Making trade work for the environment, prosperity MAKING TRADE WORK FOR THE ENVIRONMENT, PROSPERITY AND RESILIENCE AND PROSPERITY ENVIRONMENT, THE FOR WORK TRADE MAKING and resilience Making trade work for the environment, prosperity and resilience Acknowledgements

“Making Trade Work for the Environment, support from administrative, legal Prosperity and Resilience” is the product of and communications staff. a collaborative effort by the WTO Secretariat and UN Environment. Valuable contributions were provided by the Air Quality and Mobility Unit, Consumption For the WTO, the technical work was and Production Unit, Convention on led by the Trade and Environment International Trade in Endangered Species Division. Valuable contributions were of Wild Fauna and Flora, Economic and provided by the Economic Research and Fiscal Policy Unit, Green Growth Statistics Division, the Intellectual Property, Knowledge Platform, International Resource Government Procurement and Competition Panel, Secretariat of the Basel, Rotterdam, Division, the Legal Affairs Division, the Aid and Stockholm Conventions, as well as the for Trade Unit of the Development Communications Division, Ecosystems Division, and the secretariats of the Division, Law Division, Policy and Standards and Trade Development Facility Programme Division, Science Division and (STDF) and the Enhanced Integrated the Executive Office. Framework (EIF). Gratitude is due to the WTO Information For UN Environment, the technical work and External Relations Division, which was led by the Environment and Trade managed the production of the publication. Hub within the Resources and Markets Images were compiled with support from Branch of the Economy Division, with UN Environment.

Disclaimers For the WTO publication do not imply the expression of any opinion whatsoever on the part of the This publication and any opinions reflected United Nations Environment Programme therein are the sole responsibility of the concerning the legal status of any country, WTO Secretariat. They do not purport to territory, city or area or of its authorities, or reflect the opinions or views of members of concerning delimitation of its frontiers or the WTO. boundaries. Moreover, the views expressed do not necessarily represent the decision For UN Environment or the stated policy of the United Nations Environment Programme, nor does citing of The designations employed and the trade names or commercial processes presentation of the material in this constitute endorsement. MAKING TRADE WORK FOR THE ENVIRONMENT, PROSPERITY AND RESILIENCE

Contents

Foreword 02

Executive summary 04

1 Connecting the dots: environmental sustainability, economic prosperity and resilience 12 Opportunities for sustainability and prosperity 15 Policy drivers 23 A changing global environment: impacts on trade 26

2 Expanding the contribution of trade to global prosperity and a healthy environment 28 Unlocking trade in emerging green sectors 34 Policy coherence 43

3 Maximizing opportunities for cooperation on trade and environment 48 The role of the WTO 55 A framework for efficient, coherent and fit-for-purpose public policies 59 Helping developing countries benefit from the global trading system 64 The role of UN Environment 69 Environment and Trade Hub and other trade-related initiatives 74

4 Building partnerships for trade, environment and prosperity 88 Rethinking global approaches 90 Innovative partnerships for the future 91 Leading by example: the WTO and UN Environment working in partnership 93

Bibliography 96

Additional resources 102

WWW.WTO.ORG / WWW.UNENVIRONMENT.ORG 1 FOREWORD

Foreword

uring the past few decades, trade must seize the positive momentum of has powered huge advances in countless win-win ideas and actions springing economic development around the up all around the world. world. As the world economy has Dgrown, however, so too have environmental In India, a start-up that repurposes waste into challenges, which in turn risk undermining furniture, clothing and accessories sells these wellbeing, development, health and economic products over the internet. A young growth itself. entrepreneur from the Caribbean has developed a cutting edge technology to Trade that supports a healthy environment extend the life of lithium-ion batteries for and sustainable development is critical. This reuse around the world. Meanwhile in report, by the World Trade Organization and Madagascar, men and women in a small UN Environment, illustrates how trade can village have created an export-oriented support action by governments, companies, business from eco-friendly seaweed farming. innovators and consumers to improve our economies and protect our environment at the same time. “If we all come together and work together, there is no limit The 2030 Agenda calls on all countries to put to what we can achieve on trade at the service of a more sustainable, planet Earth.” inclusive and resilient world. To this end, we Erik Solheim, UN Environment Executive Director and Under-Secretary- General of the United Nations

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Trade can help green business expand and Our aim is to shine a light on opportunities to 01 Erik Solheim UN flourish. It can promote environmental bring trade and environment closer together, Environment Executive conservation and economic efficiency, and and to highlight the importance of close Director and Under- Secretary-General of improve access to clean technologies at a collaboration between governments, the United Nations lower cost. To make sure trade delivers these entrepreneurs, investors, scientists, benefits and works for people and the environmental activists and civil society 02 Roberto Azevêdo Director-General environment, countries around the world will at large. of the World Trade have to better align trade, environment and Organization sustainable development policies. In this way, we hope to strengthen the contribution of our two organizations towards We are committed to building on the strong the sustainable, resilient and prosperous foundation of cooperation between our world we all want. organizations to help countries, businesses and people to meet these challenges. “By working together, we hope In 2018, we jointly launched an initiative to to provide a useful resource broaden and deepen the dialogue among governments, the private sector and civil to explore practical ways to society on practical ways to use trade to expand trade opportunities strengthen the global economy and the that are good for the economy environment, and to ensure a future for and for the environment.” people whose livelihoods depend directly on natural resources. Roberto Azevêdo, Director-General, World Trade Organization

Erik Solheim Roberto Azevêdo UN Environment Executive Director Director-General, and Under-Secretary-General of the World Trade Organization United Nations

WWW.WTO.ORG / WWW.UNENVIRONMENT.ORG 3 EXECUTIVE SUMMARY

Executive summary

International trade offers Trade can help bridge relative differences in unique opportunities to build resource endowments across countries, a prosperous, climate relieving resource scarcities in some regions resilient and environmentally and allowing for a more economically and environmentally efficient allocation of sustainable world. resources globally. With the growing impacts of climate change and resource scarcity – felt he world is much more in varying magnitudes across different parts interconnected than ever before. of the world – this role of trade can help The rise of production networks foster environmental sustainability and across countries has transformed resilience and is likely to play an even more Tthe trade and business landscape, influencing prominent role in the coming decades. how and where goods and services are produced and consumed. Many developing Open, predictable and countries are playing an increasing role in equitable trade relations international trade, but others remain excluded among countries can accelerate due to lack of financial resources, knowledge the diffusion of environmental and infrastructure. goods and services and At the same time, the world faces growing facilitate the creation and environmental pressures including air expansion of markets for pollution, land degradation and overfishing. sustainable products. Climate change, in particular, has intensified the frequency and magnitude of weather- International trade can accelerate the related events such as tropical cyclones, diffusion of environmental goods and services which can trigger natural disasters and to those places where they are most needed widespread emergencies. Such disruptions, and help stimulate productive local capacity. not least to production and transport Environmental goods and services perform a networks, pose risks to trade and prosperity variety of functions essential to tackling more generally. environmental challenges, regenerating the natural environment and making production Proactive and forward-looking trade and consumption more sustainable. They approaches can be part of a coordinated and consist of goods and services needed to, for effective solution in tackling mounting example, produce clean and renewable environmental challenges while fostering energy, improve resource and energy economic and social prosperity. International efficiency, and reduce waste and abolish air, trade is unique in that it promotes water and soil pollution, among other specialization, competition, economies of important functions. scale and innovation globally. These powerful forces can, if properly harnessed, help make A larger, competitive and integrated global the world economy more sustainable and market gives companies, governments and resilient to environmental risks while having consumers around the world access to better positive effects on prosperity, jobs and and more efficient goods and services to equality, in line with the United Nations’ 2030 protect the environment. At the same time, it Agenda for Sustainable Development. can drive down costs, making it easier for

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countries to replace outdated, polluting Open, transparent and fair trade in technological solutions with environmentally sustainable agricultural products could sound ones. also contribute to broader poverty alleviation efforts among smallholder In the same vein, international trade can farmers in developing countries, who facilitate the creation and expansion of make up the bulk of the world’s rural poor. markets for sustainable products, thereby These efforts must address the many strengthening incentives for more constraints that limit the capacity of environmentally sustainable and socially smallholder farmers to participate in global responsible production, while boosting markets, including access to finance, decent employment and green growth, know-how and an affordable and well- particularly in agricultural markets. functioning quality infrastructure.

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The benefits of trade for Sendai Framework for Disaster Risk environmental sustainability and Reduction, a 15-year instrument which sets prosperity are within reach. targets and priorities for the substantial reduction of disaster risk. Another watershed moment was the entry into force of the A confluence of factors creates favourable Paris Agreement on climate change in conditions for trade to bring about prosperity, November 2016. environmental resilience and sustainability. Meanwhile, more companies are putting A growing number of countries are adopting sustainability front and centre in their efforts new policies – or reforming existing ones – to to respond to a rapidly changing backdrop of make their economies more resilient to risks and opportunities. From small start-ups environmental risks and to align them with to large multinational corporations, these environmental sustainability. Science has “pioneer” companies are developing forward- often served as a catalyst for reform. It looking business models which consider provides the necessary knowledge base that sustainability as a source of competitive allows governments to apply a value to the advantage, a driver of efficient value chains vital services provided by ecosystems, making and a gateway to tap into emerging business more effective and holistic decision-making and trade opportunities. increasingly possible. Growing consumer awareness of At the international level, countries have environmental issues is another key driver of stepped up cooperation to improve the way opportunities to bring the economy, trade and they collectively tackle global environmental environmental sustainability closer together. challenges while supporting economic Rapidly expanding markets for sustainable development. These efforts have already led food and beverages, energy-efficient home to important policy developments, such as the appliances and buildings and eco-friendly 2015 endorsement of the United Nations’ holiday destinations illustrate this trend.

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These shifts, along with rapid technological developments such as advanced data analytics and artificial intelligence, increased global interconnectedness and the emergence of global value chains have led to the rise of entirely new sectors of green economic activity. The renewable energy sector is a prominent example. It already employs millions of people worldwide and is expected to continue expanding rapidly as the cost of renewable energies decreases even further.

These market developments offer sizeable economic and trade opportunities, not least for small and medium-sized enterprises in less developed countries. Moreover, the drastic fall in the price of energy from renewable resources has sparked innovative business approaches to supply electricity to people who were previously deprived from it.

Despite these gains, sustainable goods and services remain niche as increases in sustainable consumption are overtaken by growing global consumption rates. This demonstrates a need to build on the existing momentum to use trade as a tool to expand and connect sustainable consumption and production. rainfall often lead to significant reductions in Environmental pressures in crop yields and agricultural output in many tandem with a lack of well- regions of the world, making agricultural functioning markets can production and trade particularly vulnerable to undermine the role of trade in climatic changes. delivering benefits for Besides a healthy environment, international sustainability and prosperity. trade requires functioning markets, effective institutions and sound environmental Just as trade can contribute to improving the and social policies to fully contribute to environment, so too is a healthy, stable and global prosperity, climate resilience and resilient environment essential for well- environmental sustainability. This calls for functioning trade. If not tackled, climate coordinated action that cuts across policy change and other environmental challenges domains and levels of governance while may undermine trade and may even undo considering the nuanced and complex much of the world’s progress in reducing interactions between a rapidly changing poverty over the past decades. natural environment, economic growth and trade. Recent extreme weather-related events, such as flooding and hurricanes, have Despite significant progress in recent years, demonstrated the vulnerability of the cross- institutions and policies still fall short of what border supply, transport and distribution is required for production and consumption chains that underpin modern-day trade. decisions to reflect true environmental costs, Climate change may also affect trade through for companies to be able to take full its impact on countries’ endowments and advantage of green production opportunities, production more broadly. For example, and for consumers to act upon their intentions increased temperatures and changes in to purchase affordable, sustainable products.

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More rapid progress is also needed in making and providing countries with the avoiding and mitigating any harmful knowledge and tools to adapt to rapid environmental impacts caused by trade, changes, illustrate a few tangible actions. including growing carbon emissions from international transport. To be effective, action Thirdly, there is a need to encourage national in this area must consider trade along with policy makers to work together across other, important drivers that exert pressure on environmental and trade domains and seek to the natural environment. identify and foster “win-win” opportunities. Environmental considerations need to feature To ensure that trade works for in trade policy making, while trade needs to sustainability and prosperity, an be considered within the development of enabling environment allowing environmental policies and compliance with for coherent and fit-for-purpose environmental obligations. policies and coordinated action One such “win-win” opportunity would be to that puts human wellbeing front eliminate trade barriers on environmental and centre is critical. goods and their components. This should be complemented by efforts to tackle barriers There is no one-size-fits-all answer or single affecting environmental services trade as blueprint to maximize the trade opportunities well, given their key role in delivering to build prosperous and environmentally environmental goods and ensuring that they resilient and sustainable economies. function properly. Opening trade in However, all countries can benefit from environmental goods and services could bring approaches rooted in an understanding that protecting and enhancing the natural environment and promoting a fair, transparent and open trading system are closely intertwined and mutually supportive. Moving towards greater coherence between trade and environmental policies requires action in several areas.

First, there is a need to tackle environmental challenges, not least transboundary and global impacts resulting from, for example, international transport, by strengthening multilateral cooperation and governance. Harnessing multilateral cooperation and strengthening local, national and international environmental policies will help trade to contribute to innovative technological solutions and ensure that trade promotes a shift towards more sustainable ways of consuming and producing.

The second area involves approaches which spark virtuous circles between environmental and economic resilience. Actions to increase resilience to climate change and other natural hazards will play a major role in creating a more resilient economic system. Promoting trade facilitation and Aid for Trade in disaster- stricken countries, enhancing trade in technologies that include environmental early warning systems, diversifying production locations and trading routes, strengthening proactive and long-term planning and policy

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achieve the Sustainable Development Goals (SDGs). The SDGs call on countries to seize trade-related opportunities to promote sustainable development. This includes employing an inclusive, gender-sensitive approach in pursuing opportunities for more sustainable trade.

Finally, it will be critical to raise awareness among stakeholders on the role of trade in environmental sustainability and resilience to environmental and economic shocks. Challenges of global scale require solutions of the same calibre. Broad engagement will be needed from civil society across the globe. Raising awareness can help to shape mindsets, shift consumption patterns, influence trade flows and lead to greater international cooperation on trade and the environment.

UN Environment and the World Trade Organization are cooperating to assist countries around the world sizeable benefits to countries in terms of to reach mutually beneficial productivity, exports, jobs, innovation and a clean, healthy environment. The solar panel solutions that allow trade to industry, for example, creates more than work for a healthy and more twice the number of jobs per unit of electricity resilient environment and generation than coal or natural gas. Another a prosperous economy. prominent “win-win” example includes the elimination of environmentally harmful In responding to an array of environmental subsidies, such as in fisheries. and economic changes, countries and global governance systems need to work together The fourth area entails fostering public- through innovative partnerships. SDG 17 private partnerships to facilitate market- provides a mandate for global partnerships oriented approaches that allow trade and and collaboration for sustainable environment to be mutually supportive. The development, complemented by multi- public sector needs to establish frameworks stakeholder collaboration which mobilizes and that allow private sector opportunities to disseminates knowledge, expertise, flourish. Such partnerships can highlight good technology and financial resources in support practices and bring to the fore sustainable of the SDGs, particularly in the most business champions, including small and vulnerable countries. medium-sized enterprises. Efforts should also be geared towards improving market access For the trade and environment communities, conditions for sustainable products. this means that governments, businesses, civil society and intergovernmental The fifth area relates to the world’s poorest organizations must pull in the same direction countries. Action is needed to strengthen to tap into the numerous “win-win” trade their capacity to seize trade opportunities in opportunities that can improve countries’ emerging green sectors, such as renewable economies and the environment in tandem. energy and resource efficiency. Advisory support and capacity building are also needed In doing so, countries can build on past work to ensure that countries can effectively on trade and environment globally, regionally harness trade and trade policy to implement and nationally. At the global level, a major international environmental commitments and step forward was taken in 1995 when the

WWW.WTO.ORG / WWW.UNENVIRONMENT.ORG 9 EXECUTIVE SUMMARY

founders of the WTO made sustainable Despite significant progress in global development an explicit guiding principle for development outcomes, fundamental the newly created organization. Along with economic changes and technological other innovations in global institutional design, advances, coupled with political tensions, are not least the creation of a committee challenging the global trading system and its dedicated to improving dialogue on trade role as a force for growth, development, and the environment, this decision was sustainability and environmental resilience. instrumental in paving the way for more and Overcoming these challenges requires better cooperation among countries to ensure leadership by governments and the private that trade and environment policies reinforce sector, along with greater engagement with one another. civil society. It also requires close collaboration between the WTO and UN For its part, UN Environment has undertaken Environment, and among other relevant significant efforts to ensure that trade actors, to combine and leverage knowledge, amplifies sustainable practices, greener expertise and convening power. production and consumption, investment in the environment, development of In response to this rapidly changing environmentally sound technologies and landscape, the Executive Director of UN integration into green global value chains. Environment, Erik Solheim, and the UN Environment delivers its work on trade Director-General of the WTO, Roberto and the environment through a variety of Azevêdo, announced in 2018 their programmes and initiatives, with the commitment to strengthen the cooperation Environment and Trade Hub serving as between their organizations. Under the theme the central vehicle for delivery. Launched on of “Healthier Environments through Trade”, the sidelines of the 10th Ministerial they launched a joint initiative to promote Conference of the WTO, the Hub works greater dialogue and collaboration among with public and private partners to offer diverse stakeholders on innovative ways of tailor-made capacity building and policy using trade to strengthen the environment support around a number of key areas at the while creating new opportunities for interface of trade, sustainable development prosperity. Leading by example, the two and climate resilience. organizations aim to inspire and support countries around the world to identify Close collaboration between the Secretariats opportunities to make better use of trade as and past cooperation between UN a tool for resilience, prosperity and Environment and the WTO on topics such environmental sustainability, and to explore as trade and climate change, fisheries practical ways to turn them into reality. subsidies and trade in environmental goods Furthermore, they aim to support capacity have created greater awareness to advance building by providing a platform for the global policy discourse on environment discussion, facilitating public dialogue and and trade. offering technical assistance.

