Global Environment and Trade Policy

The global climate regime, as represented by the Kyoto Protocol, may be on a collision course with the global trade policy regime, as represented by the WTO (World Trade Organization).     Environmentalists fear that international trade will undercut efforts to reduce greenhouse gas (GHG) emissions as carbon-intensive production migrates to non-participating countries-a phenomenon known as leakage.  Meanwhile businesspeople fear the adverse effects of disparate climate policies on their own competitiveness.   These fears have now become prominent in the policy-making process.   In early 2008, legislation to enact long-term targets for reduced GHG emissions included provisions for possible barriers against imports from countries perceived as non-participating-both in Washington, DC (where climate legislation has not yet passed) and in Brussels (where the EU Commission Directive has gone into effect).  Such provisions could be interpreted as violating the rules of the WTO, which poses the nightmare scenario of a WTO panel rejecting a major country's climate change legislation.    In light of the hostile feelings that such a collision would unleash, it would be a disaster for supporters of the WTO and free trade as much as for supporters of the Kyoto Protocol and environmental protection.

The clash of trade and climate policy is just the latest and largest instance of fears among many environmentalists that the WTO is an obstacle to their goals in general.  The issue transcends institutions.   For its critics, the WTO is a symbol of globalization, and their concerns attach also to that larger phenomenon.  

Fears of a collision need not be realized.   Global environmental goals and trade goals can be reconciled.   Globalization and multilateral institutions can facilitate environmental protection rather than obstruct it, if they are harnessed in the right way.  Perhaps most urgent is that negotiators working on a sequel to the Kyoto Protocol agree on guidelines to govern precisely how individual countries can and cannot use trade measures in pursuit of carbon mitigation.

The first part of this chapter discusses the broader issue of whether environmental goals in general are threatened by free trade and the WTO.   The second half of the paper focuses exclusively on the narrower question of how nations' efforts to implement climate change policy will affect trade and whether they are likely to come into conflict with the WTO.