Global trade's ‘monkey see, monkey do' problem

VISHWANATH KULKARNI | Updated on July 16, 2011

Unilateral trade mesuares remain a highly contentious issue in climate change talks.

Trade measures should be a last resort to enforce compliance, but only on the basis of multilateral scrutiny and approval through a mechanism.

The issue of unilateral trade measures (UTMs) has once again emerged as an area of concern for developing countries, including India, in the run-up to the United Nations climate talks to be held in Durban later this year.

UTMs include tariff, non-tariff and other fiscal and non-fiscal border trade measures that may be taken by developed countries against goods and services from developing countries. Pending the conclusion of a global climate treaty to replace the Kyoto Protocol post-2012, the possibility of the developed world resorting to UTMs on imports from developing nations looms large. Policy-level discussions in the European Union and the United States indicate the possibility that provisions relating to UTMs may be imposed on imports from countries that do not have comparable green house gas (GHG) reduction norms.

A recent ICRIER Policy Paper “ Unilateral Carbon Border Measures: Key legal issues” by Anuradha R.V. deals with the possible ways of addressing the issue.

The paper argues that though it may not be feasible to curb the possibility of unilateral actions, a strong multilateral framework could confine the limits of any such action.

Silent on triggers

The issue of UTMs assumes significance because the United Nations Framework Convention on Climate Change (UNFCCC) itself envisages the possibility unilateral actions. However, it is silent on the actual triggers that would justify implementing such measures.

Any unilateral action would have serious implications on the balance of rights and obligations that a multilateral agreement may hope to achieve under UNFCCC. But, this could be avoided if there is clarity on the conditions that need to be met prior to exercising any UTM, it says.

The Copenhagen and Cancun climate negotiations did deliberate on the UTMs, but the issue remains highly contentious and unresolved. India has strongly opposed any such unilateral action by the developed countries.

India recently called for the inclusion of UTMs as an additional item in the provisional agenda of the 17{+t}{+h} Conference of Parties of UNFCCC to be held in Durban. India believes that recourse to UTMs on any grounds related to climate change would be tantamount to passing mitigation burden onto developing countries. Such a move would clearly contravene the fundamental principle of Common But Differentiated Responsibilities (CBDR).

CBDR principle

The CBDR principle has so far played a key role in defining the rights and responsibilities of countries in tackling climate change. However, the developed world is increasingly insisting that the developing countries, emerging as major emitters of GHGs, need to undertake commitments to address the issue.

Going by the current state of negotiations, chances of securing an outright ban on UTMs are not high, as the developed countries may not give up a right that they have acquired in the past. As there is no clear framework of agreed principle of unilateral action, any exercise of UTMs could result in trade disputes under WTO.

Last year, developed countries had threatened to raise the issue with WTO, when France and Italy had urged EU to consider a carbon tax on imports from developing countries. However, raising the issue with WTO may not be a panacea as it could throw up new challenges for the dispute settlement mechanism.

Multilateral measures

While a global climate pact is an imperative, trade measures within the anticipated framework should be confined only to the purpose of enforcement and compliance for which multilateral procedures have to be developed, the paper says.

Such procedures should envisage trade measures as a last resort to enforce compliance, but only on the basis of multilateral scrutiny and approval through a mechanism.

They should provide for multilateral determination of non-compliance, followed by multilateral authorisation of measures to obtain compliance, based on the precedent set by the Montreal Protocol and Convention on International Trade in Endangered Species (CITES).

Further, such multilateral procedures should provide for transparency, reporting, surveillance, consultation, arbitration and dispute settlement. They should be elaborately designed to ensure that members implement their obligations.

The paper states that trade measures to obtain compliance should be envisaged only against non-compliance with substantive obligations on reduction targets and should not be authorised for procedural shortcomings.

Should the elements for International Consultation and Analysis (ICA) and criteria for measurement, reporting and verification (MRV) of nationally appropriate mitigation actions, as envisaged under the Cancun Agreements, be converted into elements of a legally binding agreement, the remedy for non-compliance should not be trade measure, it states.

Published on July 11, 2011

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