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In the spirit of the 2030 Sustainable – globally, regionally and nationally – Development Agenda, the UN Environment- along with the private sector and civil World Trade Organization initiative aims to society, new and fit-for-purpose bridge silos by identifying synergies and partnerships can foster interdisciplinary complementarities between the two perspectives, give way to innovative and organizations’ areas of work, and to mutually supportive solutions, and foster facilitate and promote the creation of new enhanced partnership on trade, environment partnerships. By bringing the environment and climate resilience – a key step to and trade communities together at all levels achieve the 2030 Agenda.

WWW.WTO.ORG / WWW.UNENVIRONMENT.ORG 11 CHAPTER 1

Chapter 1 Connecting the dots: environmental sustainability, economic prosperity and resilience

amba Lahy vividly recalls the time markets, and trade and investment policy when, as a young man, he used to reforms have spurred the emergence of go fishing with his parents off the cross-border production networks known Scoast of Tampolove, one of the as “global value chains”. As a result, the fishing villages dotting the southwest coast world has become increasingly of Madagascar.1 Every time his family connected. Integration into these value returned from the sea, their long and narrow chains offers access to networks, global canoe would be filled to the brim with fish. markets, knowledge and technology, all of But things have changed. Samba, now with which are important for economic growth, a family of his own, has seen his catches productivity and jobs. Nevertheless, many dwindle. As a result, like others in low-income countries, lacking adequate Tampolove, he can no longer rely on fishing infrastructure and resources, remain as his main source of income. excluded.

Samba’s story has been repeated in Along with these fundamental shifts, the scores of fishing villages around the world faces mounting environmental world. Although the specifics may differ, challenges. Such challenges can be a common thread runs through all of described as “planetary boundaries”, a these stories: on the one hand, economic set of limits related to climate change, the growth has been essential for poverty thinning of the ozone layer, extinctions of reduction and global prosperity. On the species and the level of pollutants in the other hand, growing environmental atmosphere, among other environmental pressures, such as increasing levels of issues. The group of scientists who first pollution, risk compromising the introduced this idea in 2009 warned that prospects for future growth and exceeding planetary boundaries may well-being. precipitate changes that are either irreversible or so abrupt as to put At the same time, technological progress, continued human development in peril improved access to resources and (Rockström et al., 2009).

1 Adapted from: “Madagascar: No more fish? We’ll farm seaweed instead.” Deutsche Welle. 25 July 2017. https://p.dw.com/p/2ewb2

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WWW.WTO.ORG / WWW.UNENVIRONMENT.ORG 13 CHAPTER 1

In the case of the oceans, one-third of the much so that the seaweed farmed in world’s fish stocks are fished at unsustainable Tampolove is now being sold in foreign levels, up from 10 per cent in the mid-1970s. markets, where it is used to produce food, Meanwhile, 60 per cent of stocks are being personal care products, cosmetics, paints, fished at their sustainable limit (FAO, 2018). adhesives, dyes and gels. But overfishing is only one of many problems affecting the oceans. Over the past 30 to 40 The interconnectedness of the world years, the world has lost half of its coral reefs economy has fostered opportunities for rural and marine species (UN Environment, producers, including Samba, to access 2017a). Other problems include a rise in foreign markets. Many women in his village sea-level temperatures and in the acidity of have embraced the new activity and are 1/3 the oceans, both caused by climate change. playing a bigger role in their community’s economy as a result. What is more, seaweed Proportion of the There is also pollution of the oceans from farming can be more environmentally friendly world’s fish stocks both land- and sea-based activities. The than other aquaculture activities (Cottier- currently fished at “Great Pacific Garbage Patch” – an area Cook et al., 2016). Part of the reason is that unsustainable roughly the size of Mongolia and comprising seaweed and other species of algae do not levels, up from 10 an estimated 1.8 trillion pieces of plastic need fertilisers to grow – just sunlight, carbon per cent in the debris suspended in the Pacific Ocean dioxide and water. All these factors begin to mid-1970s. between the United States and Japan – has show how economic prosperity, trade and the become emblematic of a larger problem that preservation of the environment can, in fact, has quickly reached global proportions reinforce each other. (Lebreton et al., 2018). This publication, which considers how The world’s oceans contain an estimated 150 international trade can support efforts to million tonnes of plastic, with at least 8 million protect the environment, strengthen resilience tonnes added every year (WEF et al., 2016). to environmental risks and build prosperity, is UN Environment projects that global plastic organized into four chapters. production will skyrocket in the next 10 to 15 years. At this rate, by the middle of this century, the sea could contain more plastic than fish by weight. The combined effect of these different problems is degrading the ocean’s health and productivity and thus its ability to provide food and other resources to communities around the world.

Despite a growing awareness of environmental challenges, progress in tackling them has been slow. This is due to many factors, not least the perception that protecting the environment is costly and will therefore hinder the economy. But is it the case that a healthy environment is inherently incompatible with a prosperous economy and an open global trading system? The opening story in this publication may help to answer this question.

Samba’s story is not just one of hardship caused by a rapidly deteriorating environment. Faced with dwindling catches, Samba and others in his community began experimenting with seaweed farming with help from non-governmental organizations. What started out as an experiment turned into a successful income-generating activity – so

14 MAKING TRADE WORK FOR THE ENVIRONMENT, PROSPERITY AND RESILIENCE

Chapter 1 looks at the links between the broader economy (of which trade is an integral part) and the environment. It does so by exploring the shifts in government policies and business models that are giving rise to trade opportunities to simultaneously boost the economy and protect the environment.

Chapter 2 focuses on international trade, providing an overview of the many ways that trade interacts with the natural environment, and how trade can bolster efforts to make production and consumption more sustainable and economies more prosperous and resilient to environmental risks.

Chapter 3 discusses how the WTO and UN Most importantly, the analysis showed that Environment promote cooperation among harnessing such opportunities could catalyse countries to help them seize trade economic activity of a size at least opportunities that foster these goals. comparable to “business as usual” (a scenario where policies and other factors remain Chapter 4 considers how UN Environment unchanged), but with a reduced risk of crises and the WTO can build on a strong and shocks. The report also found a link foundation of existing collaboration to help between poverty eradication and better countries, especially the most vulnerable maintenance and conservation of the natural ones, turn the synergies between trade and environment. Lending support to this is a the environment into tangible benefits for recent finding that healthy ecosystems their people. directly underpin the activities of the 1.2 billion workers involved in farming, fishing and Opportunities for sustainability forestry around the world (ILO, 2018). and prosperity Several other studies have identified There are countless opportunities to ensure additional opportunities to bring about a that environmental protection works in better economy and a better environment at unison with economic prosperity, trade and the same time. For example, one study greater resilience to climate and other showed that more sustainable use of environmental risks. In the run-up to the UN materials and energy would add an extra US$ Conference on Sustainable Development 2 trillion to the global economy by 2050 (UN held in Rio de Janeiro, Brazil, in 2012 (also Environment, 2017b). known as “Rio+20”), an influential report by UN Environment argued that investing 2 per According to another study, G20 countries cent of global GDP in “greening” agriculture, could lift their average economic output by up forestry, fisheries, energy and several other to 2.8 per cent by 2050 through a sectors could unleash the public and private combination of policies to mitigate climate capital flows needed to put the world change and to foster investment in low- economy on a low-carbon and resource- emission, climate-proof infrastructure (OECD, efficient track (UN Environment, 2011). 2017). This includes policies aimed at opening trade in low-carbon equipment and environment-related services (see also More sustainable use of Chapter 2). If the economic benefits of materials and energy would avoiding climate change impacts such as coastal flooding or storm damage are add an extra US$ 2 trillion to factored into this analysis, the net increase to the global economy by 2050. 2050 GDP would be nearly 5 per cent. A third study found that, on average, the benefits of restoring degraded land are ten

15 CHAPTER 1

times higher than the costs (IPBES, 2018). A understanding of the economic and social fourth study concluded that reversing the costs of environmental degradation (see Box decline in fish stocks, not least by disciplining 1.1). Well-functioning ecosystems provide fisheries subsidies, would increase annual net multiple services that sustain human life on benefits to global fisheries by a factor of Earth, including air and water purification, almost 30, from US$ 3 billion to US$ 86 pollination of crops, prevention of soil erosion billion (World Bank, 2017). and regulation of the Earth’s climate. Science has recently provided a stream of insights into None of this means that reaping the gains how ecosystems work, which ecosystems from a transition to a more sustainable deliver which services and in what quantity. economy will be easy or straightforward. Nor does it mean that sustainable action is always As a result, it is becoming increasingly without cost. But the myriad of opportunities possible to apply a value to the vital services to improve the environment, and to do so in a provided by ecosystems and to incorporate way that advances the economy, trade and this information into countries’ development livelihoods at the same time, illustrates that a planning. In this way, governments can make transition to a more sustainable and decisions that are better aligned with prosperous economy is within reach. long-term economic and environmental sustainability. For low-income countries, Underpinning the sense of possibility – and natural asset valuation may have particularly urgency – is a confluence of promising large pay-offs, given that close to half of their developments in science, policy-making, wealth comes from their natural assets, consumer attitudes and business practice. compared with only 3 per cent for For example, there is a much better industrialised countries (Lange et al., 2018).

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Box 1.1 The cost of pollution

The Commission on Pollution and Health researchers and practitioners in pollution has assessed the health and economic management, environmental health and costs of pollution globally and the feasibility sustainable development. of policy solutions. The Commission – an initiative of “The Lancet” (a leading medical In a comprehensive study published in 2017, journal), the Global Alliance on Health and the Commission estimated the annual cost of Pollution (a partnership of governments, pollution worldwide to be US$ 4.6 trillion, or non-governmental and intergovernmental around 6 per cent of global GDP (slightly organizations) and the Icahn School of more than the GDP of Japan). According to Medicine at Mount Sinai in the United the report, one in six people around the States – comprises almost 50 leaders, world die prematurely from diseases caused by contaminated air, water, soils and workplaces. This is triple the deaths from AIDS, malaria and tuberculosis combined.

Most pollution deaths – over 92 per cent – occur in low- and middle-income countries. The most fatal type of pollution is airborne, causing about 6.5 million of the 9 million annual deaths caused by pollution. Air pollution includes smog from power plants, factories and vehicles, along with household emissions from dirty indoor stoves used in many less developed countries.

The report also features examples of strategies to control pollution. It argues that developing countries can boost their economies while avoiding the health and environmental damage that affected previous industrialization episodes. To this end, they need to adopt sound anti-pollution policies and embrace clean technologies for energy, production and transport, among other measures. These messages echo UN Environment research carried out in the run-up to the 2017 UN Environment Assembly, which discussed how to move towards a “pollution-free planet”.

Sources: Landrigan et al. (2018) and UN Environment (2017c).

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Countries around the world have stepped up Consumers are also showing more cooperation to improve the way they awareness of sustainability issues. Many collectively manage global environmental studies confirm that consumers attach challenges while supporting economic importance to sustainability (Whelan and development. A watershed moment in this Fink, 2016). Nonetheless, it seems that their regard was 2015. The year opened with the purchasing decisions often fall short of their endorsement in March 2015 of the Sendai good intentions, especially when higher Framework for Disaster Risk Reduction, a prices are involved (Vringer et al., 2015). 15-year instrument that sets targets and Still, consumer demand is one of the main priorities for the reduction of disaster risk. forces behind the rapid growth of markets and trade in sustainable products in recent 150 million In September 2015, world leaders years, along with the proliferation of tonnes endorsed the United Nations’ 2030 sustainability standards and labels (see Agenda for Sustainable Development. This also Chapter 2). Amount of plastic document contains the Sustainable currently estimated Development Goals or SDGs, a set of 17 Companies are gradually redefining their to be in the goals and 169 targets intended as a business models and applying new oceans. blueprint to turn sustainable development technologies in response to a rapidly into practical action by governments, changing mix of risks and opportunities companies and citizens worldwide. A few related to sustainability. Twenty years ago, months earlier, UN member states had companies may have considered the adopted the Addis Ababa Action Agenda, a environment in narrow terms of “risk” to their global plan to help finance the reputations or as a public relations drive. implementation of the 2030 Agenda. Nowadays a growing number of them, from small start-ups to large multinationals, are Finally, in December 2015, countries adopting more holistic approaches which agreed to a global pact, known as the Paris consider sustainability as a source of Agreement, to keep global warming “well competitive advantage, a driver of efficient below” 2°C hotter than pre-industrial levels, value chains and a gateway to tap into while pursuing efforts to limit the emerging business and trade opportunities temperature increase to 1.5°C. Under the (see Box 1.2). Despite these gains, Paris Agreement, countries undertook to sustainable goods and services remain put limits on future greenhouse gas niche, as increases in sustainable emissions in accordance with “nationally consumption are overtaken by growing determined contributions”. global consumption rates.

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Box 1.2 New business models for sustainability

world population have become increasingly urgent, given their importance for poverty eradication, climate change mitigation and resilient economic growth.

A growing number of companies are looking at how they can seize the business opportunities associated with improved resource use and productivity and sustainable natural resource management. Part of this trend is the growing interest in “circular” business models. These models seek to create value by redesigning and optimizing products for multiple cycles of use. If scaled up globally, the activities underpinning circularity – eco-design, reuse Today’s business landscape involves an and repair, refurbishment, remanufacturing unprecedented and rapidly changing mix and recycling – could gradually replace of risks and opportunities driven by existing “linear” models of “take-make- population growth, global health risks, dispose”. This could in turn help make new technologies, extreme weather production and consumption more events and resource scarcity, among sustainable, while opening new trade many other factors. Faced with this opportunities. evolving landscape, many companies around the world are trying to keep Developing countries may have distinct ahead of the curve by redefining their opportunities for “circularity”, given the business models or establishing entirely prevalence of reuse, repair and recycling, new ones. and the knowledge associated with these practices among many entrepreneurs. Resource productivity is an area of growing Moreover, many circular activities in attention. The global economy consumes developing countries involve people around 90 billion tonnes of resources per employed in the informal sector. Bringing year, more than three times the level in those informal activities into the formal 1970. By 2050, the global population is economy as part of a broader plan to projected to increase from today’s 7.6 billion strengthen circular approaches could to almost 10 billion and per capita income is improve social inclusion and reduce poverty expected to triple, leading to a two-fold in less developed countries. increase in global material consumption levels. Finding better approaches to Sources: Dobbs et al. (2015), Preston and manage natural resources sustainably while Lehne (2017) and Ellen MacArthur fulfilling the material aspirations of a growing Foundation (2018).

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Faced with a business landscape comprising business case for decisions with an impact unprecedented risks and opportunities, on sustainability. Of the world’s 250 largest progressive companies are increasingly aware companies, 100 report on the impact of their that a shift to more sustainable business business on the SDGs (KPMG, 2018). The models can help them improve their World Business Council for Sustainable profitability and resilience to natural disasters Development, a business organization, and climate change. In recent years the reviewed the reports of over 150 member perceived risks related to the environment companies and found that 45 per cent have become more prominent relative to aligned their sustainability strategies with the geopolitical, economic, technological and SDGs (WBCSD, 2017). Multiple initiatives other perceived risks. are underway to make sustainability 2/3 reporting more comprehensive, widespread In fact, extreme weather events, natural and uniform across companies. Share of renewable disasters, failure to mitigate or adapt to energy in net climate change and water crises rank among The rapid emergence of a global renewable new electricity the top five risks in terms of their perceived energy sector is one of the clearest signs yet generation capacity impact within the next ten years (WEF, that the environment, economic growth and installed worldwide 2018). A growing number of companies global trade can be mutually supportive. Even in 2016. understand that proactive and forward- experts have been surprised at how quickly a looking action to mitigate those risks can global renewable energy industry has benefit the environment while increasing emerged. The last few years have seen this security in their supply chains, reducing industry shatter several records. In 2016, for operational costs related to energy and water example, renewables represented a use or otherwise helping to improve their staggering two-thirds of net new electricity competitiveness. generation capacity installed around the world (IEA, 2017). Increasingly, companies are reporting on environmental aspects, including their It was also in 2016 that new electricity sustainability goals and performance or the generation capacity from a single renewable

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technology – in this case, solar – exceeded BNEF, 2017). These announced prices are that from coal or any other fuel for the first increasingly comparable or lower than the time (IEA, 2017). That same year, the cost of building and operating new gas and worldwide share of electricity generated from coal power plants over their lifetime. A renewable sources rose to slightly more than staggering 70,000 solar panels will be 11 per cent, preventing an estimated 1.7 installed every hour around the world during

gigatonnes of CO2 from being released into the next five years (IEA, 2017). This has the atmosphere and signalling the growing implications not only for the environment, but opportunities for companies around the world also for trade, growth and jobs. The solar to reduce their carbon footprint (Frankfurt panel industry, for example, creates more School-UNEP Centre and BNEF, 2017). than twice the number of jobs per unit of electricity generation than coal or natural gas Much of this impressive growth in renewable (IRENA, 2018). energy has been accompanied by cost reductions, driven partly by trade-fuelled Innovation has been central to these global competition and economies of scale developments. According to OECD data, (see also Chapter 2). Electricity from solar the number of patented inventions in panels costs almost a quarter of what it did in selected clean energy technologies 2009 and is predicted to decrease another increased at an average rate of almost 9 per 66 per cent by 2040 (BNEF, 2017). cent per year between 1999 and 2014 Meanwhile, the price of onshore wind- (the latest year for which data are available), generated energy has dropped 30 per cent compared with slightly less than 6 per cent since 2009, with a further 47 per cent for all patents (OECD, 2018a). But these decrease expected by 2040 (BNEF, 2017). numbers tell only half the story, as they do not capture all forms of innovation taking In recent auctions for wind and solar projects place in developed and many less developed in several developing countries, bidders have countries. In fact, innovative and low-cost offered unexpectedly low prices to win business solutions sprouting up around the contracts to supply electricity from renewable world are often not formally filed in patent sources (Frankfurt School-UNEP Centre/ registries (see Box 1.3).

