More attention should be paid to a new trade agreement that could better meet the challenge of climate change.
The conclusion earlier this month of the Agreement on Climate Change, Trade and Sustainability (ACCTS) by New Zealand, Costa Rica, Switzerland and Iceland comes at a time when the world is experiencing record-high temperatures, spreading wildfires, and destructive floods and droughts. Despite these developments, WTO members have been unable to rally consensus to develop new trading rules to help halt these trends, highlighted by their recent failure to bring the second part of the fisheries subsidies agreement over the finish line.
The ACCTS reflects an emerging model for trade agreements — one that is limited in participants and sectors but can be concluded more quickly and without sacrificing ambition.
Instead of sitting around in endless discussions on what is the best way to incorporate climate change and sustainability concerns into trade agreements, these four small, trade-dependent countries moved into action and hammered out meaningful commitments. The agreement is an important step in elaborating on what is possible in this contested space. The parties hope that others will join over time, or even adopt similar rules in their own bilateral agreements, providing momentum for a broader multilateral agreement.
ACCTS has four key components. First, the four parties will eliminate tariffs on over 300 “environmental goods” upon entry into force. Although the list of goods has not yet been released, the members claim it is the most comprehensive and ambitious list of agreed-upon goods to date, including solar panels, wind turbines, electric vehicles, recycled paper and wood products offering a more environmentally sound alternative to carbon-intensive construction materials. It also includes criteria for qualifying as an environmental good so there can be ongoing updates. The tariff cuts will apply to all WTO members (not just the other parties), so as to be consistent with WTO rules.
Second, the parties went beyond goods commitments to also open up their service sectors. They agreed to new levels of market access in more than 100 sectors that make a “substantial contribution to addressing pressing environmental purposes.” However, which sectors these are, and the level of market access agreed upon, is yet to be made public.
Third, the agreement provides a new framework to prohibit and discipline harmful subsidies for fossil fuels, with limited exceptions.
Finally, the parties agreed on guidelines for voluntary eco-labeling programs, which should help provide consumers with more accurate information and avoid such labels in and of themselves becoming a barrier to trade. The inclusion of binding dispute settlement in the agreement also underscores the importance the countries attach to these commitments.
The ACCTS partners hope to sign the pact later this year, with the aim that it will enter into force in 2025. Once the text is released, other countries will then have the opportunity to study the obligations and determine their interest in joining. Norway participated in all 15 rounds of negotiation but said it needs more time to consider the final text to see whether it should sign up. Fiji had also been involved in the negotiations but dropped out of the talks early on, most likely due to capacity issues.
Regrettably, the U.S. is unlikely to sign — particularly given its aversion to further cutting tariffs, and especially given those tariff cuts would be expected to also apply to nonparties, including China. Curbing fossil fuel subsidies also has been a bridge too far for Washington, although a Democratic president in the White House next year may be more ambitious. There is little doubt that a Trump administration would firmly oppose such provisions.
Like others, China is expected to closely study the text once it is released. Even though Beijing may have concerns with some elements of the agreement, it may apply for membership, as it has recently done with the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA). By expressing interest, Beijing has little to lose. It can show it is committed to addressing climate change through WTO-consistent trade agreements while seeing whether the other parties would consider the necessary flexibilities for it to join.
While the two largest economies may be absent, ACCTS follows a model that New Zealand and other small and medium-size countries are increasingly relying on: a “let’s start small” approach toward trade agreements in which they focus on specific areas of interest, invite a small number of like-minded countries to join and over time expand the circle of participants and grow the commitments.
This approach, which has been successfully employed for CPTPP, DEPA and the Global Trade and Gender Arrangement, has become increasingly attractive, as deals in the WTO are hard to come by given its large and diversified membership.
ACCTS includes rules and market access commitments that may not be to Washington’s liking, but by not being at the table the U.S. continues to forfeit its role in shaping new trade and investment rules.
More of these mini trade deals among small groupings of trading partners are expected to be concluded in the months and years ahead. If this model drives the development of new norms in trade policy (as the parties hope), Washington should reconsider its stance of sitting on the sidelines and claim its seat at the negotiating table.
Wendy Cutler is vice president of the Asia Society Policy Institute and former acting deputy U.S. Trade Representative. Jane Mellsop is director of trade, investment and economic security at the Asia Society Policy Institute.
To read the full opinion as it was published on Nikkei Asia, click here.