The WTO is still our best bet for building a global green economy

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Kimberley Botwright, Head, Sustainable Trade, World Economic Forum

This article was first published on TESS. It is part of a Synergies series on reviving multilateralism curated by TESS titled From Vision to Action on Trade and Sustainability at the WTO. Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

• The World Trade Organization (WTO), like many other global institutions, is facing a variety of challenges.
• But, despite that, it remains our best bet for building a global green economy that relies on global trade.
• From facilitating cross-border trade to provide a knowledge-sharing and discussion platform, the WTO remains a key global asset.

The WTO, like other multilateral institutions, is facing many challenges. Yet, it is vital that countries find ways to engage with each other on boosting green economic activity and trade. The WTO can be a good forum for knowledge exchange and working through complex issues.

WTO members may not be ready to build a “green WTO”, but there are already lots of practical steps they can take to collaborate with each other through the institution to make trade for the green economy easier.

WTO members will gather at a ministerial level from 26–29 February in Abu Dhabi, UAE. The meeting comes at a challenging time for global trade and multilateralism generally. It’s also a difficult time for efforts to green economies. The recent UN climate gathering in Dubai last November highlighted that countries’ climate mitigation efforts are falling short. Progress is being made in some places, but implementing the net-zero transition is no easy task. Traditional industries need new technologies, new technologies demand new supply chains and skills, far greater finance is required and much more carbon content mapping must be conducted. The rubber truly has started to hit the road for governments, workers, companies and consumers alike.

Three reasons we need the WTO

Why should World Trade Organization (WTO) members take an interest in these debates? There are at least three reasons:

1. A rules-based trade system is needed for climate action

The WTO is the backbone for international, rules-based commerce. Sure, its dispute settlement function is threatened. But the organization is still a powerful source of rules and norms for the way countries regulate goods, services and investment moving across borders. Companies appreciate that. In recent debates around the green transition and economic support, or on supply chain resilience, few executives suggest that a rules-based system needs to be upended. There is a general recognition that trade can help the world combat climate change and biodiversity loss, through spreading innovations, generating economies of scale for new technologies, among other things.

However, wany companies would like to see WTO members work together for more consistency on subsidy rules—including working to phase out fossil fuel subsidies—or to address slow permitting processes for foreign investment in renewable energy projects. These wishes need to be balanced with countries’ interests and debated, and that leads us to the next point.

2. Conversation is helpful

The green transition is taking place against a period of geopolitical turbulence. One has not caused the other, but the two are related, and will likely become more intertwined in the future. Further, if not wisely navigated, trade could hinder individual countries’ efforts to combat climate change through offshoring emissions. Equally, the industrial transition needed to combat climate change creates competitive and protectionist dynamics which might also undermine climate action in the long run.

The World Economic Forum has mapped four future scenarios for trade and climate change to think through potential trends. According to those consultations around the scenarios, avoiding an “exponential disasters” scenario where climate policies precipitate trade wars — flanked by resource nationalism — can be helped by government discussions in a few areas. One of these is carbon accounting and reporting standards. These have proliferated and may continue to do so, creating an uneven landscape on which countries will inevitably base trade policies.

Japan’s G7 effort in 2023 around emissions measurement methodologies for a net-zero steel industry was a good push; these discussions need to be brought into wider international fora. Countries could use the WTO for exchange, or at least for sharing knowledge on key developments occurring in this space. Building up wider government knowledge and building institutional bridges ultimately helps the private sector deal with a less fragmented landscape.

3. Facilitate the green economy

Companies benefit from the WTO Trade Facilitation Agreement (TFA). It addresses practical challenges that occur on a daily basis when goods are moved across borders. Through initiatives such as the Global Alliance for Trade Facilitation (GATF), companies have also been able to work with governments on implementing the TFA, homing in on specific difficulties and working to address these.

WTO members should use the institution to look at ways they can facilitate green economic activity. Of course, “facilitation” can mean different things to different people, and that’s ok. For some WTO members, there might be appetite to apply the proposed Investment Facilitation for Development (IFD) Agreement to focus specifically on climate-aligned capital flows. The Forum is already working with investment promotion agencies in Brazil and Namibia on actions to facilitate climate FDI into their economies. Targeted investment facilitation on climate-aligned investment projects can be a helpful way to ground investor interest in climate action into specific country needs and activity.

For other WTO members, facilitation could mean working to boost goods and services trade essential for low-carbon economic activity. There are some politically sensitive products in this space — like electric vehicles — but there are also other items where non-tariff barriers like conformity assessment procedures and different technical requirements slow down market growth and vital technology diffusions. The Trade and Environment Sustainability Structure Discussions (TESSD) have made a good start in digging into these issues. For example, static converters used to convert solar energy to electricity face 523 technical requirements applied by 61 different countries. These requirements may be important and do not necessarily need to be eliminated, but governments could work on regulatory cooperation to maintain the outcome and reduce trade friction.

Addressing environmental challenges through the WTO

WTO members can even look at how existing tools like trade facilitation can be applied to environmental challenges. Improving waste management and material recycling in some countries might require trade. Countries need to track waste movement to avoid trade being used for dumping. This is all covered by the Basel Convention, but as an environmental treaty, policymakers there could benefit from border expertise and new developments that make managing the process of trade easier. The GATF has worked with the International Plant Protection Committee to help countries roll out digitalized phytosanitary certificates for safe plant and food trade. Could WTO members encourage the same type of collaboration with relevant fora for more material circularity?

These are not necessarily topics or work that make headlines. It’s also not yet a package for a “green WTO”. Members are not there yet; they may not be for some time. But business models that are low-carbon, based on re-using and surfacing alternative materials and have nature-positive outcomes are worth encouraging.

Trade has a role to play in these new economic activities, and the WTO is a good avenue for countries to collaborate through.