However, there is a lot of movement by the EU elsewhere that is getting much less attention. Especially on trade and environment related issues, so I’ll go through a couple things that are good to be aware of.

First, France (or rather their new minister of “industrial revival”) is starting to make more noise with regards to carbon tariffs. In this article, which looks at this, they rightly point out that the idea was already brought forth by the Sarkozy government in the past, but ultimately didn’t get much traction. I’ve written quite a bit on carbon tariffs already, so we’ll see how much of this is hot air and posturing and how much is serious intent to expend political capital on putting in place external measures. But still, France is one of the powerhouses of the EU community so it is far from unimportant to note that their new government comes out swinging this early on carbon tariffs.

Second, European solar manufacturers are gathering for a big push to file a trade complaint with Brussels against Chinese market distortions. By doing this, they are following the lead of their American counterparts who similarly filed a case and got the US to slap antidumping duties onto imports of Chinese solar equipment. Does this mean Brussels will for sure go the same route? No, of course not, but the American precedent is likely to give them a bit of confidence in going this route. Also, for non trade nerds, this does not mean a WTO case will come out of this automatically. However, severe EU antidumping duties would make it a lot more likely as China would then see both key markets for solar basically putting up the shield against them.

Third, in EU renewable energies policy there are some tendencies that point to uncertainty beyond 2020 (which is the date that current measures stretch out to and have as their goal). Plenty of investors are likely to look at the uncertainties that surround a lot of renewable energy policy and think: Then what? The EU-RED was after all a hastily put together piece of legislation, and much hooplah has surrounded it, including doubts over its effectiveness and set of definitions. Getting more certainty on just what the thinking is in the commission will be helpful, though I’m not entirely sure that they have a firm idea themselves at this point. It’s still 8 years to go, but it’s still not exactly an ocean of time considering the lead time of investment and the current uncertainties prevailing (and all the debate that will surely arise because of this). Next months publication might give some indication of what the thinking is going forward.

Fourth and lastly, I wanted to note that DG Trade (the EU Directorate General for Trade) are rightly proud that their first EPA (Economic Partnership Agreement) has gone live with an African region. By gone live I mean it is starting to be applied with regards to four of the countries that have been involved in the negotiations: Madagascar, Mauritius, Seychelles and Zimbabwe. The EPA:s are an interesting instrument that have had some trouble in the past to produce results in the African region. The word “region” is likely to be a key word there since the complexity of the negotiations are upped significantly by having these agreements struggle for regional integration alongside development. Oh, and for those of you who began reading this paragraph thinking: What on earth is an EPA? You can find info here.
With regards to trade and environment, EPA:s hold great potential to deal with “adjacent” areas such as sustainable development as part of these bilateral negotiations. It is no secret that I am personally quite intrigued by the potential of bilateral agreements for moving environmental issues forward, so this is one instrument to watch, though it is something of a special case compared to “vanilla” FTA:s due to their strong development focus. Although that distinction of “normal” FTA is becoming more and more blurred as they are increasingly the primary tool for moving trade relations and governance forward, and with it follows a more holistic approach when engaging with them as well as, arguably, a deeper political aspect.

Skepticism ahead of Rio+20 is rife, let’s be honest. 

And for good reason: We are still a long way from having even a proper definition of Green Economy, a concept which is considered the cornerstone of the conference and of sustainable development at large. Meanwhile, the European financial crisis dominates many a political mind, with environmental conferences finishing, at best, a distant second on the current political radar. Amidst all this doom and gloom, I recently had a rare chance to hear what one of the true leaders of the environmental movement had to say about all this.

More specifically, I attended a small-group meeting on the 23^rd of April with Achim Steiner, Executive Director of UNEP. He spoke in an informal setting in Stockholm in the think tank cluster where I work. This talk was especially interesting since it concerned primarily big-picture issues ahead of Rio+20, many of which I consider supremely relevant and symptomatic also of the environmental movement as a whole. But I am getting ahead of myself.

