In Paris, 196 countries negotiated tirelessly for two weeks and the result was an unprecedented global environmental agreement setting the target for future global temperatures to “well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.” The momentum coming out of such an agreement should now be picked up by other multilateral mechanisms, capable of adopting and implementing rules that will help achieve this ambitious temperature goal. In particular, the WTO member states, whose ministers will gather in Nairobi this week (December 15-18) can do a lot to ensure the 1.5°C can be reached.
International trade rules have been around since 1947 when the General Agreement on Tariffs and Trade was adopted. It transformed into the WTO in 1995, an organization facing numerous issues with its member states as well as civil society. As a result, its twentieth birthday is here this year with not much to celebrate — no significant agreements have been signed since 1995 and the future Doha Development Round of negotiations is uncertain. This can be changed. If WTO member states want to capitalize on the Paris outcome, then this week in Nairobi they should make efforts towards progress on the Environmental Goods Agreement (EGA), which is currently on the negotiating table.
The target of the EGA is the reduction or elimination of tariffs on several products that help clean the environment, air and water, and contribute to renewable energy production. The rationale of the EGA comes in stark opposition to extant national fossil fuel subsidies, which, as is clear from the Paris target, should be eliminated as soon as possible. Such fossil fuel subsidies contribute to the fragmentation and deceleration of green global value chains. Instead, the EGA would signal to world markets and investors that it is in their best interest to progressively switch to renewable energy sources and green goods’ trade.
Although it appears now that the EGA will not be concluded in Nairobi, but perhaps later, before or after the World Economic Forum in Davos, still, it can create a robust green goods trading regime within the WTO, as it will immediately multilateralize any obligations assumed by its currently few members not only among each other but towards all WTO member states. In other words, the parties to the EGA will reduce or no longer impose any tariffs on the green goods enumerated in the EGA if they originate from any of the 162 WTO member states, regardless of whether they are parties to the EGA themselves. Moreover, under the auspices of WTO rules, its member states can adopt a series of policies, such as taxes for CO2 intensive products. Even the smallest tax has the potential to become an irritant with big effects on global markets. The world trading system can become the enabling force for the institution of green policies and market incentives, as long as its members negotiating in Nairobi this week move away from mercantilist approaches and, like their fellow ministers in Paris, think “green.”