Potential Conflicts between Agricultural Trade Rules and Climate Change Treaty Commitments

Working paper for the FAO

ABSTRACT:

Climate change – among its many other challenges – also impacts on conditions of competition along the whole food value chain. This article posits that many mitigation and adaptation policies imply a differentiation between otherwise identical products with different climate footprints. Where imports are affected, there is a potential for trade frictions. The main issue appears to be a climate-smart treatment of so-called ‚non-product-related like products.‘ Now that national governments start implementing their commitments under the Paris Agreement on Climate Change, they have to closely look at the trade and investment impact of their Nationally Determined Contributions (NDC). The NDC presently available remain silent on concrete measures involving product differentiation according to footprint differences, by way of border adjustment measures, subsidies, prohibitions, or restrictions. The non-discrimination principle enshrined in the multilateral trading system can be a problem for such differentiations. No climate-smart agricultural measures have as yet been notified to the WTO. But several renewable energy programmes have been found to violate WTO rules. Potential problems could arise, for instance, from differentiating tariffs, import restrictions or taxes according to climate footprint. Conditions of competition might even be affected by labels signalling products with a bigger footprint, or through subsidies and incentives compensating domestic producers subject to emissions reductions, prohibitions, and input restrictions. A second major problem lies in the way the Paris Agreement and the WTO address the Development Dimension. In the Paris Agreement the Development Dimension is addressed by the notion of Common but Differentiated Responsibility (CBDR), leaving basically all Parties free on how to take development into account in their NDC. On the other side, the so-called 'Special and Differentiated Treatment' (SDT) foreseen in all WTO agreements for developing country products and services appears incapable to deal with the global impact of all emissions, regardless of their origin, or with the negative impact on developing country exports to climate-smart markets in developed countries.

In conclusion we suggest that a review of the climate-relevant trade and investment rules is necessary at the international level, involving climate, agriculture and trade regulators, supported by scientific, economic and legal expertise. The purpose of this review is to avoid litigation jeopardising the implementation of the Paris Agreement. At the same time, such a review must be wide-ranging, because the objective is to ensure maximum policy space for climate mitigation and adaptation without negatively impacting on other countries, or unduly restricting trade and investment, especially in poor developing countries. Last but not least, this intergovernmental and inter-institutional review is urgent, because the results should provide as quickly as possible the legal security necessary for regulators, NDC developments and reviews, and international standard-setting processes.