Climate change policies and the WTO : greening the GATT, revisited

Abstract

The thrust of our argument in this chapter is that the present WTO ‘negative contract’ is a legal constraint that does not suffice to promote climate change-friendly policies, as WTO members do not have to adopt similar policies. Moreover, some of their policies might be judged inconsistent with the WTO, even if adopted in order to address externalities and distortions. To illustrate, we assume that Home, a WTO member, wishes to employ one of three instruments of different ‘intensity’ (labelling, domestic tax, and subsidy) to mitigate climate change. Can it do so while respecting its obligations under the WTO contract? Our response is affirmative when Home chooses the second option, and negative when it uses the first and the third options. The negative response is due to the bizarre manner in which the WTO Appellate Body, the highest court in the WTO infrastructure, has understood non-discrimination in the context of the Technical Barriers to Trade (TBT) Agreement, and the inertia/lack of foresight by trade delegates who did not extend the carve-out for ‘green subsidies’ that had been agreed in 1995 beyond 2000. Needed changes at the multilateral level require delegation of sovereignty to move towards a contract that would require positive steps from the WTO membership in order to avert climate change. As an immediate amendment, the reinsertion of the clause of non-actionable subsidies should be considered. Until greater delegation of sovereignty is accepted, the fight against climate change on the trade front will be substantially aided if the WTO were to embrace and accommodate clubs that have endorsed this objective.