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Box 1.3 Innovative environmental solutions in clean energy

Innovative environmental solutions in clean their mobile phones, customers pay a small energy can contribute to reducing pollution up-front amount for the equipment and then and accelerating the implementation of the monthly or weekly payments for the SDGs. The drastic fall in the price of solar electricity they get from it. The model has panels and other clean energy equipment attracted some US$ 360 million in financing has set off a wave of green innovations in East and West Africa and has helped around the world. Some of those provide power to some 700,000 people in innovations could contribute to reducing this region. “energy poverty”. Sources: Africa Progress Panel (2017), “The In a report issued in 2017, the Africa Economist” (2017) and Wakeford (2018). Progress Panel, a group of ten experts from the private and public sectors led by Kofi Annan, a former UN Secretary-General, estimated that 620 million Africans still lack access to reliable electricity (worldwide, the number is almost twice as large). Large infrastructure projects to generate more electricity and then channel it to where it is needed through the national electricity grid can be expensive, slow and difficult to implement. To expand electricity access across the continent, large-scale projects should therefore be complemented with “off-grid” and “mini-grid” solutions, which are faster and easier to put in place.

Falling costs of solar panels and innovative renewable energy solutions – both in the form of business models and new goods and services – could help make a difference. For example, recent years have seen the so-called “paygo” model spread quickly across parts of Africa. Under this model, companies provide their customers – typically low-income homes and small business owners in rural areas – with rooftop solar installations comprising a small solar panel, rechargeable battery and controller, which typically powers a few lights, a radio and a phone charger. Using

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However, many factors may stymie innovation opportunities in environmental sectors. For example, “knowledge spillover” effects can reduce incentives for companies to invest in innovation, and uncertainty about whether an innovation will make it to market can lower these incentives even further. Encouraging innovation through sound trade, investment and technology policies and an appropriate framework for the protection of intellectual property rights can significantly contribute to overcoming some of these challenges (see also Box 2.4 in the next chapter). being used to ensure that production and consumption decisions reflect environmental Another important factor that has often been costs, that companies can take full advantage overlooked is gender disparities, which are of green production opportunities and that often as significant in sustainable as in consumers have a choice of sustainable conventional sectors of the economy (UN products. These policies play a key role in Women, 2014a). For example, a recent ensuring that trade can deliver benefits for survey showed that women represent 35 per prosperity, environmental resilience and cent of the renewable energy workforce, a sustainability. share greater than in the traditional energy sector, but lower than in the broader economy Policies vary widely across countries, due to (IRENA, 2018). differences in the institutional framework, levels of development, resource endowments, Empowering women so that they are more environmental problems and other country- involved in emerging “green” economic specific circumstances (see Box 1.4). In sectors, such as renewable energy, could general terms, governments rely on a deliver significant benefits for inclusiveness, combination of different types of measures to growth and trade, while helping to accelerate achieve environmental policy goals. the shift to more sustainable production and consumption. According to one study, Among the different types of measures are companies with more women on their board “market-based instruments” such as taxes on of directors tend to invest more in renewable waste or tradable permit schemes for air energy and give greater weight to pollution, “non-market instruments” such as environmental risks in their financial decisions energy efficiency regulations for buildings or (McElhaney and Mobasseri, 2012). regulations on the discharge of pollutants into rivers and lakes and incentives such as Policy drivers feed-in tariffs for electricity generated from renewable sources (a feed-in tariff refers to a The creation and expansion of opportunities regulated minimum guaranteed price per for sustainability and prosperity is partly the kilowatt-hour that an electricity company result of growing efforts by governments must pay for renewable energy fed into the around the world to align economic, social national electricity grid by a private and environmental policies so that independent producer). sustainability is reflected across policy domains and in planning and decision-making Voluntary measures such as public-private processes. As part of these efforts, partnerships and guidelines for environmental governments must consider trade policies and performance by companies are increasingly how they can be used to help shift incentives being used to complement government- and redirect resources towards more mandated measures. Government policies sustainable and inclusive growth. also comprise measures that reach beyond those conventionally associated with the The role of trade and trade policy-making will environment and that promote efficiency in be discussed further in Chapters 2 and 3. resource allocation. This includes policies on This section briefly looks at policies which are innovation, competition, investment and trade.

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Box 1.4 Climate change laws around the world

An online database of climate change laws negotiations were concluded in late 2015. around the world is maintained by the Examples range from “framework laws” Grantham Research Institute on Climate (which typically define an overarching Change and the Environment at the London strategy on climate change mitigation and School of Economics and Political Science adaptation) to sectoral laws and in the United Kingdom. A recent analysis of regulations which set emissions these data found that all countries and standards for vehicles or define principles territories which have signed or ratified the for the sustainable management of Paris Agreement on climate change have at forests. least one law addressing climate change or the transition to a low-carbon economy (see Sources: Climate Change Laws of the World figure below). database, Grantham Research Institute on Climate Change and the Environment and According to the analysis, of the more the Sabin Center for Climate Change Law. than 1,500 climate change laws and Available at: http://www.lse.ac.uk/ policies worldwide, 106 have been GranthamInstitute/legislation/; and passed since the Paris Agreement Nachmany and Setzer (2018).

Number of climate laws and policies passed worldwide (September 2018)

Number

25

0

• Note: The circles on the map are used to display the data for small countries and territories.

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In renewable energy, global employment totals some 10.3 million people.

The SDGs call on countries to rationalize inefficient fossil fuel subsidies that encourage 70,000 wasteful consumption (SDG 12c) and to improve international cooperation to facilitate Number of solar access to clean energy research and panels that will be technology, including advanced and cleaner installed every hour fossil-fuel technology (SDG 7a). In the around the world context of the global trading system, 12 WTO during the next members signed a declaration in the margins five years. of the WTO’s 11th Ministerial Conference held in Buenos Aires, Argentina, in December 2017 encouraging the reform and phase-out of fossil fuel subsidies.

Besides putting in place new policies, some Subsidies that may inadvertently harm the governments are also taking a fresh look at environment also exist in other sectors existing ones which may inadvertently run besides energy. For example, certain counter to sustainable and inclusive growth. subsidies may contribute to excessive fishing One prominent example is the energy sector. capacity and put additional pressure on fish Governments subsidize fossil fuels for various stocks, while certain subsidies applied to reasons, from promoting energy independence agricultural production may contribute to the to reducing poverty. However, evidence is overuse of chemical fertilizers and pesticides. mounting that some of these measures may entail high costs for human health, national In shifting the economy towards a more budgets and the environment, while often sustainable path, governments have become failing to reach those who need them most. increasingly aware of the associated job opportunities. In renewable energy, for Support for fossil fuels among 76 economies example, global employment totals some 10.3 remains sizeable at between US$ 370 billion million people (IRENA, 2018). This includes and US$ 620 billion per year over the period jobs not only linked to manufacturing and 2010-15 (OECD, 2018b). Removing fossil assembly of components, but also to fuel subsidies would raise government downstream services activities such as revenue by US$ 2.9 trillion, while reducing construction, installation, system integration, global carbon emissions by more than 20 per operations, maintenance and sales. Moreover, cent and air pollution-related deaths by 55 changes in the energy mix, the projected per cent (Coady et al., 2015). Partly in growth in the use of electric vehicles and recognition of this, many countries have increases in energy efficiency in existing and adopted reform commitments in forums such future buildings, among other developments, as Asia-Pacific Economic Cooperation are estimated to result in net job creation of (APEC) and the G20. 18 million worldwide by 2030 (ILO, 2018).

Removing fossil fuel subsidies would raise government revenue by US$ 2.9 trillion, while reducing global carbon emissions by more than 20 per cent and air pollution-related deaths by 55 per cent.

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Besides renewable energy, other activities The effects of climate change with potential for green jobs are sustainable and other environmental risks agriculture, fisheries, forestry, construction, public transport and recycling and waste on the economy and trade are management. Some of these sectors tend to complex, producing financial, employ lots of people in developing countries, societal and ecological costs. offering opportunities for both men and women. In the case of agriculture, for example, a sector where women play a crucial role, the transition to sustainable agriculture could create over 200 million full-time jobs balance, have a negative effect on transport 200 million across the entire food production system by infrastructure, and that climate change will 2050 (Herren et al., 2012). The transition to affect all forms of transport relevant for Number of jobs green jobs must be managed carefully, trade – air, sea and land (IPCC, 2014). that could however, not least by putting in place potentially be adequate labour market and skill policies Trade in the agri-food sector is particularly created across the (Altenburg and Assmann, 2017). vulnerable. More than half of globally entire food traded grains pass through at least one production system A changing global environment: of 14 global “chokepoints”, which include by 2050 through impacts on trade the Panama Canal, the Strait of Malacca a transition to and the Black Sea rail network (see sustainable This chapter concludes with a look at how a Figure 1.1). A temporary closure or agriculture. changing global environment affects trade, interruption of transit of any one of those leaving the discussion of how trade affects chokepoints could cause serious food the environment to Chapter 2. Just as the supply shortages and subsequent price economy can be negatively affected by spikes. Climate change significantly environmental degradation, so too can increases the likelihood of such a scenario: international trade. Recent extreme weather rising sea levels threaten port operations events such as flooding and hurricanes have and coastal storage infrastructure; illustrated the vulnerability of the supply, and extreme weather events may transport and distribution chains that accelerate the degradation of paved underpin modern-day trade. Most experts roads and weaken bridges and other agree that climate-related effects will, on infrastructure.

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Figure 1.1: Volume of maize, wheat, rice and soybeans passing through “maritime chokepoints”, 2015

Dover Strait Turkish Straits

Strait of Gibraltar Strait of Hormuz Panama Canal Suez Canal

Strait of Bab al- Strait of Malacca Mandab

Trade volume (million tonnes)

50

2015 Source: Bailey and Wellesely (2017).

Climate change may also undermine trade adjustments can prove costly. Model through its impact on countries’ endowments simulations show that climate damage will and production more broadly (WTO and UN negatively affect the economies of almost all Environment, 2009). For example, regions through reduced trade (relative to temperature increases, more frequent heat a scenario without climate change) (Dellink extremes and changes in rainfall are likely to et al., 2017). lead to significant reductions in crop yields and output in most regions, making The effects of climate change and other agricultural production and trade particularly environmental risks on trade and the vulnerable to climate damage. economy are complex, producing financial, societal and ecological costs. Careful The latter effect will not necessarily be consideration of the nuanced and confined to trade in goods but might extend complex interactions between the to trade in services too. For example, many environment, the economy and trade is tourist destinations rely on natural assets – therefore needed to tackle environmental beaches, clear seas, tropical climate or challenges while building resilience to abundant snowfall – to attract travellers. climate change and other environmental A rise in sea levels or changes in weather pressures. Chapter 2 will look further at patterns might deprive countries of these these interactions, in particular the natural assets. To the extent that these opportunities to put trade to work for impacts may occur abruptly or that countries a more environmentally sustainable, may be inadequately prepared, these resilient and prosperous world.

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Chapter 2 Expanding the contribution of trade to global prosperity and a healthy environment

he world economy has changed decades that preceded the 2008 financial profoundly over the past 60 years. crisis. By boosting growth, trade The world’s population has more than contributed to the unprecedented reduction doubled to 7.6 billion today, from of poverty levels, which led to the early Taround 3 billion in 1960, while average income achievement of the United Nations’ has almost tripled. During this period, the Millennium Development Goal to reduce world economy has become ever more poverty by half by 2015. But as trade has integrated due to advances in communication grown, some people have voiced concerns and information technologies, along with lower about its effects on the environment. barriers to global trade and investment. These developments have made it possible for What are the environmental repercussions of companies to co-ordinate complex activities at greater economic integration? There is no a distance cheaply and safely. clear-cut answer to this question. What is certain is that trade and the natural As a result, production is increasingly environment interact in myriad ways. The organized into “global value chains” where impact of trade on the environment hinges goods are designed in one country but made ultimately on the “structure” of economic from parts built in several countries and growth – that is, the composition of inputs assembled in another country. The mobile used (including environmental resources) and phone is perhaps the archetypal “made-in- outputs produced (including pollution and the-world” product, but countless other goods waste). In turn, the structure of economic fit that description, from solar panels and growth is a function of many factors, not least computers to cars and civil aircraft. a country’s institutions and policies, including those related to the environment. Partly reflecting these fundamental changes, trade volumes grew at around Transport is one important aspect of the twice the rate of global income in the two relationship between trade and the

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environment that has received significant cent for air and 2 per cent for rail. Per attention. It is estimated that 87 per cent of tonne-kilometre, carbon emissions from global freight movements (measured in shipping are significantly lower than for tonne-kilometres) is carried by sea (this road or air (ITF, 2017). estimate includes the domestic portion of global freight, e.g. the link from ports to It is estimated that carbon emissions from factories or cities, usually carried by road) international freight transport (all modes) (ITF, 2017). Road transport represents could increase by up to 160 per cent by 2050 8 per cent of global freight movements, if no additional actions are taken, with road rail 5 per cent and air transport 0.1 per cent. freight replacing maritime shipping as the Even though its share in tonne-kilometres largest emitter (ITF, 2017). At this rate, the 160 per cent is small, air cargo transport handles share of international freight transport in total approximately 35 per cent of global freight global carbon emissions from fuel combustion Potential increase by value (IATA, 2018). would be pushed well above its current level in the amount of of 5 per cent. carbon emissions Moving goods or components from their place from international of production to their place of consumption In recognition of this, countries have recently freight by the year contributes to local air pollution and the taken important steps that build on previous 2050 if no build-up of carbon dioxide in the atmosphere, work to mitigate carbon emissions from additional actions among other environmental impacts. Maritime international transport. For example, in 2016, are taken. shipping generates around half of all carbon the International Civil Aviation Organization emissions from international freight transport, adopted a global Carbon Offsetting and compared with 40 per cent for trucks, 6 per Reduction Scheme for International Aviation MAKING TRADE WORK FOR THE ENVIRONMENT, PROSPERITY AND RESILIENCE

(CORSIA). Under CORSIA, aircraft operators Kenya to Burundi, the Democratic Republic will be required to purchase “offsets” for the of the Congo, Rwanda, South Sudan and growth in their carbon emissions above 2020 Uganda. levels covered by the scheme. Offsetting consists of companies compensating for A combination of less polluting fuels and their emissions by financing a reduction in renewable energy, innovative technologies emissions elsewhere – for example, a forestry and operational measures will be needed to conservation or renewable energy project in lessen the environmental impact of all modes a developing country. of transport. Future freight-related emissions will also significantly depend on the planning In the case of international maritime transport, and design of major infrastructure projects the International Maritime Organization (IMO) today. agreed on measures to improve fuel efficiency of ships, mainly through ship design Transport is just one way that trade affects and efficiency standards. Moreover, in April the environment. Production of traded goods 2018 the IMO adopted an “initial strategy” to is another. The environmental effects of cut overall carbon emissions from shipping by production differ widely across countries due at least half by 2050 compared with 2008, to differences in climate, soil fertility, use while pursuing full “decarbonisation” in line of technology, energy source and intensity, with the Paris Agreement on climate change. and laws and institutions, among countless other factors. Given this, it may be desirable To tackle road emissions originating from to produce goods where it is most diesel trucks, which are primarily responsible environmentally efficient to do so, and to for the emission of black carbon and allow trade to match global supply and particulate emissions, many countries are demand. Or, to put it differently, what also launching green freight initiatives or matters is not whether, in reaching the final switching cargo transport from road to rail. consumer, goods and their components have For example, the Northern Corridor Green crossed borders, but rather what the Freight strategy launched in January 2017 environmental impact of those goods is at seeks to reduce emissions and improve fuel every stage of their life cycle, from efficiency of trucks travelling along the trade production and packaging to transport, use route that links the port of Mombasa in and disposal.

31 CHAPTER 2

All of this makes it impossible to generalize Trade can exert its positive whether consuming locally is preferable from impact on global economic an environmental and economic efficiency perspective to consuming goods from abroad. and environmental efficiency Some studies have shown that trade can in in the presence of functioning fact help to bridge relative differences in markets, effective institutions resource endowments across countries, thereby relieving resource scarcities in some and sound social and regions and allowing for a more economically environmental policies. and environmentally efficient allocation of resources globally. For example, several studies have shown that trade in water- intensive products can result in global water of the world in different ways (see Box 2.1). savings in practice (Chapagain et al., 2006 However, trade can exert pressure on the and Hoekstra, 2010). natural environment, along with other, important drivers such as population growth The role of trade in helping countries meet and increases in per capita consumption. For rising demand for resources that are not example, one study estimated that 30 per available or affordable domestically may cent of threats to global species could be become more prominent in the coming associated with the production of goods and decades given that the impacts of climate services for foreign markets (Lenzen et al., change are expected not only to worsen but 2012; see also Box 3.1 in the next chapter). also to affect different geographical regions Another study found that, of all material

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Box 2.1 Trade as a tool to adapt to climate change

Climatic changes due to global warming Studies based on estimates of the implications threaten to cause serious disruption to of climate change on global yields of rice and economic activity. In the case of food wheat confirm that trade plays a part in helping crops like maize, rice and wheat – which are countries to adapt to the adverse impact of the principal sources of sustenance in many climate change, although they come to parts of the world – climate change and different conclusions about the relative related events and disasters are projected importance of trade (Costinot et al., 2016; to affect production adversely, although Gouel and Laborde, 2017) . the magnitude of the effects will differ across regions. International trade can In the same vein, trade can serve as a tool to help countries to adapt to these negative support recovery efforts from natural impacts, for example by providing a vital disasters. Among the expected flow of supplies to regions that may see consequences of climate change is the more a sudden reduction in domestic production frequent occurrence of extreme weather of food crops. events, including stronger hurricanes and tornadoes, longer droughts and heavier The important role of trade in helping rainfall and flooding. Extreme weather events countries to cushion the impact of climate can destroy infrastructure and disrupt change on the agricultural sector is backed domestic production. up by academic research. Climate change could lead to a sharp rise in global crop Exports provide a stream of revenues that the prices due to its adverse impact on disaster-affected country can use to assist agricultural productivity. According to one those affected, while imports can alleviate study, the resulting malnutrition among temporary shortages that may be caused by households not employed in the farm sector the loss of domestic production. Trade also could rise by around 45 per cent globally serves as a vehicle to support efforts to in a less integrated world economy, reconstruct or rebuild damaged compared with a rise of less than 30 per infrastructure, since the materials, technology cent in a more integrated one (Hertel and and skills required for such activities may Baldos, 2016). This is because, in an need to come from abroad (Gassebner et al., integrated global economy, the most 2010). In the long term, trade can support affected regions can import food from countries’ efforts to build resilience to natural regions where climate change impacts disasters by providing access to relevant are relatively less severe. technologies such as efficient irrigation systems or mobile technologies which allow Moreover, agricultural welfare losses from citizens to play an active role in disaster climate change were found to be much management. higher in a less integrated world, roughly 0.8 per cent of projected GDP, compared with Sources: Costinot et al. (2016), Hertel and 0.3 per cent of GDP in a more integrated Baldos (2016), Gouel and Laborde (2017) and global economy. Gassebner et al. (2010).