My immediate reaction, when settling down to listen, was that you wouldn’t think the environmental movement was in any sort of crisis by just observing Mr. Steiner. Calm and collected, he talks of issues of momentous importance with requisite gravity, but also possessing the tempered intellectual detachment that undoubtedly is needed to observe the troubled state of the world as it truly stands.

Thinking about the Future

The future is a favourite subject of environmentalists, and this time was no different as it was the subject that opened up the talk. Interestingly, Mr. Steiner proposed a changing of mindset just with regards to this:

 “We used to talk about the future, but we are already in the future. In fact, we can’t even catch up with all the change that is happening environmentally to the planet.”

Agreed. In fact, a continously future-oriented approach can be tricky since it inherently lulls you into the feeling that the time that really matters is always just beyond the horizon. Indeed, it is this very collective delusion that completely runs much of the public stance towards climate change and other severe environmental problems. Larry King, the famous CNN host, perhaps said it best: “Nobody cares what happens 50 years from now”. Particularly if such caring implies that something onerous must be done right now of course.

Global Change and Society

The word change was one that also ran like a thread throughout the stream-of-consciousness style of the talk delivered by Mr. Steiner on this day. Even UNEP itself, the premier world environmental organization (and a likely candidate to expand into a true world environmental organization at some point) is changing rapidly.

On this note of change, Mr. Steiner uttered the unfortunate opinion that I myself hold, which is that Rio+20 is unlikely to be a “game-changer”. It will, in all honesty, probably not be the conference that will be talked about generations from now. Why? Steiner jots it down to the simple point of lacking political will, without going too deep into why this is. As someone who is very interested in the changing geopolitics of the world I have a few guesses, but I’ll resist the temptation to go off on a sidetrack here. The important thing, Steiner continued, was to keep the faith. Rio might not be the watershed moment that we all long for and want to see as soon as possible. However, he continued, it is the faith of civil society that is important at this juncture, and particularly in the case of a “blah” Rio+20 outcome.

Again, I couldn’t agree more. The environmental community at this point is sufficiently hard at core to withstand the blows of a failing multilateral system, but how robust is the engagement of civil society? Arguably, it’s nowhere near as robust as we would like, and further interrupted momentum can take a long time to rebuild. So, considering the implications, let’s not kid ourselves and just call a spade a spade. Disillusionment rules the roost right now, even in environmental institutions and in an increasingly skeptical civil society, whose financial reality is being turned upside down on a daily basis. An alarming signal, that Steiner also pointed out, is that the environmental movement is not all that young anymore. Many of the people working on these issues have now been in this “game” for 20-25 years. And it is exactly among these people that disillusionment seems to be most rampant. This is disturbing, but I wager that it also points to a certain subtle hubris that has existed in the environmental movement: That of success in splendid isolation. That is to say the belief that the movement would somehow organically transform the state of the world through its own momentum and without really needing outside help from “old” society.

Nope, turns out we still need politics, finance ministers and civil society to be on board with this. It’s just that the true inertia of these systems is finally beginning to dawn on the brave souls that led the initial charge of the environmental movement, and this realization is perhaps depressing a lot of these “old hands”.

In any case, Steiner continued by noting that he thinks Rio+20 is unlikely to do any damage either (a statement that is pretty indicative of the expectation level in and of itself).

Moving Forward

So what to do? Here is where Steiner contrasted the decidedly gray state of things as they stand with the key questions and actions for moving forward.

Number one on the to-do list: The ability of instituitions to create imperatives for action. That is the key question according to Steiner. The reasons for this are many in his opinion. First of all, we now live firmly in the age of the anthropocene. Put simply, human activity leads environmental change. However, this realization remains largely theoretical on most levels, and this prevents us from generating fitting responses to what is happening around us. More than this, he continues, a separate problem is that even if we had the required level of comprehension of this fact, our institutions are stuck in a largely obsolete state. The speed with which this change is happening is something our current social, political and economic systems are simply not equipped to handle. So how to change this? Well, Steiner suggests that a “big one” to embrace for the vanguard of the environmental community is becoming more economically literate. The debates on environmental issues all too often stop flat on questions of economics, employment, growth, trade and competitiveness. This will not do. The environmental community must learn to be comfortable with these questions, something they are clearly not at the moment. Put simply, the environmental knowledgebase must be economically viable. Lacking this, there is a risk that the superficial penetration of many of these supremely important concepts becomes chronical and effectively neutered.

