The Trade Dimension of Rio+20... Key Issues for the Outcome Document

1.  The Trade Dimension of Rio+20... Key Issues for the Outcome Document UN, New York, 16 March 2012 Morning Session: Minimizing barriers to trade in a green economy Module 1: Green economy policies with trade impacts Time: 40 mins + 20 mins discussion Presented by Robert Hamwey

2. This moduleto review and discuss… Trade ↔ environment policy interface. Most green economy policies will affect trade. • Specific examples. Possible elements for the Outcome Document.

3. Green Economy Policies National policies needed : • stimulate change in production and consumption patterns. • promote technology development and innovation. Aim to reduce environmental damage, lower carbon intensity of development, preserve ecosystems, improve public welfare and reduce poverty. Key approach is to place a cost on natural and environmental resources to influence economic decisionmaking. Private sector and civil society also active players in promoting change through awareness raising campaigns and voluntary initiatives.

4. Green Economy Policies Competition Environment World Market Access Targeting production National Policies Targeting consumption

5. Green Economy Policies and Trade If countries did not trade goods and services we would not have an issue to be concerned with. But countries do trade ! Trade is responsible for a large portion of their economic income. • 1/5 of developed countries’ income • 1/3 of developing countries income Adverse changes in trade (exports) is a major concern for all countries. Countries seek assurances that a green economy will improve their prospects for trade, or at least leave them unchanged.

6. Origins of Green Economy Policies Effect on trade ??? Public demand Policies and measures: Regulations, Standards, Bans, Fees, Charges, Subsidies, Public procurement, Tax rebates, etc.

7. Origins of Green Economy Policies Effect on trade with non-parties ??? MEAs Rio+20? Commitments Policies and measures: Regulations, Standards, Bans, Fees, Charges, Subsidies, Public procurement, Tax rebates, etc. Effect on trade with other parties ???

8. National Green Economy policies $ $ Types of national measures available to governments, i.e., Command & Control and Economic Instruments – Command & Control Regulation, standards, bans – Economic Instruments Charges, fees, taxes – Economic Instruments Subsidies, tax rebates, government procurement, etc.

9. National Green Economy policies Types of national measures available to governments, i.e., Command & Control and Economic Instruments – Voluntary agreements e.g., domestic firms agree with government to reduce pollution, use renewable energies… – Information Instruments Awareness campaigns, ecolabels

10. Why is trade affected? National product regulations/standards may be difficult/costly for foreign firms to meet (i.e., developing country firms). By changing the cost structure of production, national policies alter the relative competitiveness of national and foreign firms. National environmental measures can be used as a guise for closing off national markets (green protectionism). Greening of supply chains. Ecolabels influence consumer demand.

11. Trade Impacts… Country A and B implement similar GE regulations, standards. Their exports to each other increase. Country C does not implement new GE regulations/standards. Its firms unable to meet new GE regulations/standards of A and B. Its exports to A and B decrease. Relevance to Rio+20: If country C is a developing country, it may require international support (e.g., financial and technical assistance, technology transfer) to increase productive capacity so it can meet new GE regulations/standards. Warning light for National regulations/standards that relate to PPMs. – Command & Control Regulation, standards, bans Before Policy After Policy (regulation/standard) A Exports (B) Exports (C) B C

12. Trade Impacts… Country A implements PPM-based regulations, standards, banning imports of non- compatible ‘like’ goods. Country B and C do not. Exports from B and C fall to zero. A’s entire market supplied by domestic producers. Relevance to Rio+20: Countries B and C are likely to claim that A is practicing green protectionism. Likely to lead to trade dispute unless consultations can resolve differences. – Command & Control Regulation, standards, bans Before Policy After Policy (PPM-based regulation/standard) A Exports (B) Exports (C) B C

13. Trade Impacts… $ Relevance to Rio+20: Countries A and B may introduce non-tariff barriers (NTBs) to offset the competitiveness loss of their firms relative to country C. NTBs may take the form of anti-dumping measures and countervailing duties, possibly in the form of a “border tax adjustment”. Trade disputes can be expected to increase. Country A and B implement similar GE charges/taxes/fees. Production costs rise. Their exports decrease due to their loss of international competitiveness. Country C does not implement GE charges/taxes/fees. Production costs unchanged. Its firms become more competitive than those is A and B. Its exports to A and B increase. – Economic Instruments Charges, fees, taxes Before Policy After Policy (charges/taxes/fees) A Exports (B) Exports (C) B C