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resources extracted and used worldwide, environmental problems, regenerating the about 15 per cent are traded (see Box 2.2). natural environment and making production and consumption more sustainable. They Perhaps it should not be surprising that the comprise goods and services needed to, for empirical evidence on the overall effect of example, produce clean and renewable international trade on the natural environment energy, improve resource and energy is mixed. Trade can exert its positive impact efficiency, reduce pollution of air, water and on global economic and environmental soil, manage solid and hazardous waste, treat efficiency in the presence of functioning wastewater and monitor environmental markets, effective institutions and sound quality, among other important functions. social and environmental policies. However, institutions and government policies often fall By fostering specialization, competition, short of providing the necessary conditions to economies of scale and innovation at a global ensure that economic decisions fully integrate level, trade can help accelerate the environmental and social considerations. This development and lower the production costs situation calls for increased efforts to ensure of environmentally sound technological that trade, environment and other policies are solutions, thus supporting efforts to achieve fully aligned with countries’ broader strategies better environmental outcomes. to achieve sustainable development. The rest of this chapter identifies concrete ways of Value chains stretching across the globe doing so. allow producers of environmental goods to source inputs from the most competitive Unlocking trade in emerging suppliers and to reap significant economies of green sectors scale. Global competition spurs those same producers to increase their productivity and Tackling the world’s environmental challenges invest in research and development. These unquestionably requires the development and forces, along with technological advances widespread dissemination of technological and supportive government policies, have solutions around the world. Trade can serve likely brought about the sharp reductions as a powerful tool to help achieve this goal, seen in the cost of solar panels and other as it facilitates countries’ access to the best renewable energy equipment in recent years environmental goods and services available in (Kirkegaard, 2010). Electric cars offer the world market at lower cost. another example of how global production chains and competition may be helping to Environmental goods and services perform a make an emerging environmentally friendly variety of functions essential to tackling technology more affordable (see Box 2.3).

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Box 2.2 International trade in resources

In the report “International Trade in Of the resources extracted and used Resources – A Biophysical Assessment”, worldwide, approximately 15 per cent are UN Environment’s International Resource being traded. This proportion increases to Panel examines the environmental around 40 per cent when including consequences of trade by estimating for the resources indirectly associated with trade period 1980-2010 the upstream resource – that is, used in the production process, requirements of traded goods. This term but not physically included in the traded refers to the additional materials, energy, good. According to the report, the growth in water and land used in the extraction the volume of international trade relative to and production of traded goods, but left global resource extraction and use indicates behind as wastes and emissions in the that countries are increasingly dependent exporting country. on trade. The report also reveals that upstream resource requirements of international trade have been rising in recent decades.

Overall, the report finds no conclusive evidence regarding the impact of trade on global environmental and resource efficiency. However, it shows that changing patterns of global trade had clear distributional implications, with a shift in resource-intensive processes, along with their environmental impacts, from high- income and densely populated countries that largely import raw materials, to low- income and more sparsely populated countries, mostly exporting them.

It is important to consider these impacts when assessing how trade affects natural resources. Appropriate adjustment and other government policies are needed to ensure that the environmental impacts of trade are tackled effectively. Coherence and coordination are required when designing and implementing policies to minimize the negative – and enhance the positive – impacts of trade.

Source: UN Environment (2015a).

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Box 2.3 Global value chains in green mobility

Carbon emissions from road transport coherently. Electric vehicle prices have represent about one-fifth of total global been falling rapidly in recent years. A big greenhouse gas emissions. With the global factor behind this has been the sharp car fleet expected to triple by 2050, those decrease in the cost of batteries, which emissions are expected to rise even make up around one-third of the total cost further. Reducing transport emissions is of an electric vehicle. One study shows a therefore a key part of tackling climate 16 per cent annual decline in the cost of change and the growing problem of air electric vehicle battery packs between pollution. 2007 and 2017 (Kapoor and MacDuffie, 2017). The electrification of road transport is one way to achieve this goal, provided that it is The emergence of a global battery accompanied by lower or zero emissions business has greatly stimulated from electricity generation itself. In 2016, competition and has allowed producers to the number of electric vehicles sold reap economies of scale, resulting in worldwide totalled 750,000 and in 2017, higher productivity and lower costs (see global sales of electric cars crossed the figure). Japan, the Republic of Korea and threshold of 1 million units. China was the China are the leading net exporters of largest market, with sales of 580,000 lithium-ion battery cells, while the United vehicles in 2017, triple the number sold in States, Germany, Brazil, Mexico, India, the the United States. United Kingdom and Canada are the biggest net importers. Some governments have put in place policies such as tax reductions and Still, WTO members apply “MFN” tariff support for research and development to rates of close to 9 per cent on imports of encourage the development and uptake of lithium-ion and other batteries and their electric vehicles or have announced plans parts, with some members charging tariffs to phase out the production and sales of as high as 40 per cent (MFN or most- petrol and diesel vehicles over the next few favoured-nation tariffs are the normal decades. In Norway, for example, electric non-discriminatory tariffs that WTO car owners indicate that financial members charge on imports, as opposed incentives, such as value-added tax and to the preferential tariffs under free trade vehicle registration tax exemptions, free agreements and other schemes). access to toll roads and circulation tax rebates, are the most influential factors for Removing import tariffs on finished their decision to purchase electric cars. batteries, their components, and the capital goods used to produce them would To scale up the electric vehicle market and further improve the conditions for an reduce road transport emissions further, efficient and optimal supply chain, leading issues such as price, battery range and to better economies of scale in battery charging infrastructure must be addressed production and lower costs. Trade policy

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Balance of trade and trade flows for lithium-ion battery cells, 2014

Brazil -306

Brazil Canada -53 Canada 316 M 11 M 95 M 43 M 2.6 B 3.5 M US China 834

1.7 B 754 M Germany -488 China

UK India -109 160 M 78 M

Japan 1,496

Malaysia 422 41 M 134 M

144 M 305 M Chinese Taipei Mexico -161 Mexico

Republic of Korea 1,806 India 18 M 127 M

446 M 24 M Chinese Taipei 93 Malaysia

United Kingdom -82 2.3 B 462 M Germany 544 M 1 B Republic of Korea United States -940 2 B 537 M Japan -10K -5K 0 0 5K 10K Imports Exports (Million USD, 2014) (Million USD, 2014)

Notes: Darker shade indicates exports and lighter shade indicates imports. Trade figures show all end uses for lithium-ion battery cells. Source: CEMAC (2017).

could, in this way, give a boost to Another important issue is the need worldwide efforts to make mobility greener. to optimise the timing and duration of charging to deal with the increase in Besides price, the availability of charging power demand from electric vehicles infrastructure is another factor that is and their impact on the load closely intertwined with the deployment of distribution of the grid. Finally, a more electric vehicles. Although charging rapid shift to renewable energy must infrastructure has been expanding rapidly accompany the widespread in recent years, more needs to be done to deployment of electric vehicles to fully meet urban demands. Related to this ensure that the world can reap their full is the need to improve the driving range of environmental benefits. electric cars. On average, the driving range has increased by 56 per cent over Sources: ICTSD (2017), CEMAC the last six years. A medium all-electric (2017), UN Environment (2018a), vehicle can now drive up to 180 km on a Kapoor and MacDuffie (2017) and fully charged battery (Lambert, 2017). Lambert (2017).

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Without access to the world market, companies, governments and consumers in countries around the world would generally be faced with less choice and higher prices when acquiring environmental goods and services. This would slow down significantly the dissemination of environmentally sound and affordable solutions to those places where they are most needed, while making environmental protection costlier overall. The top 18 developing countries ranked by greenhouse gas emissions would be able to import 63 per cent more energy-efficient lighting, 23 per cent more wind power generation equipment, and 14 per cent more solar power generation equipment if the trade barriers they maintain on these goods were to be abolished (World Bank, 2007). In 2014, a group of WTO members launched negotiations to liberalize trade in environmental goods (see Chapter 3).

The role of trade in promoting the dissemination of environmental goods and services is closely related to its role in fostering innovation. Trade, backed by an appropriate system for the protection of intellectual property, strengthens the incentives to innovate through its effects developing countries have succeeded in on the size of the market, competition and becoming part of the regional and global cross-border flows of knowledge (see Box supply chains that underpin the production of 2.4). many environmental goods.

Access to a larger market for environmental Moreover, investment across a wide range of goods and services, in particular, provides clean technology sectors is expected to total companies with an opportunity to reap higher US$ 6.4 trillion in developing countries over profits from their innovations, thereby the next decade (World Bank, 2014). Of that increasing their incentive to invest in research amount, roughly one-quarter appears to be 1 million and development. In countries with less accessible to small and medium-sized advanced technological know-how or less enterprises (SMEs) in sectors such as Number of electric appetite for riskier “breakthrough” innovation, wastewater treatment, small hydro, water cars sold globally international trade may provide a “gateway” to treatment, onshore wind power, solar panels, in 2017. developing a domestic innovation strategy geothermal and bioenergy. Developing- based on imports of existing technologies and country SMEs involved in services activities their adaptation to local conditions. such as installation, civil works, retailing and operations and maintenance appear to be Open trade in environmental goods and well placed to seize those opportunities. services can be part of a broader strategy to promote exports and investment in developing and developed countries alike. In the case of The role of trade in promoting developing countries, a study by UN the dissemination of Environment found that their share in global environmental goods and exports of renewable energy goods, such as services is closely related to its solar panels, wind and hydroelectric turbines and solar water heaters, was 75 per cent in role in fostering innovation. 2011, up from 32 per cent in 2004 (UN Environment, 2014). This suggests that some

38 WWW.WTO.ORG / WWW.UNENVIRONMENT.ORG MAKING TRADE WORK FOR THE ENVIRONMENT, PROSPERITY AND RESILIENCE

Box 2.4 How can a balanced and effective intellectual property system support green innovation and trade?

Much innovative green technology is development in the relevant technologies, developed and commercialized by the and there is a practical need to implement private sector, ranging from niche SMEs to workable arrangements for complex multinationals, and its effective technological partnerships. The intellectual implementation typically requires integrating property (IP) system – notably the different technological inputs from a range protection of patents and technological of partners. For instance, a major renewable know-how – is intended to encourage energy installation may entail complex productive investment in innovative research integration of a mix of technologies and to provide a means of defining and developed by a number of firms and structuring partnerships that enable the research institutes. development, commercialization and widespread diffusion of technologies. While Incentives are needed for companies and generally used by the private sector, the IP institutions to invest in research and system is also deployed by public research institutes to maintain leverage over how their technological breakthroughs can be further developed and implemented.

From a policy perspective, the IP system aims at a mutually beneficial “balance” between legitimate private interests, specifically a rationale to invest resources into the development of new environmentally sound technologies, and the wider public interest so that beneficial technologies can be disseminated and put to work. The patent system in particular is founded on the principle that exclusive rights need to be matched by effective disclosure of new technologies so that others can learn how to put them into effect. The resulting patent information provides a valuable platform for innovators, adaptors and users of technology to track and gain access to cutting edge technologies.

Source: WTO Secretariat.

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Scrapping the barriers that continue to affect a wastewater-treatment facility, the use of trade in environmental goods and suppliers of advanced data analytics to improve energy environmental services can help to turn these efficiency of heating and cooling systems in opportunities into actual benefits. In the case buildings, and the testing and grading of of environmental goods, the many inputs that used lithium-ion batteries for resale as go into the production of the final good cross second-life cells. borders multiple times as they make their way through the global supply chains that Tackling barriers that affect trade in underpin their production. This causes tariffs environmental services may help overcome and non-tariff barriers on environmental bottlenecks that impede the rapid goods to pile one upon the other before those dissemination of environmentally sound goods reach the final consumer (see Figure technologies around the world. Moreover, due 2.1). to the strong presence of SMEs in many services sectors, eliminating services trade Trade opening efforts should therefore focus barriers could help SMEs in developing on improving trading conditions for the countries participate in regional and global components and capital goods necessary to value chains. produce environmental goods, not just the finished products. Such an approach could Besides its role in accelerating the worldwide multiply the cost-reducing effects of trade dissemination of environmental goods and opening initiatives for environmental goods. services, trade can also facilitate the creation and expansion of markets for sustainable It is equally important that trade opening products across several sectors. Trade can, in efforts tackle barriers affecting the this way, strengthen the incentives to make international supply of services related to the production and consumption more environment (Swedish National Board of environmentally sound, while boosting Trade, 2014). Countless services are employment and economic growth. essential to deliver environmental goods and ensure that they function properly. Examples The idea that trade can encourage domestic include the construction of a geothermal producers to become more sustainable has power plant, the repair and maintenance of backing from several studies. Higher

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Figure 2.1: Tariffs on selected wind turbine parts

Transmission shafts Gear boxes 6.3% 6.3%

Special roller bearings Tower parts 5.8% 9.6%

Note: The figure shows the simple average “MFN” tariff rate applied by all WTO members on the specified goods, based on data for the most recent year available. Source: WTO Secretariat.

environmental standards abroad have been The proliferation of sustainability certification found to give export-oriented companies a and labelling schemes is a visible sign of the strong incentive to upgrade their production rapidly expanding global market for to meet the higher (foreign) standard (Vogel, sustainable products. In recent decades, 2009). Sometimes those companies may many governments, producers, retailers and even push their own government to adopt the non-governmental organizations around the higher standard domestically while they world have promoted such schemes to develop the capability to meet it. This strengthen the market incentives for phenomenon has been referred to as the producers to opt for more sustainable “California effect”, after the role that the state production, while cultivating consumer has played in raising regulatory standards in awareness of environmental (and social) the United States. issues (Prag et al., 2016).

Empirical studies have shown the California A growing number of companies are also effect to be plausible. One such study, based using sustainability schemes to manage on a sample of 147 developing countries, environmental risks and to increase found that greater exports of automobiles and efficiency along their supply chains. auto parts to countries with more stringent Nonetheless, the proliferation of emission standards are associated with more sustainability schemes in recent years has stringent standards in the exporting countries raised concerns about their effect on trade (Perkins and Neumayer, 2012). costs and market fragmentation. Costs

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increase when the schemes multiply across Sustainably certified production has been geographic or thematic areas, fail to growing rapidly during the past few years, converge or recognize each other’s reflecting robust demand. At least one- equivalence, or when they do not include quarter of the world’s total area devoted to opportunities for collaboration in areas such coffee production is certified as sustainable. as training or inspection (UNFSS, 2016). For cocoa, palm oil and tea, between 10 and 20 per cent of the total cultivation area is In agriculture, the use of sustainability certified as such. Among sustainability certification and labelling schemes has schemes, organic is the largest in terms of increased markedly, even though sustainable area: in 2015, slightly more than 1 per cent production in this sector remains niche. of the world’s agricultural land was certified US$ 82 Typically, producers, importers or distributors as organic (Lernoud et al., 2017). The share billion work with a technical body, often in a of organic farmland in total farmland exceeds “roundtable” multi-stakeholder format, to 10 per cent in several countries in Europe Value of the global formulate standards on the sustainable (FiBL, 2018). organic food production of the commodity in question market in 2015, (Andrew, 2017). Most of the time, the The value of the global organic food market which is four times plantations, farms or other enterprises opting has more than quadrupled over the past 15 higher than 15 to use the standards are subject to auditing years, totalling almost US$ 82 billion in 2015 years ago. by independent third parties. (FiBL, 2018). Trade could play an important MAKING TRADE WORK FOR THE ENVIRONMENT, PROSPERITY AND RESILIENCE

role in strengthening this and other markets Policy coherence for sustainable agricultural products and in expanding related economic benefits. For Using trade to help protect the environment trade to do so, it must be underpinned by an requires much more than just open markets. open, transparent, rules-based and inclusive Efforts on the trade front must be trading system that enables producers to accompanied by improved efforts to tackle seize the myriad trade opportunities arising environmental challenges, not least from sustainable agriculture. As part of this, it transboundary and global problems such as is important to ensure that sustainability climate change which are beyond the control requirements are transparent and based on of any one country. In the absence of such relevant international standards, while not action, trade cannot effectively act as a tool creating any unnecessary barriers to trade. to allocate resources in economically and environmentally efficient ways. Promoting trade in sustainable agricultural products could contribute to broader poverty Moreover, trade and environmental policies alleviation efforts among smallholder farmers must be coherent and aligned with the in developing countries, who make up the overarching principle of sustainable bulk of the world’s rural poor. These efforts development to avoid undermining each other. must consider the many constraints that limit There is no one-size-fits-all answer or magic the capacity of poor smallholder farmers to blueprint to make trade and environmental participate in sustainable agricultural trade, policies work in concert. However, all including their access to finance and countries can benefit from considering trade, know-how. environment and other policies in an integrated way, in line with the principle of Another common problem is lack of access to policy coherence espoused by the SDGs. a well-functioning, affordable and reliable “quality infrastructure” which allows farmers One concern voiced often by governments to demonstrate compliance with relevant and others is that stringent environmental sustainability standards. Progress in these policy measures increase compliance costs areas could also help women play a more of companies and hurt their market important role in the economic development competitiveness. Some even fear a of rural communities, given that women regulatory “race to the bottom”, where comprise around 43 per cent of the countries compete by lowering their agricultural labour force in developing environmental standards to limit the costs of countries (UN Women, 2014b). environmental protection and to attract foreign direct investment. Moreover, approaches should take into account the unprecedented confluence There is little empirical evidence that of pressures facing agriculture over the countries are engaged in systematically next few decades, including a growing weakening environmental standards to population, intensifying competition for land, improve the competitiveness of their water and energy, and the threat of extreme industries. While some studies have weather events and other threats posed concluded that countries do occasionally by climate change. All of this underscores forego opportunities to strengthen the urgent need to strengthen the incentives environmental standards over to make agriculture more productive competitiveness concerns, others have found and sustainable. evidence of upward harmonization – a “race to the top”. In this scenario, international A more productive and sustainable trade gives export-oriented companies a agricultural sector could deliver significant strong incentive to upgrade their production benefits not only for the environment, but also to gain access to the markets with the for jobs and the economy at large. According highest environmental standards. to a UN Environment study, a shift to sustainable agriculture could increase yields Another related topic is the “pollution haven by up to 180 per cent and create 47 million hypothesis” – the idea that trade opening will jobs during the next four decades (UN cause pollution-intensive companies to Environment, 2011). relocate from countries with stringent

