Following a ministerial statement in 2021, TESSD participants, established four informal working groups, which cover trade-related climate measures, environmental goods and services, circular economy – circularity, and subsidies.
A high-level stocktaking event in December will likely lead to three outcomes: a summary document informed by the working groups’ efforts; a statement by the co-convenors; and a list of possible TESSD deliverables for MC13.
By Andreas Oeschger, Junior Policy Analyst, Sustainable Trade, IISD, and Sofia Baliño, Senior Manager, Communications and Engagement, IISD
On October 4 and 5, the 74 members currently co-sponsoring the Trade and Environmental Sustainability Structured Discussions (TESSD) at the World Trade Organization (WTO) met to further their work and discuss preparations for a high-level stocktaking event in December. This gathering could give a useful signal of what this initiative will aim to achieve for the WTO’s Thirteenth Ministerial Conference (MC13).
Launched on 17 November 2020, the discussions on trade and environmental sustainability provide a forum for co-sponsoring members to consider where they can work together on issues that are at the nexus of trade, environment, and climate change, and eventually craft possible environmental sustainability “actions and deliverables.” These discussions are purposely designed to complement the work already underway in the WTO’s Committee on Trade and Environment (CTE) and other WTO bodies, and participating members in the TESSD process stress that these conversations will not duplicate work underway elsewhere. Contrary to other, “closed-door” negotiations at the WTO, in which only government delegates and observers from other intergovernmental organizations are allowed to participate, the TESSD co-sponsors have purposely designed the discussions to incorporate inputs from invited external stakeholders, including civil society.
Following a ministerial statement in 2021, TESSD participants, under the coordination of Canada and Costa Rica, have stepped up their work plan on trade and sustainability-related issues earlier this year. In May, they established four informal working groups, which cover trade-related climate measures, environmental goods and services, circular economy – circularity, and subsidies. After a longer break over the summer, the participating members gathered again in the first week of October to advance discussions in these work areas.
Environmental goods and services
Environmental goods are not new to the WTO. Negotiations to address tariffs and non-tariff barriers on environmental goods and services (EGS) were part of the Doha Round of trade talks, though these efforts have largely been on hold in recent years. More recently, a group of WTO members sought to negotiate among themselves a tariff-cutting Environmental Goods Agreement (EGA), whose obligations would only have bound participating members, but whose benefits would have been extended to all WTO members on a most-favored-nation basis.
The EGA negotiations were launched in 2014 to eliminate or lower tariffs on several environment-related products, including those that might help achieve climate protection goals. After making substantial progress, these negotiations ultimately stalled in 2016 when participating members were unable to agree on a final list of goods that would be subject to tariff cuts. Some of the EGA’s participating members, however, have repeatedly indicated they hope to see this effort resume, and have made such comments in both the WTO’s Committee on Trade and Environment and, more recently, the TESSD.
The talks on environmental goods and services within the TESSD process are taking an objective-based and holistic approach, and like the original Doha Round mandate, would cover both goods and services and seek to address both tariffs and non-tariff measures.
To allow for more focused discussions, TESSD participating members earlier this year settled for an approach that would identify 1) the environmental objectives relevant to EGS and 2) the types of goods and services relevant to achieving those objectives. Guided by this structure, TESSD participants are now discussing non-tariff measures and services in the context of the objective of climate change mitigation.
Many TESSD participants agreed that eliminating non-tariff measures that hamper trade in EGS is a high priority, but said they would therefore need to better understand these measures and their implications. Another challenge that TESSD participants face is that EGS definitions and standards vary, with some participants suggesting that definitions and standards used in recent regional trade agreements could help. One of the trade deals that participants named, for instance, was the recent Singapore-Australia Green Economy Agreement.
A new component to the discussion was services trade, where TESSD participants discussed the approaches that have been used at the WTO and in other forums so far. Among these are several proposals for further work and priorities that have been put forward after MC11 in 2017 as an effort to revive services negotiations at the WTO’s Council for Trade in Services, as well as the work underway among the 21 Asia-Pacific Economic Cooperation (APEC) economies to craft a reference list of environmental services and consider ways to encourage their trade. Regarding next steps on EGS, the facilitators will continue their consultations with TESSD participants to identify possible outcomes in this area.
