counsellor and Deputy Permanent Representative (Commerce), Permanent Mission of Nepal in Geneva, reminded the audience about how the conclusion of the Uruguay Round in 1994, which set up the WTO, left some gaps to be addressed during negotiations further down the line, such as on agriculture.

“If we only focus on a few areas for developing new rules, by ignoring other aspects [of rules where urgent gaps exist] and also without taking into account the capacity constraints of some members, how can we ensure that the WTO will deliver in an equitable and just manner?” he asked.

Others asked about the systemic implications of subsets of the WTO’s membership moving ahead to craft rules and hold conversations on certain issue areas that do not currently have multilaterally agreed mandates, and doing so without the consensus of the full membership.

“Would you accept…that there is real, genuine, legitimate concern about the systemic consequences for the WTO of groups of members going off and embarking on negotiations that are basically ‘well let’s just do it and work out the legalities later,’ when there are pressing outstanding issues” that are extremely important, asked Jane Kelsey, Emeritus Professor, University of Auckland’s Faculty of Law.

Kelsey further noted that the 1998 work programme on e-commerce does not mandate negotiations and goes beyond the moratorium on customs duties on electronic transmissions. She also flagged that the WTO’s Marrakesh Agreement refers to how members should go about adopting new rules and amending existing rules, and to the need for consensus from the Organization’s full membership.

At the same time, “it is important for all countries here to have the opportunity to do agenda setting,” from the smallest economies through to the medium-sized ones and beyond, Mina noted. “We’re not going to do that if we require absolute consensus at the start of any idea that is ultimately going to form the basis of a rule-making project,” he said, warning that this approach could have “systemic consequences of its own” in “completely stopping rule-making.”

“I completely agree with the comment from Nepal about the gap that was left over in the Uruguay Round on agriculture and the urgent need for us to get back to the table on that subject,” he added.

Under the WTO’s services rules, negotiating bilaterally and plurilaterally is foreseen and common, Pitfield added, referring to her own experiences as a services negotiator. This has bearings also on the services-related conversations involving digital trade. Furthermore, “I also want to distinguish between the discussion on the process and the outcome. The outcome, in the WTO, should be, in principle, MFN,” said Pitfield, referring to the principle of most-favored-nation treatment under the Organization’s rules.

To watch the entire session, visit the WTO Public Forum 2022 website.