43 CHAPTER 2

environmental policies to countries with (Altenburg and Assmann, 2017). The “Porter relatively lax ones. Countries will have a hypothesis” holds that regulatory pressure, strong incentive to set environmental just like competitive pressure, encourages standards at a low level to attract investment, innovations that make production cleaner and the argument goes, since the cost of less energy and resource demanding (Porter complying with environmental policy and van de Linde, 1995). Innovation in turn measures is a major factor in a company’s helps to offset the cost of complying with decision about where to locate its activities. environmental measures. The empirical There is limited empirical evidence in support evidence partly supports this hypothesis of this line of argument. (Ambec et al., 2013). The key question is therefore how to design measures that help Part of the reason is that the direct cost of stimulate innovation, promote a high level of pollution control is relatively minor, just a few environmental protection and keep the overall percentage points of production costs for costs of compliance as low as possible. most industries, compared with other costs. Many other factors besides environmental Moreover, there is some recent evidence policy measures affect companies’ suggesting a link between sound investment and trade decisions, including environmental policy and higher exports of wages, the institutional framework and the environmental goods, such as renewable possibility to join existing business clusters energy and wastewater treatment equipment and value chains (Copeland, 2012). (Sauvage, 2014). In a similar vein, some studies show that countries with stringent In fact, more stringent environmental environmental measures do not suffer from measures may have knock-on effects that lower overall exports. Although exports of improve companies’ competitiveness energy- and pollution-intensive goods may fall

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because of more stringent environmental All this suggests that it is possible to policy measures in the exporting country, foster both a healthy environment and exports of “cleaner”, less energy- or pollution- strong, prosperous and open economies. intensive industries may increase (Koźluk and Efforts in this direction are taking place Timiliotis, 2016). nationally, regionally and globally. Regional efforts, for example, have led to This means that stringent and well-designed a growing number of regional trade environmental policy can support countries’ agreements (RTAs) with numerous, and ability to compete in the expanding global often quite elaborate, environmental green market – for example, by boosting provisions (see Box 2.5). domestic demand for innovative green solutions. Overall, however, the effects of The next chapter focuses on efforts at the environmental policy measures on exports – global level, in particular how the WTO and both positive and negative – have so far been UN Environment can bolster multilateral found to be small compared with other cooperation towards mutually beneficial factors, such as natural endowments, market and coordinated solutions on trade, the size and degree of trade openness. environment and sustainable development.

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Box 2.5 Bringing environmental provisions into regional trade agreements

The last 30 years have seen a rapid Other environmental topics mentioned in an proliferation of regional trade agreements increasing number of RTAs include (RTAs). Traditionally, RTAs have generally multilateral environmental agreements, focused on lowering tariff and non-tariff environmental goods and services, trade barriers. More recently, an increasing biodiversity and traditional knowledge, number contain environmental provisions. sustainable management of forests and This trend reflects the increasing fisheries, trade in forest and fish products, recognition of trade policy as a tool for environmentally harmful subsidies and supporting environmental protection and corporate social responsibility. Public sustainable development. participation in policy-making processes, transparency and access to justice in A detailed review of RTAs in force and environmental matters are commonly found notified to the WTO confirms that the in recent RTAs too. inclusion of environmental provisions in RTAs is not a recent phenomenon. In fact, RTAs often provide for cooperation, almost all RTAs include at least one technical assistance and capacity building environmental provision, typically in the form in support of their environmental goals and of a general exception clause to trade the implementation of some of their obligations for environment-related environmental provisions. Provisions on considerations or preambular language building institutional capacity to improve emphasizing the importance of the enforcement of environmental laws and environmental protection and sustainable to maintain a high level of environmental development, largely mirroring the approach protection are becoming more common in followed in the WTO. But the review also many RTAs. Environment-related shows a big increase in the number, and cooperation provisions often focus on level of detail, of environmental provisions specific sectors such as water contained in more recent RTAs. management, clean energy, energy efficiency, waste management and natural Although most environmental provisions resources. Moreover, some RTAs provide differ in terms of language, scope and avenues for the private sector and civil enforceability, they often tend to focus on society to participate in the identification relatively similar environmental issues, such and implementation of environmental as the level and enforcement of domestic cooperation activities. environmental laws. Some of these provisions, most commonly found in RTAs RTAs are sometimes viewed as a between developed and developing “laboratory” enabling countries to design countries and several RTAs between new provisions and address new issues developing countries, take the form of and challenges. The new types of commitments to “improve”, “adopt”, environmental provisions found in so- “harmonize”, “effectively apply”, “not waive” called “mega-regional” trade agreements or “not relax” environmental laws. such as the Comprehensive and

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Evolution of environmental provisions in regional trade agreements

CPTPP 50 EU-CAN

USA-PER EU-CA USA-KOR 40 EU-MDA USA-COL EU-KOR USA-MOR CAN-PER EU-GEO CAN-COL EU-PE-CO EU-UKR NAFTA USA-SGP NIC-TPKM CAN-HDN

30 USA-CHL CAN-CHL EAC

20

10 Number of types of environmental provisions

0 1980 1985 1990 1996 2001 2007 2012 2018

Year of signature

North-North RTA North-South RTA South-South RTA

Progressive Agreement for Trans-Pacific policy. To assist negotiators design, Partnership signed between Australia, negotiate and implement environment- Brunei Darussalam, Canada, Chile, Japan, related provisions in RTAs, UN Malaysia, Mexico, New Zealand, Peru, Environment, in collaboration with the Singapore and Viet Nam show that the International Institute for Sustainable language and form of environmental Development, has developed a provisions in RTAs are continuing to evolve Sustainability Toolkit for Trade and are becoming increasingly specific Negotiators. The toolkit features over 200 and pragmatic. Bringing the environment text examples of environmental provisions and sustainable development into RTAs is drawn from over 90 RTAs. one way to improve policy coherence and to ensure that environmental Sources: Monteiro (2016) and UN considerations are integrated into trade Environment and IISD (2016).

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Chapter 3 Maximizing opportunities for cooperation on trade and environment

hen a group of countries set the environmental effects of rising economic about rebuilding the global activity and started to put in place trading system after World War environmental protection measures and II, they were guided by the national and international agencies to deal Wprinciple of multilateral trade cooperation as with those effects. an effective way to avoid mutually defeating trade policies and to help build lasting peace. In the lead-up to the first major global A key outcome was the 1947 General conference on the environment – the 1972 Agreement on Tariffs and Trade (GATT) – United Nations Conference on the Human the WTO’s predecessor. Environment held in Stockholm, Sweden – the GATT Secretariat prepared a report on At the time of the GATT’s inception, “industrial pollution control and international environmental issues typically received a low trade”. The report acknowledged the need for public-policy priority. It is not surprising, governments to take action to protect and therefore, that the question of how trade improve the environment. It further recognized affects the natural environment did not that the cost of complying with new feature prominently in the GATT context, environmental requirements could affect the even though the agreement already included competitiveness of some domestic industries some exceptions to trade obligations for and prompt them to seek protection from environment-related considerations. This international competition. The authors changed in the 1960s and 1970s, when cautioned governments against relying on countries began to pay increasing attention to trade measures to “compensate” affected

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industries for the extra costs of complying If early interactions between the global trade with such requirements. Using trade regime, on the one hand, and the global measures in this way, the authors warned, environment regime, on the other, were could give rise to costly and mutually marked by tentativeness, this had changed by damaging trade frictions. the late 1980s. The turning point probably came after the UN World Commission on In the decades that followed, GATT Environment and Development introduced the “contracting parties” succeeded in avoiding idea of sustainable development. trade conflicts related to the environment. They also saw new countries join their ranks In a report issued in 1987 (commonly known and succeeded in concluding several rounds as the Brundtland Report after the name of 46 of trade negotiations. the Commission’s chairperson, Gro Harlem Brundtland, a former Norwegian prime Number of WTO On the environmental side, several multilateral minister), the Commission defined sustainable members who have environmental agreements or MEAs were development as development that “meets the embarked on an adopted. MEAs are international needs of the present without compromising initiative to cut environmental agreements between more the ability of future generations to meet their tariffs on than two parties aimed at addressing own needs”. environmental environmental problems, most of which have goods by seeking a transboundary nature and are global in The concept of sustainable development to negotiate an scope, through international cooperation. helped clarify the relationship between the Environmental global trade and environment regimes. The Goods Agreement. Examples include the Convention on Brundtland Report rejected the notion that International Trade in Endangered Species of economic development (and by implication, Wild Fauna and Flora and the Basel trade) worked against the protection of the Convention on the Control of Transboundary environment. It called instead for approaches Movements of Hazardous Wastes and their that would treat environmental sustainability Disposal. These agreements came in as inextricably linked with lasting economic response to a growing sense of urgency in and social development. the face of mounting environmental problems that transcended national boundaries. Some Against this backdrop, representatives from of the MEAs concluded during this period close to 180 nations, including more than envisaged trade restrictions (such as bans, 110 heads of state and government, met in quotas and licences) with a view to achieving Rio de Janeiro, Brazil, for the “Rio Earth an environmental objective (see Box 3.1). Summit” (formally, the UN Conference on

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Environment and Development) in June principle for the newly created organization, 1992. In the run-up to the event, the GATT and made sure that the founding charter of Secretariat again prepared a report on trade the WTO – the Marrakesh Agreement – and the environment. identified trade as a tool to help countries achieve important public policy goals, Echoing some of the broader themes including the sustainable use of the world’s contained in the Brundtland Report, the resources and environmental protection. GATT report argued that trade could support efforts to protect the environment. In the The inclusion of the sustainable development same vein, the authors showed that principle in the preamble to the Agreement multilateral trade rules did not prevent would, in turn, have a fundamental role in countries from putting in place appropriate informing how multilateral trade rules would be policies to safeguard the environment. The interpreted with regards to environmental Rio Earth Summit emphasized the importance policies under the reinforced dispute of international trade and of avoiding trade settlement system of the WTO (see page 59). protectionism, while calling on governments to promote an open, non-discriminatory and equitable multilateral trading system. The SDGs put significant emphasis on the role that Another major step forward was taken in 1995 with the establishment of the WTO – trade plays in promoting the successor to the GATT. The founders of sustainable development. the WTO recognized the principle of sustainable development as a guiding

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Box 3.1 CITES – A successful example of global cooperation to protect endangered species

People around the globe have been trading transit of certain species of wild animals in wildlife for centuries. In the ancient world, and plants. The final convention text was demand for wild exotic plants used as signed on 3 March 1973 by 21 countries spices, incense or perfumes led to the and the Convention on International Trade in development of an extensive network of Endangered Species of Fauna and Flora trade routes connecting West to East by (CITES) entered into force on 1 July 1975. It land and by sea. Nonetheless, the scale of counted 183 parties as of April 2018. that trade was nothing compared with the 7.6 billion people consuming biodiversity CITES subjects international trade in products in today’s globalized economy. specimens of selected species to certain controls, depending on the classification of During the post-World War II economic the respective species on its three recovery, wildlife trade increased appendices, which include fish and timber. significantly. Future trends started to look The appendices offer different levels of worrying in light of some instances of protection, primarily depending on the overexploitation, a growing human biological status of the species and whether population and ever-increasing trade it is or may be affected by trade. activity. By the seventh General Assembly of the International Union for the Protection Appendix I includes species that are of Nature held in Warsaw in 1960, strong threatened with extinction (i.e. endangered) apprehension about the impact of wildlife and prohibits trade of wild-sourced exploitation and trade on conservation was specimens for primarily commercial trade. voiced for the first time (the International Appendix II, which makes up 97 per cent of Union for the Protection of Nature was later the species listed under CITES, includes known as the International Union for the species that are not necessarily threatened Conservation of Nature or IUCN). with extinction, but that may become so unless trade is regulated. For these Based on new information about the species, trade is allowed as long as it is conservation status of many species, IUCN sustainable, legal and traceable in recommended at the eighth IUCN General compliance with the provisions of the Assembly, held in 1963 in Nairobi, Kenya, Convention. Appendix III includes species that an international convention to regulate listed at the request of a party that already trade in “rare or threatened wildlife species regulates trade in the species and that or their skins and trophies” be drafted and needs the cooperation of other countries to submitted for the approval of governments. prevent unsustainable or illegal exploitation.

Ten years later, government delegates from While CITES predates the concepts of 80 countries participated in a conference to sustainable development and use as adopt a convention on export, import and articulated in later global environmental

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summits and international agreements, it serve as the core regulatory system of requires trade to not cause detriment to the the Convention and include trade bans, survival of the species concerned and for import and export licences and science- species to be maintained at a level based analysis of trade’s impact on consistent with their role in the ecosystem species conservation. – key elements of sustainable development. Furthermore, these principles align with The Convention is an early example of a SDG 12 on sustainable consumption and multilateral framework to tackle a global production and SDG 15 on life on land, environmental problem through which seek, among other goals, to protect, international cooperation. This reflects the restore and promote sustainable use of reality that living resources do not know terrestrial ecosystems, to halt the loss of national boundaries, and that they may be biodiversity and to ensure sustainable affected by activities carried out in another consumption and production patterns. state. The Convention is seen as recognition of the need for a global The Convention’s requirements that traded approach to the regulation of international specimens be lawfully obtained and that wildlife trade that favours multilateral parties take appropriate measures to cooperation and concerted action, while enforce the Convention also contribute to also preserving the right of states to adopt these objectives, as do efforts under the stricter domestic measures. Convention to combat illegal trade in wildlife. CITES trade-related measures Sources: WTO and CITES (2015).

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In 2012, the United Nations Conference on activity and trade depend on a healthy Sustainable Development reaffirmed natural environment. At the same time, trade political commitment to sustainable serves as a driver for economic growth and development and emphasized the poverty reduction, and can help achieve contribution of trade. Moreover, it identified better environmental outcomes. It follows an inclusive green economy as one that from this that trade and environmental improves human well-being and builds social policies must be designed and implemented equity while significantly reducing in mutually reinforcing ways. environmental risks and ecological scarcities. As such, the green economy and Turning the relationship between trade trade can support each other, provided the and the environment into concrete benefits right conditions are in place imposes new and urgent demands for (UN Environment, 2013; and IISD and UN effective cooperation among countries. Environment, 2014). The remainder of this chapter explains how the WTO and UN Environment help With the endorsement of the 2030 Agenda countries enhance their cooperation to for Sustainable Development in 2015, UN achieve mutually beneficial solutions on members consolidated their understanding trade and the environment. of the important function of trade in helping to bring about a more prosperous, It first looks at the work of the WTO. This environmentally sustainable and resilient work includes providing a forum for policy world economy. The SDGs put significant dialogue, creating a framework to help emphasis on the role that trade plays in countries design and implement efficient, promoting sustainable development and coherent and fit-for-purpose public policies recognize the contribution that the WTO can and establishing partnerships to help make to the 2030 Agenda (WTO, 2018). developing countries participate more fully in global trade. It then presents an overview of This understanding partly revolves around the work of UN Environment in support of the idea that trade and the environment are worldwide efforts to use trade as a driver for closely intertwined. Continued economic achieving sustainable development.

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The role of the WTO for the protection of the environment and the promotion of sustainable development on In the lead-up to the establishment of the the other. WTO, trade ministers decided that the topic of trade and environment deserved a Government representatives meet regularly in dedicated home in the new institution. In a the CTE to discuss how trade and decision adopted in 1994, ministers therefore environmental measures could work better directed the WTO to establish a Committee together to promote sustainable development. on Trade and Environment (CTE) with two As part of this work, participants regularly specific tasks. exchange views and experiences on a wide range of issues under the CTE’s broad work The first task for the CTE is to “identify the programme (see Box 3.2). Recent topics have relationship between trade measures and included environmental taxes and labelling environmental measures, in order to promote schemes, sustainability aspects of trade in sustainable development”. The second is “to sectors such as forestry, fisheries and energy, make appropriate recommendations on measures to facilitate the dissemination of whether any modifications of the provisions of environmental goods and services, the the multilateral trading system are required, environmental footprint of products and compatible with the open, equitable and services and the trade elements of climate non-discriminatory nature of the system”. action measures.

In their decision to create the CTE, The CTE also serves as a forum where UN ministers used language that echoed the Environment and the secretariats of several pronouncements on trade and environment multilateral environmental agreements made at the Rio Earth Summit a few years (MEAs) regularly brief WTO members on their earlier. In doing so, they maintained the work. All this helps WTO delegates to keep idea of “mutual supportiveness” between abreast of the latest global initiatives on the upholding and safeguarding an open, environment and to deepen their non-discriminatory and equitable global understanding of how trade and the trading system, on the one hand, and acting environment interact.

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Box 3.2 Committee on Trade and Environment in action

Twice a year, government representatives labelling schemes, domestic and meet in the CTE to discuss a host of issues global efforts to harmonize divergent on trade and the environment. To take just standards and measurement techniques, one example, the CTE has held dedicated and concerns over the potential effects of discussions on carbon footprint schemes, carbon footprint schemes on market the practice of attaching labels to foods access, particularly for developing and other products showing the quantity of countries. carbon emissions resulting from making and transporting the product in question. The discussions on carbon footprint The main justification for such schemes is schemes have helped trade officials get that disclosing a product’s carbon footprint a better grasp of these rapidly evolving can help consumers identify products with schemes around the world and to the least negative impact on the assess collectively the systemic environment, while encouraging producers implications of such measures for the to lower their emissions. global trading system.

Several WTO members, such as Costa As an observer, UN Environment actively Rica, Nigeria, Chinese Taipei and Thailand, engages with the CTE and its members on and international institutions have provided environment-related trade rules and on briefings in the CTE on their projects in the promoting the mutual supportiveness of area of carbon footprinting. The trade and environmental policies. discussions have revolved mostly around the challenges of implementing Source: WTO Secretariat.

