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Aligning climate and trade

When it comes to taking meaningful climate change action, is international trade law a friend or foe?

Trade cargo ship in uncertain weather

Like many things in law, the answer is 'it depends.'

Some argue that the World Trade Organization and the 1947 General Agreement on Tariffs and Trade (GATT) stand in the way of favouring local and national production with lower carbon emissions. The agreement exists to promote international trade by reducing or eliminating trade barriers, and specifically takes aim at efforts that would give protection or favour to domestic products and production. The agreement also includes "national treatment" and "most-favoured nation treatment" provisions to ensure countries cannot discriminate between their trading partners.

In a recent piece, Todd Tucker, director of governance studies at the Roosevelt Institute, proposed suspending international trade treaties for a decade and instead flowing goods by way of a Global Green New Deal. Countries that agree to decarbonize would see tariffs go to zero. Countries that refuse would see their tariffs rise significantly.

Others think blowing up the whole system is overkill and believe there is a way to address the climate crisis within the current structure.

"From a practical standpoint, I don't think right now most countries would agree to something like this," says John Boscariol, leader of the international trade and investment law group at McCarthy T├ętrault LLP.

"But the importance of these big ideas is that they can still move things forward by generating smaller ideas that could be implemented."

Among them? Carbon border adjustments.

The European Union recently tabled a carbon border adjustment mechanism as part of the European Green Deal, which would impose tariffs on products that are carbon intensive in their production.

"That's the kind of thing we can see implemented fairly soon," Boscariol says. "It doesn't involve the upheaval of the entire WTO to move it from a focus on commercial trade to really a focus on compliance with environmental concerns."

That's not to say it would be a slam dunk if challenged before the WTO.

"The EU will have to craft something very carefully to make sure they can justify it first on the basis that it doesn't discriminate, but if it does, that it's justified under the exception contained in the GATT 1994."

Trade policies may be defensible if they are "necessary to protect human, animal or plant life and health" and "not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination," or "a disguised restriction on international trade."

For jurisdictions that have dragged their heels on climate action, this could force them to act. Or it could be downright damaging. But that's no reason not to forge ahead, says Laura Zizzo, co-founder and CEO of Mantle314, a climate consulting firm.

"The upholding of traditional international law is not as important as saving our species. If you put it in that context, I find it difficult that we're not going to be able to make good arguments for these innovative policies that will be required," she says.

"We have a crisis on our hands, and we need to rapidly reduce emissions. That is the crisis. It's about deeply decarbonizing over the next 10 years to have any chance of meeting our Paris Agreement goals. We need to just hammer that home."

Zizzo says even if you are not sure something is going to pass muster at the WTO, you can still glean some good by putting it through the system.

"I think that's what we're going to have to do. We're going to have to make some good choices on the policy front even if we're not 100 per cent sure. We just can't wait. We don't have enough time to create perfect policies."

Like most things, the devil will be in the details.

"My general experience is that conduct has to be pretty blatantly protectionist to attract a trade challenge," says Lisa DeMarco, a senior partner at DeMarco Allan LLP, a climate change and clean energy boutique law firm.

"There's definitely some possibility and room for very progressive environmental regulations. You would not have seen that included in the European Green Deal if it were directly prohibited."

While she's not opposed to a well-defined border carbon adjustment, DeMarco says "it's a big gun." She likes the idea of empowering the consumer. Put a label on imported and domestic goods that shows the carbon content and whether it was produced in a regulated, socially just jurisdiction that respects human rights.

"That really gets at the guts of what we're trying to do. And when it's the customer who makes that distinction, it's much harder for the defensive country to say that this is just a disguised trade barrier."

It's already been done with wood and paper products. Customers seek out the Forest Stewardship Council (FSC) certification, which lets them know the wood was harvested from responsibly managed forests.

"The customer has a lot of purchasing power, especially when you look at government procurement itself," DeMarco says. "There's no reason why governments shouldn't be demanded to put their money where their mouth is when it comes to their own policies."

As jurisdictions become more like-minded in recognizing the need for climate action, Boscariol says their shared ideals can be incorporated into large trade deals like CETA and the Trans-Pacific Partnership.

"That may loosen the handcuffs that have traditionally been there. And when you negotiate a big deal like that, it becomes a precedent for future deals. That's often how change moves forward."

Zizzo says the need is more urgent than that. We have a moment in time with the COVID crisis — a clean reset opportunity to move far along, particularly given the stimulus spending and infrastructure needs that have to be addressed to build climate resilience.

"Canada has a real opportunity to lead here. We're well-respected as far as international law is concerned. We have credibility in this space because we have oil and gas. So if we put things together in a way we feel is defensible, that holds a lot of weight internationally," she says.

"We can't have international law be seen as a crutch to prevent action."