14. Trade Impacts… $ Relevance to Rio+20: Country C may introduce non-tariff barriers (NTBs) to offset the competitiveness loss of their firms relative to countries A and B. NTBs may take the form of anti-dumping measures and countervailing duties. If C is a developing country it may take no action in fear of retaliation and N-S technology gaps may widen. Trade disputes can be expected to increase. Country A and B implement similar GE production subsidy policies to support firms producing green good and services. Firm production costs decline. Their exports increase due to a gain in international competitiveness. Country C does not implement GE subsidy policies. Production costs unchanged. Its firms become less competitive than those is A and B. Unable to keep up with technological progress of A and B. Exports to A and B decrease (or fail to materialize). – Economic Instruments Subsidies, tax rebates, government procurement, etc. Before Policy After Policy (production subsidies) A Exports (B) Exports (C) B C

15. Trade Impacts… $ Relevance to Rio+20: Countries B and C are likely to claim that A is practicing green protectionism. Likely to lead to trade dispute unless consultations can resolve differences. Country A implements GE consumption subsidy policies to support citizens’ purchase of green good and services, but only on the condition that these products are produced domestically. Such policies can help domestic firms grow and increase their economiesof scale. Country B and C see their exports to A decline significantly since supply now met almost entirely by domestic producers in A. – Economic Instruments Subsidies, tax rebates, government procurement, etc. Before Policy After Policy (consumption subsidies) A Exports (B) Exports (C) B C

16. Trade Impacts… Relevance to Rio+20: All countries (and consumers) benefit from open, transparent non-discriminatory ecolabel schemes. Harmonization or mutual recognition prevent ecolabels from becoming trade barriers. Developing countries should be consulted in theformulation of ecolabel schemes to ensure their capacities and specificies are considered in labelling criteria. (note: government-issued and private-sector issued ecolabels exist) Countries A and B implement different ecolabel schemes. Consumers prefer national labels. Domestic producers benefit from increased sales while trade declines. Country C does not implement an ecolabel scheme. It seeks to apply for certificationwith ecolabels of A and B but this may prove to be difficult for foreign firms. Initially, all countries experience reduced exports to A and B. – Information Instruments i.e., Ecolabels Before Policy After Policy (ecolabels) A worst case scenario Exports (B) Exports (C) B C

17. Green economy policies… how far can we go ? In Module 2 we will review issues of WTO compatibility of green economy policies. But let us continue on with some thoughts for reflection.

18. The world we live in… Dominant economic policies (e.g., trade policies) condition the acceptability of green economy policies, and not vice-versa. Universe of acceptable economic policies Universe of acceptable environmental policies

19. The world we live in… If we need to expand environmental ‘policy space’ we first need to expand economic ‘policy space’ to accommodate it. Universe of acceptable economic policies Universe of acceptable environmental policies

20. The world we live in… Where trade is concerned, expanding the universe of acceptable economic policies necessarily requires revising (broadening) WTO trade rules to accommodate more proactive environmental policy actions by members. WTO members might agree to negotiations on the revision of trade rules to increase members’ flexibility in implementing green economy policies.

21. To summarise, Rio+20 should help strengthen / ensure coherence … Environment Trade

22. Specifically, to minimize trade barriers in a green economy, Rio+20 could … Commit to international cooperation to assist developing countries meet new GE market requirements. Caution against proliferation of NTBs in a GE. Caution against widening N-S ‘green’ technology gap. Recall the need for inclusive international consultation in development of new GE regulations/standards and product labelling, while promoting harmonization and mutual recognition among these. Call for the establishment of an intergovernmental green economy trade forum to promote cooperative approaches to dealing with trade tensions, and prevent trade conflicts, associated with green policies and measures. (can help prevent green protectionism)

23. Specifically, to maximize the potential for proactive green economy policies, Rio+20 could … Call upon WTO members to examine the relationship of existing trade principles and rules and green economy policies, and to consider the desirability of negotiations on their revision.

24. This concludes Module 1Module 2 will examine WTO compatibility of green economy policies.