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Since the environment cuts across policy intertwined at the policy level over the years. domains, several other committees in the The information exchanged through WTO, such as the Committee on Technical notifications often serves as a springboard for Barriers to Trade, also discuss trade more focused “thematic” discussions among measures adopted for environmental WTO members. Many of these discussions, purposes. Under WTO rules, members are which happen in various WTO committees, required to inform each other of trade-related allow government representatives to look at a measures, ranging from technical regulations number of sustainability issues relating to and licensing procedures to subsidies and international trade and the global rules-based agricultural trade policies. This exchange of trading system. Energy efficiency, invasive information is based on notifications alien species, the relationship between the submitted by WTO members. Notifications WTO Agreement on Trade-Related Aspects are essential for improving transparency and of Intellectual Property Rights and the UN predictability in international trade. One of Convention on Biological Diversity, and their main functions is to help members learn sustainable public procurement practices are about new measures or about measures their some examples of what has been discussed trading partners have in the pipeline and to recently (see Box 3.3). flag potential problems. Due to their practical and technical nature, The WTO Secretariat conducts a survey of the discussions provide government officials notifications annually to identify those that with a wealth of information and experiences relate to the environment and makes the that can support their countries’ own efforts results available to the public in an online to design and implement efficient, coherent database. The data show a clear increase and fit-for-purpose approaches to achieve in environment-related notifications during the sustainability goals. In this way, the WTO’s last decade and a half (see Figure 3.1). committee work serves not only to improve The share of notifications related to the the quality of trade policies around the world, environment almost doubled to 15 per cent of but also to strengthen much-needed total notifications in 2016, up from 8 per cent coherence between trade, environmental in 1997. This reflects the fact that trade and and other policies essential for sustainable the environment have become more closely development.

Figure 3.1: Environment-related notifications submitted to the WTO

620 569 575 551 498 474 477 453 395 357 353 311 281 245 247 244 211 182 186 165

15.8% 16.9% 17.5% 14.7% 13.5% 13.4% 14.3% 13.2% 14.6% 14.6% 15.4% 11.2% 10.7% 11.3% 10.8% 10.8% 8.1% 9.2% 7.8% 9.8%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Proportion of environment-related notifications Total environment-related notifications

Source: WTO (2018).

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Box 3.3 Sustainable public procurement in the WTO Committee on Government Procurement

Public authorities increasingly use their purchasing power actively to encourage the production and use of environmental goods and services, among other environmental goals. As government procurement accounts for a large share of economic activity – about 12 per cent of GDP on average in OECD countries and up to 30 per cent of GDP in many less developed countries – public entities that adopt green procurement policies can make an important contribution to sustainable consumption and production, innovation and sustainable development more broadly.

The main WTO rules governing government procurement are laid down in the WTO Agreement on Government Procurement (GPA). This plurilateral Under the work programme, most GPA agreement (it applies only to parties that parties have provided inputs on sustainable have accepted the Agreement, not to all procurement policies, goals and legislation. WTO members) seeks to open up markets The WTO Secretariat has compiled all the for public-sector purchases to international submissions into a document, which was competition on a reciprocal, transparent circulated in October 2016. In addition, the and non-discriminatory basis. Committee held a symposium on sustainable procurement in February 2017. A revised GPA, in force since 2014, The symposium featured contributions from explicitly refers to the protection of the a broad range of experts on sustainability environment as a goal of the Agreement. issues. Among the main takeaways from the Following the renegotiation of the GPA, the event was that the revised GPA provides Committee on Government Procurement significant scope for the reflection of adopted several work programmes, sustainability considerations in procurement including one on sustainable procurement. covered by the Agreement, particularly The overall goal of this work programme is with respect to environmental or “green” to identify best practices which are policy objectives. consistent with the principle of “best value for money” and with the international trade Sources: WTO (2011) and WTO document obligations of GPA parties. GPA/W/341, 30 May 2017.

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A framework for efficient, including under the WTO Agreement on coherent and fit-for-purpose Technical Barriers to Trade (which deals with public policies regulatory specifications), the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (dealing with food One of the main purposes of WTO rules is to safety and animal and plant health) and the provide the stability and predictability needed General Agreement on Trade in Services for international trade to play its full role for expressly recognize the right of WTO the achievement of sustainable development. members to put in place regulatory measures Sometimes, however, measures adopted by a to protect the environment so long as any WTO member in pursuit of environmental or regulatory distinction is legitimate and not other welfare goals may, by their very nature, more restrictive than necessary. restrict trade and thereby impact on the WTO rights of other members. How do the rules Many other types of environmental policy achieve a balance between, on the one hand, measures may also intersect with WTO rules, safeguarding the right of countries to take including support schemes for clean measures to protect the environment and, on technologies, sustainable procurement the other hand, ensuring that such measures practices, or intellectual property rights are not applied arbitrarily and are not used as measures. Broadly speaking, WTO rules offer a back door to protectionism? sufficient scope for members to adopt a wide range of environmental measures. At the This is where GATT Article XX is important. same time, they seek to prevent protectionism This provision sets forth specific instances in from being introduced through the back door which trade measures taken by WTO of legitimate policies. As demonstrated by members may deviate from trade rules that WTO rulings, the WTO’s agreements require would otherwise have applied. It establishes that any detrimental treatment applied for several requirements that aim to ensure that environmental reasons be coherent, even- environmental measures are not applied handed and justifiable – in essence, that arbitrarily and that they are not used as WTO members do not resort to green disguised protection. Moreover, other rules protectionism (see Box 3.4).

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Box 3.4 Do WTO rules leave sufficient space for environmental policies?

An oft-expressed concern during the on protecting turtles comparable to the negotiations leading to the establishment of US programme. the WTO was how a reinforced dispute settlement system would impact a country’s The aim of the US measure was to avoid environmental policies. However, in several endangered marine turtles being landmark decisions, the WTO’s dispute accidentally captured and killed during settlement system has repeatedly shrimp fishing activities. In practice, to be highlighted that WTO rules do not encroach certified to export shrimp to the United on the right of members to adopt ambitious States, shrimp harvesting nations with any environmental policies, but instead require of the five species of sea turtles within their that such policies not discriminate arbitrarily jurisdiction had to require the fishing or unjustifiably against foreign producers. community to use “turtle excluder devices” (a technological solution that allows turtles The “US – Shrimp/Turtle” dispute is a case to escape from fishing nets) at all times, as in point. The dispute, brought to the WTO in already required in the United States. 1996, was about a ban imposed by the United States on imports of shrimps from The Appellate Body considered that the US shrimp harvesting nations that were not measure was inconsistent with WTO certified to have a regulatory programme obligations partly because of the inflexible way by which the measure required all exporting countries to adopt essentially the same policy as that applied to US domestic shrimp trawlers. Such a requirement resulted in an arbitrary and unjustifiable discrimination contrary to WTO rules.

Conscious of the potential for its decision to be misinterpreted, and drawing from the recognition by WTO members in the Marrakesh Agreement of the importance of sustainable development and environmental protection, the Appellate Body clarified its reasoning. In the Appellate Body’s own words: “We have not decided that the protection and preservation of the environment is of no significance to the Members of the WTO. Clearly, it is. We have not decided that the sovereign nations that are Members of the WTO cannot adopt effective measures to protect endangered species, such as sea turtles.

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Clearly, they can and should. And we have States and those of other nations. In a not decided that sovereign states should further round of adjudication, the Appellate not act together bilaterally, plurilaterally Body found that the amended US measure or multilaterally, either within the WTO no longer imposed an unjustifiable and or in other international fora, to protect arbitrary discrimination and that it complied endangered species or to otherwise with WTO rules. protect the environment. Clearly, they should and do.” Other landmark environmental disputes in the WTO have reaffirmed this approach. In 1999, the United States amended its This has allayed at least some of the initial measure to allow countries to apply their concerns, and has led to the recognition own policy solutions when these were as that multilateral trade rules can and do effective in protecting turtles as the accommodate coherent policies adopted for measures implemented in the United States, legitimate environmental purposes. accounting for differences between the shrimp fishing conditions in the United Source: WTO Secretariat.

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WTO members have also reaffirmed at the Conference in 2001. Members agreed on political level the fact that WTO rules do not three negotiating topics. The first comprised override environmental protection. At the the relationship between the WTO and Doha Ministerial Conference, in 2001, WTO MEAs. The second negotiating topic related members recognized that under WTO rules to the elimination of trade barriers on no WTO member should be prevented from environmental goods and services. Under taking measures for the protection of the the third topic, WTO members aimed to environment at the levels it considers clarify and improve WTO disciplines on appropriate as long as they are not applied in fisheries subsidies, taking into account the a manner which would constitute a means of importance of this sector to developing arbitrary or unjustifiable discrimination countries. Despite considerable efforts, WTO 2020 between countries where the same conditions members have not yet been able to conclude prevail, or a disguised restriction on the trade and environment negotiations in At the WTO international trade. these three areas. Ministerial Conference in The WTO institutional framework also However, at the WTO’s Eleventh Ministerial Buenos Aires in provides a forum for further negotiations. This Conference held in Buenos Aires, Argentina, December 2017, essential feature of the WTO ensures that the in December 2017, ministers agreed to ministers agreed to global trading system can adapt to a changing continue to engage constructively in fisheries continue to engage world and play its full role in helping WTO subsidies negotiations and to set themselves constructively in members to achieve sustainable development. a goal for the conclusion of these fisheries subsidies In this vein, WTO members launched the first negotiations by the next Ministerial negotiations and to ever multilateral negotiations on trade and the Conference, which is due to be held in 2020 set a goal for environment during the Doha Ministerial (see Box 3.5). concluding them by the next Ministerial Conference, which is due to be held in 2020.

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Box 3.5 WTO fisheries subsidies negotiations

been a major component of the WTO’s work in support of sustainable development. WTO members have been negotiating to strengthen WTO rules on fisheries subsidies, including by prohibiting certain subsidies that contribute to overcapacity and overfishing, while considering the particular importance of the sector for many members’ development priorities, poverty reduction, and livelihood and food security concerns.

At the WTO’s 11th Ministerial Conference held in Buenos Aires, Argentina, in December 2017, WTO ministers reaffirmed the centrality of sustainable development in these negotiations in a decision that incorporates the main elements of SDG 14.6, including its deadline of 2020. In particular, the decision instructs WTO members to engage constructively in the fisheries subsidies negotiations, with a view to adopting, by the WTO’s next Ministerial Conference, comprehensive and effective disciplines that: (i) prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing; and (ii) Disciplining fisheries subsidies was eliminate subsidies that contribute to illegal, identified in the early days of the WTO as unreported and unregulated (IUU) fishing. having the potential to deliver a win-win-win outcome for trade, the environment and The decision also recognizes that development. Curbing subsidies that appropriate and effective special and supported excessive fishing capacity and differential treatment for developing and overfishing could contribute significantly to least-developed countries should be an ensuring sustainable fish stocks for all, the integral part of the negotiations. The WTO production of tradable fisheries products Negotiating Group on Rules is currently and support for the employment and engaged in an active programme of work nutrition of poor fishing populations. aimed at advancing the objectives outlined by the Buenos Aires decision. Based on these considerations, since 2001 the negotiations on fisheries subsidies have Source: WTO Secretariat.

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A group of 46 WTO members have also that the products contained in the EGA would engaged in negotiations aimed at liberalizing benefit the environment. The resumption and trade in environmental goods. Known as the successful conclusion of the negotiations, Environmental Goods Agreement or EGA, the which have not been active since December initiative seeks to build on a 2012 decision by 2016, could give an additional boost to trade Asia-Pacific Economic Cooperation (APEC) in environmental goods. The benefits of the economies to cut tariffs to 5 per cent or less EGA would be extended to the entire WTO on 54 environmental goods. The APEC deal membership, meaning all WTO members is estimated to cover around US$ 300 billion would enjoy improved access to the markets worth of trade within the APEC region. of EGA participants.

EGA participants account for the majority of Helping developing countries world trade in environmental goods. Examples benefit from the global trading of such goods include energy efficient LED system bulbs, solar panels, solar cook stoves, air and water filters, machines for recycling solid The WTO works in partnership with many waste, floating barriers to contain oil spills, other international organizations and devices to prevent turtles and aquatic development partners. The main aim is to mammals such as dolphins from being improve the capacity of developing and least trapped in fishing nets and a broad range of developed countries (LDCs) to participate instruments to monitor environmental quality. more fully in international trade. The Aid for Trade initiative, the Enhanced Integrated EGA participants consulted with a broad Framework and the Standards and Trade range of experts and stakeholders and Development Facility are examples of conducted their own assessments to ensure WTO-led partnerships that help developing

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The Standards and Trade Development Facility (STDF), housed and managed by the WTO, brings together partners – the UN Food and Agriculture Organization, the World Bank Group, the World Health Organization, the World Organization for Animal Health and the WTO – and donors, governments, regional and international organizations and the private sector to help developing countries meet international standards for food safety and animal and plant health and to access global markets. In this way, the STDF supports efforts by developing countries to drive sustainable economic growth, tackle poverty, promote food security and support environmental protection, helping to fulfil the SDGs.

The STDF shares good practices and knowledge products on sanitary and phytosanitary (SPS) capacity building, which helps to address problems related to invasive alien species, protect biodiversity and mitigate climate change risks. By linking up organizations involved in agriculture, trade and the environment, STDF also helps to promote a more coordinated and collaborative approach to SPS capacity building, with wider benefits for the environment.

The STDF also funds projects that control the entry and spread of plant pests and animal diseases by building knowledge and skills to improve SPS border controls, to connect SPS countries and LDCs use trade more and environmental agencies and to reduce effectively to achieve sustainable development. the use and misuse of pesticides, chemicals All three illustrate how the WTO is putting and veterinary drugs. This has resulted in into practice SDG 17, which calls on the greater use of environmentally sound international community to revitalize global pesticides, more integrated pest management partnerships for sustainable development. systems and better farming practices that reduce the burden on land (see Box 3.6). Standards and Trade Development Facility Aid for Trade

Trade in food and agricultural products offers WTO members launched the Aid for Trade a way for farmers, food processors and initiative at the WTO’s 6th Ministerial traders in developing countries to increase Conference in Hong Kong, China, in 2005. their incomes and boost economic Aid for Trade aims to give developing development. But limited capacity in countries the skills, supply capacity and developing countries to meet food safety and trade-related infrastructure they need to animal and plant health requirements often benefit from WTO agreements and to expand prevents them from turning the potential their trade. benefits into reality. The challenges are becoming bigger due to the role of climate The WTO works on Aid for Trade in change in compounding the problem of pests cooperation with developing countries, and diseases, which puts crops and animal regional organizations, multilateral health at risk around the world. development banks, donor countries and a

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Box 3.6 Spotlight on Standards and Trade Development Facility projects

Traders around the world rely extensively on Other STDF-backed projects focused on wood pallets and wood packaging material. agricultural value chains have helped to Such materials may inadvertently facilitate protect the rural environment by supporting the movement of plant pests, especially the use of non-toxic inputs among small- wood-boring insects, across borders and holder farmers. As a result, cabbage the subsequent establishment of productivity in Senegal doubled while populations outside their native ranges. An pesticide residues dropped and producers STDF project in Botswana, Cameroon, gained market share in the region. In Kenya and Mozambique evaluated the main Bangladesh, shrimp farmers saw harvest economic, ecological and logistical yields and incomes rise by up to 70 per cent consequences of adopting and following the introduction of environmentally implementing ISPM 15 – an international sound processes which protected the coast wood packaging standard. and livelihoods at the same time. In Southeast Asia, a project helped The project identified good-practice participants in the cocoa value chain solutions for governments on how to lower address consumer concerns over pesticide the risk of pests in wood packaging and residue and other food safety issues, identified options to recycle or repair helping to expand export opportunities. wood packaging material to protect forest resources. Source: STDF Secretariat.

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range of UN and other international Figures from the OECD indicate that Aid for organizations, including the Organisation for Trade disbursements totalled around US$ Economic Co-operation and Development 340 billion from 2006 to 2016. Of this, (OECD). SDG 8a calls for an “increase in Aid around one-third (US$ 112 billion) has been for Trade support for developing countries, allocated to projects with an environmental US$ 112 particularly LDCs”. objective, meaning development projects that billion target the goals of one of the so-called “Rio The WTO hosts a periodic “Global Review of Conventions” – the UN Framework Amount of Aid Aid for Trade” where partners discuss the Convention on Climate Change, the for Trade effectiveness of the initiative, along with trade Convention on Biological Diversity and the disbursements and development issues. The latest review UN Convention to Combat Desertification. allocated to was held in Geneva in July 2017. Japan, Germany, the European Union, the projects with an Underpinning the review was a monitoring United States and France have been the environmental and evaluation exercise based on information largest providers of this type of Aid for Trade objective between gathered through questionnaires and case support. Among multilateral organizations, the 2006 and 2016. studies submitted by donors, regional International Development Association arm of economic communities, South-South the World Bank, the Asian Development partners, developing and least developed Bank and the Climate Investment Funds are countries, as well as the private sector, active donors. academia and non-governmental organizations. Monitoring responses revealed For the period 2006-16, almost 60 per cent that developing countries and bilateral and of Aid for Trade disbursements with an multilateral donors all recognize the important environmental objective went to projects contribution that Aid for Trade can make to related to infrastructure development, mostly the SDGs. energy infrastructure (see Figure 3.2).

Figure 3.2: Aid for Trade disbursements with environmental objectives

18

16

14

12

10 Trade Policy and Regulation

8 Building Productive Capacity US$ billionUS$

6 Economic Infrastructure

4

2

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: OECD (2018c).

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Box 3.7 EIF-funded projects aimed at supporting environmental sustainability and promoting resilience to climate change

As part of regional efforts to combat with more extreme and volatile climatic desertification by creating a “Great Green conditions, including a solar-powered Wall of Africa”, the EIF is supporting Mali’s irrigation system in The Gambia and efforts to plant acacia trees on over 10,000 greenhouse-based production in Lesotho. hectares of land. Some 60 per cent of Mali’s total surface area is already either Source: EIF Secretariat. desert or semi-desert. Along with environmental benefits, the project is expected to have significant economic and social benefits, given that over 350,000 people in Mali (80 per cent of them women) depend on the production of gum arabic from acacia trees used in food, pharmaceutical and cosmetic products.

