Carbon Tariffs and Conflict Diamonds – A WTO Climate Waiver and the UK’s Role in the International Legal Order

International trade has been extensively criticised for exasperating the problem of climate change through a “race to the bottom” in terms of environmental protection and industrial standards. However, the concept of a rules-based international trading system was idealised to act as a conduit to achieve many goals. As evidence, the Agreement establishing the World Trade Organisation (WTO) in 1995 (Marrakesh Agreement) explicitly recognises the duty of states parties to “preserve and protect the environment”. For a contemporary global problem like climate change, individual national solutions are limited, and the vast majority of national pledges under the 2016 Paris Agreement to combat climate change are deemed insufficient. Thus, multilateral solutions must be sought, to which international trade law can contribute.

The goals of different international regimes to which individual states are party can often diverge. Hence, international law must have the flexibility to adapt as geopolitical situations shift. As both international trade and climate regimes are independent of each other, there is a risk of a clash between them as states seek to comply with each in the future. Indeed, the Paris Agreement does not mention trade once.  A WTO waiver, tailored for measures designed to attain emissions targets, could avoid such a brewing dispute between two international legal regimes.

The administration of Boris Johnson will be the first government of the United Kingdom to develop an independent trade policy in over 40 years and, since the inception of the WTO in 1995, will be the first from the United Kingdom to sit at the WTO independent of the European Union trading bloc. Crafting this future UK trade policy can provide the opportunity to the UK to confront the intersection between trade and environmental issues and lead a reinvigoration of both climate and trade regimes to confront the challenges of the 21st century and beyond.

A WTO Climate Waiver

If countries take diverging approaches to climate change policy with differing effects on trade, disputes before the WTO dispute settlement body are inevitable. Such disputes will pit trade and climate regimes directly against each other and take a lengthy period to conclude satisfactorily. The WTO dispute settlement body will be left to determine whether a measure is genuinely enacted to respond to climate concerns. Namely, to decide whether it constitutes an arbitrary restriction on trade and whether the measure can be justified under any exceptions. In contrast, the existence of a WTO climate waiver would permit states to impose national measures that address climate change issues without pitting these measures against international trade rules, but rather imposing the climate measures under a codified rule of the international trade legal regime.

According to Article IX:3 of the Marrakesh Agreement, the WTO Ministerial Conference can decide to waive a legal obligation imposed on members in exceptional circumstances. The necessity of exceptionality implies that the waiver is intended to legitimise measures that are not WTO-compliant, but urgent. This waiver mechanism is precisely what can be used to revitalise trade law to confront the impending climate change emergency.

A WTO climate waiver would exempt certain WTO obligations for countries which apply trade-restrictive measures to attain emissions targets. A properly drafted waiver could allow states to discriminate on imports; in terms of tariffs, quotas and bans, or on exports; in terms of subsidies or foregone tax revenue, based on the amount of carbon emitted in the manufacturing process of a product. To provide legal certainty, the action would have to fit an agreed definition of a “climate response measure” and not amount to a disguised restriction on international trade. Response measures designed to combat climate change, upon which I will elaborate later in this piece, are noted in the Preamble, Article 4.2 and Article 4.15 of the Paris Agreement but are yet to be defined multilaterally.

The legal framework is but one important aspect of the climate waiver, and the humanitarian considerations are evident from the previous use of the waiver mechanism, where it has been applied to progress matters of societal importance. In 2003, in response to a surge in demand for HIV/AIDS and malaria medication in developing countries, the Ministerial Conference agreed to waive countries’ obligations under Article 31(f) of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. This provision states that production under compulsory licencing must be predominantly for the domestic market, curtailing the ability of countries without a domestic pharmaceutical industry from importing cheaper generic drugs from countries where the drugs were patented. After lengthy negotiations and missed deadlines, a compromise was finally found, and a temporary waiver adopted pending full amendment of the intellectual property agreement. The waiver allowed countries producing generic copies of patented drugs under compulsory licences to export the drugs to certain importing countries. This waiver successfully achieved a careful balance of public health goals with trade objectives. The Director-General (DG) of the WTO at the time noted that the outcome “proves once and for all that the organization can handle humanitarian as well as trade concerns”. Recently, India and South Africa called for a similar TRIPS waiver to allow developing countries derogate from intellectual property obligations in manufacturing a COVID-19 vaccine.