Trade-related climate measures
With carbon standards, climate clubs, and carbon pricing on the agenda, the informal working group on trade-related climate measures discussed recent policy developments in this field. Currently, several countries are discussing or developing so-called border carbon adjustment measures (BCAs), also known as carbon border adjustment measures (CBAMs), which aim to tackle the problem of “carbon leakage.” Carbon leakage refers to cases where the adoption of more stringent climate policies in a given country may lead to companies moving their production abroad to countries with less ambitious climate policies, which can hamper efforts to slash greenhouse gas (GHG) emissions.
As there are several international organizations, including the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF), working on carbon pricing, some TESSD participants indicated that the group needs to consider what role they can play, along with the WTO overall. Participants also looked at examples of carbon pricing measures that are currently under development in different economies, what these measures aim to achieve, and how effective these may be in practice.
While TESSD participants concurred that taking action to tackle GHG emissions is crucial, some participants raised the issue of climate justice pointing out that some of the world’s poorest and lowest carbon-emitting countries are suffering from climate change the most and that the solutions on the table need to be driven by the principle of common but differentiated responsibilities (CBDR). Another issue that some participants raised was the need for trade-related climate measures to be designed in line with WTO rules, and in a way that addresses and mitigates the potential adverse impacts for developing countries and micro-, small, and medium-sized enterprises (MSMEs). Moving forward, the group working on trade-related climate measures will continue communicating on new policies in the pipeline, while also identifying concrete deliverables they could aim to achieve. These deliverables could include a possible list of the various trade-related climate measures that exist and that the group wants to focus on, along with setting up an exchange of best practices.
Circular economy – circularity
In the informal working group on circular economy – circularity, TESSD participants looked at the most important trade-related issues related to resource-efficient production and consumption. There was almost uniform consensus that one of the main challenges that governments face is how to differentiate between the trade of “good” and “bad” waste. So-called “good” waste is that which is meant to be processed following the circularity principle, while “bad” waste involves trading waste mainly to get rid of it, with that waste often ending up in the dumping grounds of countries that have limited capacity to process it. TESSD participants also flagged that the current “Harmonized System” of classifying goods used by customs authorities has limitations when dealing with recycled or refurbished goods. The current system also makes it difficult to distinguish between hazardous and non-hazardous waste to assess whether these goods can be recycled.
Participants will next hold consultations to build on their understanding of how trade can contribute to promoting the circularity of goods. One possibility would involve undertaking a mapping exercise of the relevant policy issues and priorities that governments should consider when planning for the transition to a circular economy. Many of the issues the circularity working group identified are similar to those under discussion by another joint initiative at the WTO, the Informal Dialogue on Plastics Pollution and Environmentally Sustainable Plastics Trade (IDP). How these conversations complement one another will be an important question for trade watchers.
Lastly, the informal working group on subsidies undertook further analysis of the relationship between public subsidies and the related environmental considerations and issues. In the October 2022 working group session, TESSD participants looked at some of the challenges involved in measuring subsidies, along with the methodologies that currently exist for assessing how these subsidies affect the environment. They also looked at how research on potentially environmentally harmful subsidies might translate into policy action, drawing from the examples of industrial subsidies and fishing subsidies. Several participants stressed that incomplete subsidy data makes these conversations difficult, and said better tracking and reporting in this area is essential.
Participants also referred to the recent adoption of the Agreement on Fisheries Subsidies at the WTO’s Twelfth Ministerial Conference (MC12) in June 2022 as an important precedent for further work at the WTO on environmentally harmful subsidies. The TESSD should build on this momentum, participants said. As a next step, TESSD participants will continue to identify and discuss various types of subsidies that may have an environmental dimension, given the need to have a forum at the WTO that looks at subsidies beyond the traditional perspective of possible trade distortion.
For all informal working groups, facilitators called for TESSD participants to reflect on the discussions and work done so far to identify possible concrete deliverables ahead of the high-level stocktaking event in December. This effort could inform future work in the preparations for MC13. Possible deliverables could involve the development of partnerships, intermediate objectives such as mapping exercises, or endeavors to strengthen data measurement and monitoring. TESSD participants will reconvene for two days of consultations in late October. They will then hold formal meetings on 10 and 11 November.
The December event, which will be held at the ambassadorial level, will likely lead to three outcomes: a summary document informed by the working groups’ efforts; a statement by the co-convenors; and a list of possible TESSD deliverables for MC13. Like the other joint initiatives at the WTO, the TESSD will not necessarily lead to negotiations, though some tracks of this work could move in that direction. What the TESSD will ultimately aim to achieve will therefore be a key question for trade watchers, both given the TESSD’s potential to serve as a model for new approaches to trade cooperation at the WTO, and given what these outcomes could mean for achieving environmental objectives through trade policy.