The project seeks to reduce poverty by increasing the revenue of producers, collectors and exporters of gum arabic in some of the most vulnerable provinces of Mali. The US$ 7 million project is jointly financed by the EIF and the Government of Mali.

Other examples of EIF projects with strong environmental components include an innovative project helping to promote the sustainable production of honey by small- scale farmers in Zambia while providing incentives for the conservation of forest reserves rich in biodiversity. Another project has assisted Vanuatu’s efforts to recover from the devastating impact of Cyclone Pam in 2015. It focuses on rebuilding Vanuatu’s tourism infrastructure and protecting its shoreline from further erosion. EIF support has also helped smallholder farmers obtain technologies that help them cope better

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Enhanced Integrated Framework these studies. Under DTIS guidelines revised in 2016, the environment is considered a The Enhanced Integrated Framework (EIF) cross-cutting issue that must be analysed brings together partners and resources to systematically in all studies. help LDCs use trade for poverty reduction, inclusive growth and sustainable The EIF also finances projects that seek to development. It is underpinned by a multi- strengthen productive capacity and promote donor trust fund, which provides financial and inclusive trade in LDCs. These projects often technical support for strengthening the have environmental components (see Box capacity of LDCs to participate in global 3.7). The EIF has been working with the trade. The EIF has its own Executive International Trade Centre – an agency of the Secretariat, which is housed in the WTO and WTO and the UN Conference on Trade and tasked with the overall coordination and Development – and other partners to implementation of the EIF’s goals and incorporate environmental aspects into programme of activities. trade-related projects in a more systematic way. Moreover, the EIF seeks to connect SDG 8a on Aid for Trade explicitly refers to LDCs with financing mechanisms related to the EIF. As the only global Aid for Trade climate change in recognition of the growing programme tailored specifically to the needs links between climate adaptation programmes of the world’s poorest countries, the EIF is and trade. well placed to help them develop sustainable trade strategies. One important tool within The role of UN Environment the EIF is the “Diagnostic Trade Integration Study” or DTIS. A DTIS is a comprehensive The United Nations Environment Programme assessment of an LDC’s trade-related (UN Environment) was established in 1972 in challenges and opportunities. It provides an Stockholm, with the purpose of being the analytical foundation to help the government leading global environmental authority that and donors identify priority needs and sets the environmental agenda. As such, UN actions. The EIF has financed over 40 of Environment has a global mandate to promote

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the coherent implementation of the dimensions of sustainable development environmental dimension of sustainable are intertwined and indivisible, as also development within the United Nations articulated by the 2030 Agenda. system and to serve as an authoritative advocate for the global environment. UN This, in turn, requires environmental Environment’s mission is to provide leadership protection to be understood as an integral and encourage partnership in protecting the part of development processes. However, environment by inspiring, informing and decades of creating wealth have not enabling nations and people to improve their adequately addressed environmental quality of life without compromising that of degradation, resource depletion and social future generations. In order to fulfil this marginalisation. In light of a growing global mission, UN Environment believes trade and population, increased natural disasters and economic policy play a critical role. To this extensive environmental degradation as well end, UN Environment’s work on trade and the as the social challenges such as widespread economy focuses on assisting countries to inequality, poverty and unemployment, create environmental sustainability and to the urgency to rethink the status quo is foster economic, social and environmental greater than ever. resilience by decarbonising, detoxifying and decoupling economic processes from While the conventional economic model environmental impacts. based on fossil fuels is still pervasive, the world is today much better positioned to The establishment of UN Environment took understand and measure the hidden costs. place in the wake of a global recognition that Science, technology and policy tools are environmental quality is a major issue that now available to transition to more sustainable affects well-being and underpins economic and equitable pathways – towards an development. Equally, the 1972 Declaration economy and trading system that is low- of the United Nations Conference on the carbon, efficient and clean in production and Human Environment (known as the inclusive in consumption and outcomes. Such Stockholm Declaration) recognized that an inclusive and resilient economy provides development presents both a solution as well a tool for sustainable development by as a challenge for protecting the environment. improving well-being and social equity while Today, it has been widely understood that significantly reducing environmental risks and the environmental, social and economic ecological scarcities.

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UN Environment has shown that achieving shifting consumption patterns towards the transition to a more sustainable economy environmentally sound goods and services. is a realistic and economically viable goal for all countries. Economic modelling suggests By way of its function of connecting green that the financing demand for this shift is only supply with green demand, trade can facilitate around 2 per cent of GDP and would result in sustainable production and consumption. It enhanced long-term economic performance can therefore act as a vehicle and enabler of (see also Chapter 1). countries’ transitions to inclusive, green economies. It can offer producers of An inclusive green economy responds to sustainable and green products access to three sets of challenges facing humanity: new, global markets, which in turn can widespread poverty, an inequitable spread of provide impetus for innovation and growing global prosperity and overstepped technological learning. By facilitating the planetary boundaries (see Chapter 1). diffusion and uptake of environmentally sound Addressing these challenges should be seen technologies, trade can substantively as a driver of innovative solutions. contribute to countries’ capacity to prevent, forecast and deal with natural disasters. This In line with national priorities, a green can help countries to build resilience, both in economy relies on targeted public and private environmental and economic terms. investments in renewable natural and clean physical capital – for example, energy-efficient Trade should facilitate access to, and buildings and machinery used in the investment in, critical environmental goods, manufacturing sector. Policies, embedded in services and technologies and should further strong public institutions, play an essential role foster eco-innovation, contribute to achieving in this process – they guide and accelerate the SDGs and climate goals as outlined in the systemic change by mobilizing finance for a Paris Agreement, and enable decent and new generation of assets and by reshaping inclusive job creation. By integrating patterns of consumption, investment, public environmental and development spending and trade. However, such a shift considerations, trade policy has a central role relies on a strategic and integrated framework to play to enable and accentuate the that features sound environmental, social and contribution of trade towards equitable and labour policies – but equally fiscal, industrial environmentally sustainable economies. and trade policies that are aligned with environmental and social development A central element of UN Environment’s work is objectives. Together, this provides an enabling to ensure that trade amplifies good practices, framework for sustainable production while greener production and consumption, investment in the environment, development of green technologies and integration into green global value chains. Building policy makers’ capacity to use trade and investment as tools for sustainable development is key to this end.

Governments have recognized that countries worldwide, and less developed countries in particular, continue to lack sufficient capacity to use trade as a vehicle for achieving sustainable development, including as a mechanism for resilience following conflict or natural disaster. UN Environment responds to this critical need by providing capacity building and advisory services at the interface of trade and environment. More specifically, UN Environment assists countries to integrate and align their respective policy agendas, to seize opportunities from green trade, to reduce frictions, to create synergies and to build resilience (see Box 3.8).

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Box 3.8 Examples of tools produced by the Environment and Trade Hub

The Environment and Trade Hub of UN industrial policy and trade. It provides Environment is a capacity building an overview of trade-related green mechanism that supports countries and industrial policy instruments and stakeholders to make trade work for the clarifies their structure and operation, environment. The Hub delivers advisory while outlining their implications with services, acts as a convenor and regard to trade policy. provides analysis, tools and methodologies to contribute to the • A Handbook on Trade and Green environmental dimension of the Economy: The Handbook gives a 2030 Agenda. broad overview of the legal, economic and environmental developments that Examples of tools produced include: are shaping the future of trade.

• A Sustainability Toolkit for Trade • A Guide for the Assessment of the Negotiators: The Toolkit helps Costs and Benefits of Sustainability countries to draft and negotiate Certification: The Guide provides provisions in regional trade and guidance on how to approach an investment agreements by providing assessment of the broader costs principles, examples, resources and and benefits deriving from an analysis of good practices. sustainability certification.

• A Green Industrial Policy and Trade • Online and offline training courses on Toolbox: This Toolbox helps policy trade and the green economy. makers and trade negotiators navigate the complex interface between green Source: UN Environment.

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The Environment and Trade Hub understanding and cooperation between and other trade-related environment and trade communities. By initiatives acting as a convener and facilitator, the Environment and Trade Hub promotes national, regional and international UN Environment delivers its work on trade cooperation between the environment and and environment-related challenges through a trade communities and shapes the global variety of programmes and initiatives, with the agenda at this interface. Environment and Trade Hub serving as the central coordinating mechanism. Launched These services are delivered through: on the sidelines of the 10th Ministerial Conference of the WTO in Nairobi, Kenya, • technical training supporting international, the Hub works with public and private regional and national design and partners to offer tailor-made policy support implementation of sustainable trade around a number of key areas. policies

First, the Hub aims to improve stakeholders’ • assistance in designing trade and knowledge at the interface of trade, natural environment related agreements resources and sustainable development. Secondly, it provides advisory services to • identification and dissemination of policy makers, businesses and civil society best practices groups on sustainable trade. Thirdly, it creates, incubates and scales-up innovative • support to stakeholder consultations and policy solutions and business models that national, regional and international facilitate sustainable trade. Finally, it raises dialogues on advancing the sustainable awareness and improves mutual trade agenda

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Box 3.9 In the spotlight – The Hub’s work with the Partnership for Action on Green Economy

The Partnership for Action on Green policy, to foster economic growth, create Economy (PAGE) brings together five UN income and jobs, reduce poverty and agencies – UN Environment, International inequality and strengthen the ecological Labour Organization, UN Development foundations of their economies. Programme, UN Industrial Development Organization and UN Institute for Training Through PAGE, UN Environment and its and Research – to offer integrated and partners deliver coordinated efforts at the holistic support to countries in fostering an national, regional and global levels. inclusive green economy, ensuring Examples of country-level work include coherence and avoiding duplication. advisory projects in Mongolia, China, South Africa, Ghana, Peru and Burkina PAGE seeks to put sustainability at the Faso. Global-level projects include heart of economic policies and practices to e-learning courses and resources on trade advance the 2030 Agenda and supports and green industrial policy. nations and regions in reframing economic policies and practices, including trade Source: UN Environment.

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• targeted stakeholder training and awareness raising activities

• identification of sector- or region- specific sustainable production and trade opportunities

• opportunity assessments and research, and country action plans.

The Hub links its work on trade with expertise within UN Environment on pollution, climate change adaptation and mitigation, conflict and disaster, energy, ecosystems, the circular economy, chemicals and waste, technology, Enhancing trade in environmentally sustainable consumption and production and sound technologies environmental law, among other areas. The aim is not only to ensure that environment The Environment and Trade Hub’s first focus and trade are mutually supportive, but to area is to enhance trade in environmentally promote the use of trade as a vehicle to sound technologies by supporting countries in deliver on the environmental and resilience assessing opportunities and challenges, agenda. As such, the Environment and Trade removing trade barriers, creating enabling Hub works with the Partnership for Action on policy frameworks and connecting to regional Green Economy (see Box 3.9), the Green and global value chains. Growth Knowledge Platform, the International Resource Panel, the Green Fiscal Policy Examples include an analysis of South-South Network, the One Planet network and trade in selected renewable energy products, the Green Customs Initiative, among many a scoping study on intra-ASEAN value chain other initiatives. cooperation and trade in energy efficiency and renewable energy technologies, capacity Employing a partnership-based approach, building activities to help less developed the Environment and Trade Hub also serves countries to better understand implications of as a focal point and key partner to trade- the WTO’s Environmental Goods Agreement, related organizations such as the WTO, the an assessment of cross-border trade in International Trade Centre and the United renewable energy (see Box 3.10) and an Nations Conference on Trade and ongoing project to assist the ASEAN region Development. It engages regularly with the and East African region in benefiting from WTO’s Committee on Trade and trade in environmentally sound technologies. Environment and broader WTO work on behalf of UN Environment. Capacity- The United Nations Environment Assembly, building work under the Environment and the world’s highest-level decision-making body Trade Hub links to and complements the on the environment, which held its fourth UN Inter-Agency Cluster on Trade and session in December 2017, reinforced the Productive Capacity (comprising 15 Environment and Trade Hub’s work on international organizations) and the environmentally sound technologies (see Box Enhanced Integrated Framework, the Aid 3.11). Leaders of government and business for Trade initiative and other programmes called for joint action to unlock trade in clean (see page 64). technologies, remove barriers and foster partnership. This call for action was reflected in Environment and trade-related services are the resolution “investing in innovative delivered in four inter-linked focus areas that environmental solutions for accelerating the all contribute towards the delivery of the implementation of the Sustainable SDGs: enhancing trade in environmentally Development Goals”, which highlighted the sound technologies; shaping governance at dissemination of environmentally sound the trade and environment nexus; green technologies as key in the sustainable use of markets and global value chains; and natural capital, in minimising pollution and in reducing the footprint of trade. reversing ecosystem degradation.

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Box 3.10 In the spotlight – Realizing Ghana’s solar-powered potential for cross- border power supply

UN Environment worked with the Energy On this basis, the Environment and Centre in Ghana to assess the technical Trade Hub facilitated the development of and financial feasibility as well as the a strategy for selecting a solar-ready, socioeconomic and environmental impacts cross-border grid line between Ghana of solar energy exports from Ghana. The and Burkina Faso, including an in-depth resulting Ghana Solar Export Potential assessment of technical and financial Study illustrated Ghana’s significant requirements for installation. Expanding potential for solar-powered electricity and solar-powered energy in Ghana could opportunities for pursuing electricity trade provide a variety of social, economic in the region. It found that a grid-connected and environmental benefits and increase 100 MW solar plant in Ghana could drive the country’s resilience to the impact of annual export of energy totalling US$ 38 climate change.

million, save 40,000 tonnes of CO2 annual emissions, create 3,000 jobs and Source: UN Environment Green provide livelihoods for 23,000 of the Economy and Trade Opportunities Project poorest people. (GE-TOP).

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Box 3.11 United Nations Environment Assembly – A focus on trade in environmentally sound technologies and innovation

The UN Environment Assembly, the world’s waterways and oceans, and to safely highest-level decision-making body on the manage chemicals and waste. It also environment, has the universal membership featured discussions on how to confront of all 193 UN member states and the pollution in its various forms. One of these involvement of UN organizations, discussions focused on the role of trade in specialized agencies, inter-governmental disseminating clean technologies, including organizations, civil society and the private those needed to prevent, reduce, treat and sector. In bringing together these control pollution. communities, the Assembly provides a platform for leadership on global Resolution 3/5 of the UN Environment environmental policy. Assembly highlights the role of trade and of technology development and transfer in The third session of the UN Environment innovative environmental solutions (UN Assembly, held in Nairobi, Kenya, in Environment, 2018b). The Secretariat of the December 2017, resulted in several WTO participated in this discussion along commitments to end pollution of air, land, with delegates from several countries.

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Participants put forward several ideas on • leveraging private investment in clean how to maximize the role of trade in scaling technology development in developing up clean technologies. These ideas included: economies and encouraging a long-term investment horizon at the • establishing cross-ministerial committees policy level. or mechanisms on environment and trade at the national-level The fourth session of the UN Environment Assembly, which will take • supporting emerging and developing place from 11 to 15 March 2019 in economies with capacity building and Nairobi, will focus on “Innovative knowledge transfer through targeted solutions for environmental challenges training on using trade policy instruments and sustainable consumption and to support clean technology development production”. Innovative solutions, covering policies, financing, • improving skills development of the labour technologies, partnerships and force in the clean technology value chain, multi-stakeholder processes, are key including those working on testing, both to solving many environmental installation and maintenance challenges as well as to accelerating sustainable development more broadly. • cultivating new public-private The recognition of the need for partnerships to link trade policy makers transformative change to support with progressive companies and Agenda 2030, highlighted in both the investors at the forefront of clean third and fourth sessions, directly technology development underpins the choice by member states of the overarching theme for the fourth • endorsing and supporting pioneers session of the Environment Assembly. and champions of clean technology development and pollution abatement Source: UN Environment.

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Increasing coherence between The Environment and Trade Hub liaises with environmental and trade governance and informs a variety of UN Environment-led programmes in this domain. For example, UN The second focus area of the Environment Environment’s Regional Enforcement and Trade Hub is to shape governance at Network for Chemicals and Waste (REN) the trade and environment nexus and centres on the prevention and control of create better coherence (see Box 3.12). illegal transboundary movements of chemicals The Hub advises and supports and wastes (see Box 3.13) and also engages international rule-making to enhance in work related to four trade-relevant MEAs environmental sustainability by improving – the Montreal Protocol, the Basel coherence between international trade law Convention, the Rotterdam Convention and and multilateral environmental agreements the Stockholm Convention. (MEAs) and promoting the design and adoption of environmental and REN aims to reduce illegal transboundary sustainability provisions in trade movement of harmful chemicals and agreements via targeted training and hazardous waste by improving the capacity of advisory services to trade and environment frontline enforcement officials to combat policy makers and negotiators. The Hub illegal traffic of these substances and via offers a plethora of resources and practical enhanced cooperation at both the national tools to improve mutual supportiveness of and regional levels for effective enforcement environment and trade policies and of related MEAs. practices, including toolkits, handbooks and guidelines for trade and environment An additional area of important work for UN policy makers. Environment, including the Strategic

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Box 3.12 Partnerships for trade in sustainable fisheries and implementing SDG 14 on healthy oceans

The Environment and Trade Hub works healthy oceans by 2020. This commitment closely with the Food and Agriculture includes building countries’ capacity to Organization of the United Nations (FAO) better position themselves within relevant and the United Nations Conference on trade negotiations and to undertake Trade and Development (UNCTAD) in internal policy and regulatory reform helping countries to reform aligned with SDG 14 targets, including environmentally harmful subsidies. those related to certain forms of fisheries Together, the three organizations issued a subsidies which contribute to voluntary commitment at the Oceans overcapacity and overfishing. Conference in 2017 to implement trade-related aspects of SDG 14 on Source: UN Environment.