Waivers can also be used to allow states to amend their trade policy to comply with other multilateral regimes and another notable waiver was agreed in 2003. This waiver gave legal certainty to, otherwise discriminatory, trade measures taken by members to fulfil United Nations obligations under the Kimberley Process Certification Scheme, an international agreement to stem the flow of conflict diamonds in global circulation, whilst still supporting legitimate diamond trade.

Notwithstanding the benefits of realising societal values, Article IX waivers are also extremely political and can be beset by lengthy negotiations and delays due to fears of protectionism or private sector concerns. For instance, in 2002, a draft of the TRIPS AIDS waiver was vetoed (at para 34) by the United States delegation seeking to restrict the extent of the waiver application, or, some would argue, to protect the interests of the pharmaceutical industry. The previous examples of the use of the waiver power demonstrate that international economic law could adapt to changing geopolitical conditions, be they issues of global health or conflict and security. It is not the law that is rigid; it is political will that is stagnant. The law cannot be dynamic unless it is harnessed, and the political conditions constructed for developments to be enacted.

Perhaps the current climate at the WTO is not conducive to launching this waiver process. There is a myriad of existing issues facing the Organisation without considering new challenges. The on-going trade hostility between the US, EU and China, a dispute settlement system shut down by the US and a rulebook conceived in the early 1990s that has been outstripped by rapid digitalisation are just some of these issues. But the climate crisis will worsen unfettered and risks a legal clash with the international trade regime unless substantive steps are taken.

Britain’s Opportunity and the International Legal Order

What are the arguments for the UK to incorporate a WTO climate waiver into their future international trade policy?

Firstly, the UK will have the opportunity to coordinate the resolution of the two issues inhibiting the adoption of a climate waiver. The 26th UN Climate Change Conference (COP26), will be held in Glasgow in November 2021 with the UK taking the presidency. COP26 should see states confront the two obstacles to a climate waiver, namely, the lack of internationally agreed metrics for measuring carbon emissions in production processes and the lack of a definition of a “climate response measure”. With the UK in the presidency, it can lead agreement of carbon metrics and coordinate a definition of climate response measure, crucial for ensuring legal certainty in dispute settlement. The UK has already signalled its intent to inject urgency into the conference, and given that both the European Union and the campaign of President Joseph Biden in the US have suggested border carbon taxes, the need for a waiver will grow in significance.

Secondly, the controversial Internal Market Bill (now Act) episode will have damaged the UK’s reputation within the international legal order, and opportunities should be taken to restore this reputation. Certain provisions of the then Bill sought to give the UK government the power to override aspects of the UK-EU Withdrawal Agreement (a binding international treaty) with domestic legislation. The draft law was the subject of an EU-initiated dispute under the Withdrawal Agreement (WA) dispute settlement mechanism for breaching the requirement of good faith in the WA. The most controversial clauses were subsequently removed, but had they been maintained the actions of the UK would likely have breached Article 26 of the Vienna Convention on the Law of Treaties – the rule of pacta sunt servanda. Given that the UK government admitted that the bill did breach international law in a “very specific and limited way”, the administration demonstrated the willingness to consider breaching international law should political concessions not be forthcoming. Hence, Britain’s international legal reputation must “build back better”, not only at a bilateral level but at the multilateral institutional level as well. Leading the development of a climate waiver at the WTO would be of the multi-regime leadership envisaged for the UK under the “Global Britain” strategy – a foreign policy plan for a post-EU future.

Conclusion

Milton Friedman, a Nobel Prize-winning economist, once said, “[o]nly a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around”. The world is facing both climate and trade crises, abetted by an increasingly fracturing system of multilateralism. Ideas must now be proliferated that confront both crises and unify the response.

A WTO climate waiver will deliver more certainty to states and businesses as they navigate an uncertain future: environmentally, politically and legally. Simultaneously, it will demonstrate that international trade law is a legal framework flexible enough to confront modern challenges, thereby enhancing trust in the international rule of law. The opportunity for the UK to lead this strategy begins with the presidency of COP26: it should be grasped.

 

Philip Crowe is a trainee lawyer and holds an LLM in Public International Law from the LSE. Prior to entering private legal practice, he researched energy and climate policy in the House of Commons.

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