International Rules Coordinating Climate Change Mitigation And Trade

A large number of measures mitigating climate change have significant impacts on economic activities and international trade. The volume of these measures adopted by states(or economies) is on the rise, inducing a growing number of disputes submitted to the Dispute Settlement Body(the DSB) of the World Trade Organization(the WTO). Those measures mitigating climate change are challenged due to possible violations of the WTO rules, but most of them are permissible or encouraged by the United Nations Framework Convention on Climate Change(the UNFCCC) and other climate documents. This paper focuses on international rules coordinating and harmonizing actions mitigating climate change and the development of international trade, in order to tease out ways and approaches in which climate change mitigation can be achieved without the risk of violating trade rules. In other words, this thesis tries to find out ways to legalize trade measures targeted at climate change mitigation(TMCCMs) in the international legal regime. As China’s TMCCMs are most frequently challenged in the DSB among WTO members, this paper also analyzes the reasons underlying the respective high frequency and makes recommendations for China to avoid such challenges in the future.This paper consists of three parts, including introduction, body and conclusions. The introduction part states practice and theoretical backgrounds, current literature, objective and objects, methodologies, contributions to the current literature of this thesis and further researches needed. There are six chapters of the body part.Chapter I introduces economic and legal basis for this paper. It argues that trade policies and trade development can be employed to promote climate change mitigation actions. It bases this argument on the analysis of theories on solving environment problems with environment friendly trade policies, including the theory of externality, the game theory, sustainable development, conflict of laws and international governance. This part then seeks to classify climate change mitigation measures authorized by the UNFCCC and outcomes of its subsequent Conference of Parties, mainly the Kyoto Protocol, as well as measures employed or proposed by states(or economies). The last part of this chapter defines the TMCCM, highlights three kinds of measures promulgated by states(or economies) that highly match the definition, and analyzes the necessity to regulate TMCCMs with international trade rules. These three kinds of TMCCMs are: subsides and supports to low carbon industries and products(subsidy TMCCMs), legislations, regulations, or mandatory labels and standards of low greenhouse gases(GHGs) emissions(technical TMCCMs), and carbon border adjustment measures(border adjustment TMCCMs).Chapter II explores current multilateral rules regarding TMCCMs and argues that they are not clear or certain enough to provide legality for TMCCMs. First, existing WTO rules and the Doha Round negotiations are not readily suitable to coordinate tensions between climate change mitigation and trade. Second, multilateral environmental agreements(MEAs), including the Montreal Protocol can only provide limited experiences in this regard. Third, progresses of actions and measures taken by international organizations in the transportation sector, mainly the International Civil Aviation Organization(the ICAO) and the International Maritime Organization(the IMO) are of great uncertainty: ICAO meets similar divergences with the UNFCCC on how to allocate mitigation responsibilities among developed and developing economies, while the IMO’s mandatory energy consumption standards for new ships are criticized for its departure from the UNFCCC’s Common but Differentiated Responsibilities(CDR) guideline in responsibility allocation.Chapter III analyzed the legality of subsidy TMCCMs, technical TMCCMs and border adjustment TMCCMs under existing WTO rules in conjunction with DSB practices relating to these measures, which further demonstrates the incapacity of current WTO rules in resolve disputes regarding TMCCMs and coordination between climate change mitigation and trade. The paper finds that partly due to the expiration of non-actionable subsidy rules, subsidy TMCCMs are highly possible to be challenged according to rules on actionable subsidies or prohibited subsidies, though some of challenged measures were proved to be in consistence with these rules. WTO rules are clearly applicable to technical TMCCMs that regulate products, while the applicability to technical TMCCMs regulating process and production methods are not clarified either by the text or DSB’s application of applicable rules. And the distinguishment between mandatory technical TMCCMs and voluntary ones is not clear. By analyzing practices and proposals of border adjustment TMCCMs of the EU, US and Australia, this paper concludes that the applicability of WTO border tax adjustment rules is also disputable. And even if these rules are applicable, the administrative burden associated with border adjustment TMCCMs is still an obstacle to the implementation of border adjustment TMCCMs.Chapter IV analyzes possible approaches to improve the capacity of multilateral rules in coordinating climate change mitigation and trade. First, several WTO rules regarding environmental protection are not tested by DSB practices. These rules could be the legal basis for TMCCMs via the DSB’s application and explanation, though their applicability and capacity are not clear or certain. Second, coordination can be achieved through modifications and additions to the WTO regime, such as to re-activate or expand the coverage of rules on non-actionable subsidies, and to make further commitment on trade facilitation of environment friendly or low carbon goods, services and technologies. Third, plurilateral agreements reached into under the WTO regime can also achieve substantial coordination by involving main emitters and trade economies, which can lead to fast-track coordination thanks to limited number of parties in negotiation. Fourth, further consensus and clarification on substantial and procedural rules regarding TMCCMs under the UNFCCC regime may also be a possible and promising approach to address conflictions between climate change mitigation and trade. For example, preference for newly reached TMCCMs rules and dispute settlement mechanism under the UNFCCC regime over the WTO regime will help to reduce trade disputes submitted to the DSB and the application of less climate friendly rules. Nonetheless, the UNFCCC regime meets similar difficulties with the WTO regime in terms of negotiation, such as the large number of negotiating parties and divergences of responsibilities or treatments between developed and developing countries.Chapter V explores another approach besides the multilateral approach, that is, coordinating climate change mitigation and trade through negotiations, arrangements and agreements at regional and bilateral level. This chapter finds that the volume of regional and bilateral free trade agreements(FTAs) that include provisions for environmental protection is increasing, and these provisions provide opportunities for parties of FTAs to reach consensus on the legality of TMCCMs. Additionally, cooperation arrangements in FTAs are more flexible than those in multilateral agreements, reflecting common interests of parties regarding coordination in climate change mitigation. By incorporating MEA provisions, including provisions of the UNFCCC regime, TMCCMs can be legalized and implemented through implementation and dispute settlement mechanisms of FTAs. Though the proliferation of FTAs may complicate the regulation map of TMCCMs and aggravate difficulties in reaching global consensus, careful design and efficient communication among parties can largely avoid the complexity and difficulties, as well as turn FTAs into building blocks to a global consensus in the future.Chapter VI focuses on approaches China had better taking to balance its climate change mitigation responsibilities and low-carbon development needs. China, as the largest GHGs emitter, the largest economy in trade in goods, is being criticized to be accountable but not responsible for global climate change. This paper agrees that China should take responsibility in climate change mitigation, and finds that China has taken considerable actions in this regard. However, in light of the situation that China’s TMCCMs are the mostly challenged in the DSB, it is necessary to modify some of current TMCCMs to reduce possible challenges in the future. China should also do research on the legality of TMCCMs employed by other WTO members and stick up for China’s trade rights. Additionally, considering the economic and development importance of low-carbon industries to China and the world, China should participate in multilateral, regional and bilateral negotiations more proactively to reduce tensions between climate change and mitigation.