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Approach to International Chemicals UN Environment’s OzonAction initiative Management (SAICM), is the reduction of strengthens the capacity of governments and exposure to lead, which currently causes industry in developing countries to elaborate brain damage to 600,000 children annually, and enforce the policies required to for example, through exposure to leaded implement the Montreal Protocol – a paints and toys in some countries. To put an landmark treaty designed to protect the ozone end to this, UN Environment works with layer by phasing out nearly 100 industrial countries to create legislation on phasing out chemicals known as ozone-depleting lead in paint. substances – and to make informed decisions about alternative technologies. Its overall goal SAICM works with the secretariats of the is to enable those countries to meet and Basel, Rotterdam and Stockholm conventions sustain their compliance obligations under in piloting capacity-building activities on the treaty. environmentally sound management of waste lead acid batteries. Another specific initiative UN Environment has created an online related to hazardous waste, the information portal, InforMEA, for information Environmental Network for Optimizing on MEAs. Through this platform, Regulatory Compliance on Illegal Traffic stakeholders can consult treaty texts and (ENFORCE), was established at the eleventh provisions of decisions and resolutions meeting of the Conference of the Parties to adopted by the governing bodies of MEAs. the Basel Convention to prevent and combat A trade-related section in InforMEA is illegal trade of hazardous waste. currently under discussion.

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Box 3.13 In the spotlight – National capacity- building workshop in India on controlling illegal trade in chemicals and waste

UN Environment’s Regional Enforcement conventions as well as other MEAs Network for Chemicals and Waste (REN) relating to the illegal trade in chemicals or leads workshops aimed at enhancing the ozone depleting substances and waste. capacity of national customs officers to India is considered to be a possible new control the illegal trade in chemicals and destination for waste once a forthcoming waste. For example, in India, customs Chinese import ban on certain types of officers were trained on the waste enters into force. implementation of, and compliance with, the Basel, Rotterdam and Stockholm Source: UN Environment.

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The Green Customs Initiative forms an and sector-specific level in Chile, Ghana, additional partnership of international Peru, South Africa and Viet Nam. organizations, including UN Environment, cooperating to prevent the illegal trade in For example, in Peru, the project environmentally sensitive commodities and demonstrated that sustainability certification substances, with an aim to facilitate legal resulted in better market access and sales for trade. It strives to enhance the capacity of native biodiversity-based products. Between customs and other relevant border control 2009 and 2014, biotrade exports in Peru officers to monitor and facilitate the legal increased from US$ 7.6 million to US$ 58.8 trade and to detect and prevent illegal trade in million, illustrating the potential to improve environmentally sensitive commodities economic and social conditions in the least covered by trade-relevant MEAs and developed regions of the country through international conventions. The initiative access to green markets. In Viet Nam, the provides opportunities for the coordinated project showed that sustainability certification development of tools and the delivery of for shrimp increased a farmer’s profit margin training for customs and other border control up to 15 per cent due to increased export officers through its umbrella partnership. opportunities. These cases provide strong evidence that developing countries could Promoting green markets harvest multiple gains from green trade.

A third area of focus of the Environment and Engaging at both the global and country- Trade Hub is promoting green markets and levels, the Hub also works with governments global value chains through trade, including to seize opportunities to drive sustainability via market-based tools such as sustainability improvements in the value chain and to standards. It helps countries to identify trade increase market access for producers, for opportunities based on green policies and example in diverse sectors such as cotton/ practices. With the “Green Economy and textiles, organic agriculture, aquaculture and Trade Opportunities Project (GE-TOP)”, for non-timber forestry products. Furthermore, example, the Hub worked on five national- the Environment and Trade Hub, on behalf of level projects that identified and assessed UN Environment, contributes to the United concrete trade opportunities associated with Nations Forum on Sustainability Standards the transition to a green economy at national (see Box 3.14).

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Box 3.14 United Nations Forum on Sustainability Standards (UNFSS)

UN Environment, along with four other UN social non-governmental organizations or agencies (UN Conference on Trade and governments. The UNFSS aims to Development, the Food and Agriculture influence decision makers at the Organization of the UN, the International intergovernmental level by providing Trade Centre and the UN Industrial impartial information, analysis and Development Organization), is a partner of discussion on voluntary sustainability the United Nations Forum on Sustainability standards. Standards (UNFSS). To date, the UNFSS has helped several The UNFSS is a platform for coordinated developing countries, including Brazil, work on voluntary sustainability standards China and India, to develop multi- and aims to help producers, traders, stakeholder platforms for voluntary consumers, standard-setters, certification sustainability standards. These national bodies, non-governmental organizations initiatives, created and shared by and researchers convene and share best stakeholders under each country’s practices on topics relating to voluntary designated coordinating body, reflect sustainability standards. These standards local priorities. may be developed by single businesses, business associations, environmental or Source: UN Environment.

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Reducing the footprint of trade UN Environment strives to decouple increased mobility and increased emissions Finally, the Environment and Trade Hub aims by working with governments, industry and to reduce the footprint of trade. Trade, while civil society to promote cleaner fuels and offering enormous opportunities for vehicles. It also intends to improve air quality environmental sustainability, can also in coastal cities by reducing emissions from contribute to environmental harm and ports and maritime sources, including ships, increased greenhouse gas emissions harbour craft and cargo-handling equipment. throughout the value chain, including via In this regard, UN Environment ultimately extraction, transport and waste. aims to reduce the environmental footprint of trade-related economic growth by way of Transport drives economic activity and is greener modes of transport and sustainable fundamental to a country’s welfare but the management of trade in natural resources. sector has significant impacts on the environment and health. Transport activity UN Environment also engages in mapping is increasing around the world as economies trade flows of certain natural resources such – and trade – grow, which means that the as mercury. As a globally traded commodity, sector’s emissions are also on the rise, mercury has come under increased scrutiny largely because 95 per cent of the due to its harmful impact on health and the world’s transport energy still comes from environment. Under the newly concluded fossil fuels. Minamata Convention on Mercury,

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signatories are required to control trade in 10 per cent was recycled into the economy mercury – for example, through export the following year. A circular economy can restrictions. A 2017 UN Environment report promote the recycling, re-use and recovery mapped out global supply, trade and demand industry, for example, as seen in the use of of mercury to assist the implementation of the recycled products within car manufacturing, Minamata Convention. a globally relevant industry for trade.

Additional activities within this focal area Many companies, countries and regions centre on trade’s role in promoting a circular have started to adopt circular economy economy (see also Box 1.2 in chapter 1). At models. Supporting these issues is at the present, countries’ economies continue to be core of promoting a shift to a more mostly linear, which is inherently sustainable trading system and fostering unsustainable, contributing to an ever- sustainable consumption and production growing environmental footprint. Of the patterns. In doing so, UN Environment aims estimated 90 billion tonnes of resources used to stimulate public-private sector in 2017, more than 50 per cent was engagement and to strengthen the scientific dispersed or emitted as waste and less than basis for policy decisions.

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Chapter 4 Building partnerships for trade, environment and prosperity

he world today is more new opportunities yet also pose challenges interconnected than ever before. to the systems that govern them. Many of The sheer scale and scope of these trends and changes have important Tglobal value chains have created a impacts on, and implications for, trade and new landscape for business and trade, the environment. influencing how and where goods and services are produced and consumed. How could emerging technologies, such as Countries are much more linked to one 3-D printers, Blockchain technology, another and developing countries are artificial intelligence and advanced data playing an increasing role in international analytics affect the role of trade in helping trade. In parallel, the frequency and intensity to achieve environmental sustainability? of climate change and climate-related How can new models, such as the circular natural disasters has intensified, at times or sharing economy, affect resource causing disruptions to production networks. efficiency and trade? What kind of trading system and environmental Meanwhile, the private sector is tapping governance is needed in response to into new environmental business these developments? Are current systems opportunities and developing clean fit for purpose? technologies as a source of innovation and competitiveness. Technological advances Such developments also pose new are driving the “Fourth Industrial questions about the incentives, policy Revolution” that is not only reshaping the frameworks and governance mechanisms world economy but also people’s daily that will be needed to create a future that is lives. New business models, such as the resilient, sustainable and inclusive. sharing economy – a model that focuses Answering these questions will on the sharing of under-utilized assets in challenge all stakeholders to work ways that improve efficiency, sustainability across sectors and disciplines, and to and community – and e-commerce offer forge new partnerships.

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Rethinking global approaches It has become clear that deeper and more effective cooperation is needed to maximize The changing landscape on global trade and the contribution of trade in building a more the environment adds a new dimension to sustainable, resilient and inclusive world historical challenges and requires new economy. SDG 17 calls for global thinking on global and national governance partnerships and cooperation for sustainable mechanisms. The landmark agreements on development, complemented by multi- sustainable development reached in 2015 stakeholder partnerships that mobilize and – the Paris Agreement, the 2030 Agenda for share knowledge, expertise, technology and Sustainable Development, the Addis Ababa financial resources to support the Action Agenda and the Sendai Framework for achievement of the SDGs in all countries, Disaster Risk Reduction – have demonstrated particularly those less developed. This means that open and transparent discussions that governments, the private sector, civil involving all stakeholders can achieve society and intergovernmental organizations ambitious global multilateral agreements. must pull in the same direction to tap into the Such collaborative efforts have proven to be numerous trade opportunities that can effective in setting out ambitious and improve countries’ economies and wide-ranging global goals. environments in tandem.

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Meanwhile trade linkages run through nearly resilience to environmental risks. It is all the SDGs, in direct and indirect ways. If therefore of vital importance for global properly supported, trade can serve as a governance to respond to the real drivers of lever to address some of the world’s most change today to ensure that trade and the pressing environmental issues – for trading system are well positioned to example, building climate adaptation advance the environmental agenda. technology which aims to lower the risks posed by climatic changes, or fighting Innovative partnerships against marine plastics, a key UN for the future Environment priority at the global level. Plastic Trade policy can support frameworks for When accompanied by the right policies, pollution governments to create incentives for cleaner trade can be a powerful tool for building production of biodegradable materials and prosperous, sustainable and resilient Trade policies their global diffusion, which can in turn help economies around the world. This, in turn, can support replace conventional plastics and reduce the requires trade and environment policy makers government scale of marine litter. At the same time, to spearhead new approaches and to work incentives for the environmental policy measures, such as the together and in cooperation with other policy cleaner production ban of single-use plastics, also have an makers and all relevant stakeholders in the of biodegradable impact on trade flows. same spirit of cooperation that made possible materials and their recent historic achievements such as the global diffusion. Despite progress in some areas, significant Paris Agreement. political tensions, coupled with fundamental economic changes dominated by automation To maximize the contribution of trade to a and new technologies, have challenged the better and more resilient environment, the global trading system and its role as a force WTO and UN Environment need to foster for growth, development, sustainability and concerted action in the following areas:

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1. Collaborative work focusing on prominently in trade policy making, while strengthening multilateral cooperation trade needs to be considered to a greater and governance. This requires broader extent within the development of efforts to tackle environmental problems, environmental policies and compliance not least transboundary and global with environmental obligations. commons problems that are beyond the control of any one country. Strengthening 4. Fostering “win-win” opportunities multilateral cooperation to achieve which provide economic and resource efficiency and resilience to environmental benefits. Closer climate change and other environmental cooperation is needed between challenges will help trade to contribute to environment and trade ministries in broad innovative technological solutions to consultation with a variety of stakeholders, overcome environmental challenges. including environmental groups. Trade’s role in allocating resources Encouraging joint planning and efficiently will also help to create new cooperation at the national level will opportunities for exports and jobs. allow for more cohesive policy development and implementation. 2. Fostering private-public partnerships to facilitate market-oriented 5. Supporting decision-makers from the approaches that allow trade and world’s poorest countries, along with environment to be mutually vulnerable groups and under- supportive. The public sector needs to represented communities, in establish supportive policy frameworks preserving natural assets. Efforts need that will allow private sector opportunities to be made towards overcoming the to flourish. Such partnerships can highlight obstacles that prevent less developed good practices and bring to the fore countries from fully using trade as a tool sustainable business champions, including to achieve prosperity, sustainability and small and medium-sized enterprises. This resilience to natural disasters. Realizing will allow the public sector to better this goal requires improved efforts to understand the needs of the private sector strengthen the capacity of these countries and will encourage businesses to replicate to identify and seize trade opportunities. successful practices. This can involve training on how to take advantage of new sustainable business 3. Encouraging national policy makers to opportunities, on implementing work together across environment international commitments, and on and trade domains. Environmental designing and enforcing sound considerations need to feature more environmental policies.

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6. Delivering inclusive, gender-sensitive, society across the globe. Raising outcomes for environmental and awareness can help to shape mindsets, trade policy to support broader goals shift consumption patterns, influence within the 2030 Agenda. Trade and trade flows and lead to greater environmental policies can often affect international cooperation on trade men and women differently, due to their and environment. differing economic and social roles and access to resources. Coordinated trade Leading by example: the WTO and environmental policy should strive to and UN Environment working promote gender equality across global in partnership value chains and among stakeholder groups and be aligned with SDG 5 on Delivering on the actions listed above will gender equality. require leadership by governments and the private sector as well as close collaboration 7. Raising awareness among between the WTO and UN Environment to stakeholders on the role of trade in combine expertise and know-how. Such environmental sustainability and cooperation serves as a catalyst for broader resilience to climate change. and deeper forms of collaboration among Challenges of global scale require diverse stakeholders, building on a solid solutions of the same calibre. Broad foundation of joint activities between the two engagement will be needed from civil institutions (see Box 4.1).

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Box 4.1 WTO-UN Environment collaboration

UN Environment and the WTO have a rich demonstrated that opening up trade and history of cooperation, having collaborated combating climate change can be mutually across many areas over the past two supportive in realizing a low carbon economy. decades, including on fisheries subsidies The report concluded that there is scope and climate change. under WTO rules to tackle climate change at the national level. It further highlighted that the Fisheries subsidies relevance of WTO rules to climate change UN Environment has been instrumental in mitigation policies as well as the implications drawing international attention to the damaging for trade and the environmental effectiveness effect of fisheries subsidies since the 1990s. of these measures largely depend on how It plays an important role in fostering a these policies are designed and the specific dialogue between trade, environment and conditions for implementing them. fisheries officials around the world. Its analysis has focused on how the use of certain forms Dialogue on healthy environments of subsidies may not only distort trade, but through trade may also result in the unsustainable Building on earlier cooperation, and in exploitation of marine resources. response to a changing landscape, the Executive Director of UN Environment, Erik UN Environment has offered concrete Solheim, and the Director-General of the solutions related to topics such as special and WTO, Roberto Azevêdo, announced at the differential treatment, artisanal fisheries and World Economic Forum in Davos, Switzerland, fisheries access agreements. Current work, in early 2018 their commitment to intensify which is conducted in close collaboration with collaboration between the two organizations. UNCTAD and FAO, informs subsidies Under the theme of “Healthier Environments negotiations and discussions in the WTO. through Trade”, they launched a joint initiative to promote greater dialogue and cooperation Report on trade and climate change among diverse stakeholders on innovative The WTO and UN Environment published a ways of using trade to simultaneously joint ground-breaking study on trade and strengthen the global economy and the climate change in 2009, at a time when the environment. links between trade and climate change were poorly understood. The report examined the The aim is to provide a platform for interested intersection of trade and climate change from stakeholders from all sectors of society to four perspectives: the science of climate exchange ideas, highlight successful change; economics; multilateral efforts to experiences and improve understanding of the tackle climate change; and national climate interface between trade, environment and change policies and their effect on trade. resilience to environmental risks among governments, the private sector, civil society The report provided evidence that more open and non-governmental and international trade, along with actions to combat climate organizations. change, can catalyse global innovation, including new products and processes that Sources: WTO and UN Environment (2009) and can stimulate new clean tech businesses. It Moltke (2011).

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Many of the topics discussed in this cutting issues of mutual importance. The two publication, including the reform of fisheries organizations also aim to provide technical subsidies, trade opening in environmental assistance to government officials of goods and services, resilience to developing countries, share expertise, host environmental risks and hazard events and joint dialogues, participate in relevant fora and improved coherence between trade rules and exchange information and inputs, where MEAs are at the heart of the collaboration relevant, on each other’s activities. between the WTO and UN Environment. The two organizations seek to work together to The UN Environment-WTO collaboration aims identify, address and promote areas where to bridge silos by identifying synergies and there are clear win-win opportunities. complementarities between the two organizations’ areas of work and to facilitate Leading by example, UN Environment and the and promote the creation of new WTO aim to inspire and support countries partnerships. By bringing the environment around the world to identify opportunities to and trade communities together at all levels make better use of trade as a tool for – globally, regionally and nationally – along prosperity, resilience and environmental with the private sector and civil society, new sustainability, and to explore practical ways to and fit-for-purpose partnerships can foster turn them into reality. interdisciplinary perspectives, lead to innovative actions and mutually supportive As part of their collaboration, UN solutions and bring enhanced collaboration on Environment and the WTO intend to trade and the environment – a key step undertake research and analysis on cross- towards achieving the 2030 Agenda.

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102 WWW.WTO.ORG / WWW.UNENVIRONMENT.ORG This Report was printed on paper certified by the Forest Stewardship Council (FSC).

WTO ISBN 978-92-870-4296-5 (print) WTO ISBN 978-92-870-4297-2 (web) UN Environment ISBN 978-92-807-3713-4 UN Environment Job No: DTI/2191/GE Printed by the World Trade Organization © World Trade Organization 2018 Citation: World Trade Organization & United Nations Environment Programme (2018). Designed by Touchline

Images: American Public Power Association, Flickr, Getty Images, Hexagon Images, In Pictures Ltd./Corbis via Getty Images, Kolitha de Silva, Panos Pictures / Department for International Development, Pixabay, Shutterstock, UN Environment, UN Photo, Unsplash, USAID, USDA, WTO. Making trade work for the environment, prosperity and resilience

International trade offers unique opportunities to help tackle mounting environmental challenges while fostering economic and social prosperity. Open, predictable and equitable trade relations among countries can accelerate the worldwide diffusion of environmentally sound technological solutions and facilitate the creation and expansion of markets for sustainable products. Moreover, with the growing impacts of climate change and resource scarcity – felt in varying magnitudes across different parts of the world – trade has an important role to play in RESILIENCE AND PROSPERITY ENVIRONMENT, THE FOR WORK TRADE MAKING strengthening environmental resilience.

This co-publication by the WTO and UN Environment looks at the interplay between trade and the environment and identifies ways to ensure that trade and a healthy environment reinforce each other. It highlights the need for coordinated action, along with fit-for-purpose policies and institutions, to expand the contribution of trade for a better and more resilient environment. It illustrates how the WTO and UN Environment are working together to support countries in identifying opportunities to use trade proactively to promote sustainability and prosperity, and to strengthen international co-operation to deliver benefits for all.

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