Time for the greening of global trade

By Chandran Nair
Financial Times

To suggest that free trade is destructive is to invite controversy. But the reality is that free trade must be constrained: it encourages the unrestrained consumption of goods and services, thereby playing a negative environmental role globally.

The conventional wisdom promoted by economists has created the myth that trade naturally contributes to sustainable development by promoting the efficient allocation of resources, economic growth and increased income levels.

The huge increase in trade since the mid-20th century has exacerbated a gross underpricing of environmental externalities. This is especially visible in the developing world.

There is no denying that trade is vital, that it is very much part of what drives the human desire to be resourceful, that it creates economic activity and thus is even essential for human development.

But with a global population heading for 9bn by 2050, it cannot be business as usual. Global trade must change.

Above all, new international agreements that put environmental challenges at the centre of global trade are long overdue.

Key to this will be using trade controls to reduce environmental impacts and even restricting some forms of consumption. After all, for the most part, trade in ivory is restricted, as is the sale of certain vehicles in some countries. Charges of protectionism against such actions must be fought by having in place very clear international agreements.

What we need is a new World Trade Organisation – one that creates a new system of agreements that can clearly distinguish environmental action from blatant protectionism. Conscious and even rules-based consumption will need to replace that which is conspicuous and encouraged by hiding the true costs.

Sectors such as fisheries, industrial meat production, forestry and manufacturing are obvious targets for action. These sectors create significant impacts and can be reshaped but politicians need to be bold.

It is entirely possible to design economically viable schemes that make most ocean-caught fish certified to sustainable standards and meat priced to take account of the large carbon footprint and water intensity of current inefficient processes. Efforts by the EU to ban international trade in blue-fin tuna reflect this and could be the start of a trend.

We need a new 21st-century consensus on trade in which countries recognise the scientific reality of resource constraints, environmental limits and therefore the need to manage consumption.

This will require making the environment the guiding principle of free trade and not the barrier it is often viewed as. This new consensus must allow the WTO to impose constraints on international trade such as:

•Minimum environmental standards from cradle to grave in key manufacturing industries (eg energy intensity/ton of steel);

•No-go areas globally for exploitation of certain natural resources;

•Ensuring true cost-pricing through the use of economic instruments, in key sectors such as meat production, agriculture, mining, timber and fisheries;

•Outright banning of trade in certain goods (eg endangered fisheries);

•Setting global carbon emission standards and requiring full carbon disclosure on products with high energy footprints.

Failure to comply would allow the WTO to take action including imposing tariffs.

This global trade consensus on the environment will help avert the sort of unilateral climate actions being proposed by the US Senate to create level playing fields, and which are viewed as unfair by countries such as India.

But the WTO will need to form a new partnership with the UN, the global champion of the commons. This dream team will for the first time allow the big two of global governance to align their missions and make trade and environment compatible. They will be able to build agreements on the needed constraints and very importantly help enforce environmental standards through trade agreements, not just exhortation.

The WTO could announce its commitment to this major initiative at the Copenhagen meeting and require members to sign up within 12 months. Trade controls of this nature could have the most significant impact on fighting climate change especially if the focus is on greenhouse gases and not just CO2.

The new consensus must bear in mind five points in order to address priority issues and avoid years of bickering:

•Avoid trying to solve all the environmental issues in one go.

•On climate, focus not just on CO2 reduction, thereby attaining results quicker.

•Use economic instruments to tackle trade-related resource-depletion issues.

•Target the most polluting industries.

•Involve China and India as founding partners: they really matter.

•For the WTO, not making environmental and resource issues such as climate change central to its mission is to ultimately undermine trade itself and squander a golden opportunity to redefine its mission.