As for UNEP itself, Steiner’s ship to sail in very troubled waters, the institution is given a lot of responsibility,but perhaps not the requisite influence and power it needs to actually exact the change that is needed. Certainly Steiner seems to think so. He suggests to take the organization to “the next level”. That is to say the institution must be transformed to be able to deal properly with the real scope of the issues that it is facing. Almost everyone agrees that environmental governance needs to be improved, and Steiner is adamant about putting in place a strong “anchor” environmental organization as a foundation from which to work. Without a strong core, governance will always suffer, and environmental issues will continue to be secondary, at best, to other concerns.

But governance of course extends beyond just the multilateral form. Arguably even more important in the coming years will be the role of governments. More specifically, for governments to properly capture in laws & regulations the societal “streams” of public choices and priorities that are currently ongoing. That is the job of government after all, and it is especially important now to facilitate public discourse and choice. Importantly, Steiner suggests that governments must also become much faster at detecting and channeling this public choice. It is a classic democratic idea, the state as a vehicle for the citizens, but it’s a very important one, and an idea that the private sector should also have no trouble coping with.

Hopes for the Future

Reflecting broadly, Steiner ended his take on the situation by wishing that one day, hopefully we will live in a world where the environment ministers are the second most important ministers after the heads of state. But to get there, the institutional and governance questions need to be solved. It is lamentable, Steiner also notes, that UNEP was born by being put into an environmental “box”. A box that it is now struggling to get out of as the true nature and scope of the challenges facing it are becoming clear.

Succinctly, a closing quote by Steiner captured much, in precious few words, about the challenge of finding constructive  paths to the future:

“To have creative interactions is very important, and that is where we are now.”

And on that note, perhaps the very idea and concept of Rio+20 does make the conference truly worthwhile after all. If just for a moment one lets go from the results-oriented mindset that demands solutions delivered yesterday, and instead witnesses the conference in a more benevolent light, seeing it as an attempt at just the type of creative interaction that Steiner hopes for, and that is so sorely needed at this stage. At least seen from this perspective, the conference might even already be a success.

Now, tuna-dolphin has a pretty bad connotation in the environmental community, where it primarily brings to mind attempts from the WTO to undermine national regulations for consumer protection and environmental improvement. This is probably not an entirely fair characterization, but let’s just say thank goodness that Shrimp-Turtle came along and restored much of the environmental community’s faith in the Appellate Body’s ability to reach reasonable decisions that involved environmental overtones.

So what does the latest part in the Tuna-Dolphin saga has to say? Well, quite some interesting stuff since it actually goes into things of systemic relevance. Most talked about is what this will mean for so called “eco-labelling” schemes going forward.

ICTSD puts it succinctly in their reporting:

Labelling policy “mandatory”, though no import pre-condition

Of greater systemic importance is the Appellate Body’s general finding that the measure at issue – the US label, which also does not permit labels that deploy another standard – is a mandatory technical regulation and thus subject to the TBT Agreement. The US had disputed this position, pointing to the fact that eligibility for the label was not an importation or marketing requirement. Instead, Washington maintained, the importance of the label was exclusively the result of consumer preference.

In siding with the panel experts, the judges criticised the US measure for establishing a single and legally mandated definition of the term “dolphin-safe”, whatever context it may be used in. “In doing so, the US measure prescribes in a broad and exhaustive manner the conditions that apply for making any assertion on a tuna product as to its ‘dolphin-safety’, regardless of the manner in which that statement is made,” the ruling concludes, referring to the question of whether the measure is mandatory and voluntary.

The ramifications of this finding for other labels are yet to be seen. But experts immediately point to the dispute of what the term “organic” means and whether organic can include genetically-modified organisms. With another label dispute in the pipeline – an Appellate Body decision in the COOL dispute is set to be released this summer – this year is set to enlighten the critical relationship of trade, market access, and labels.

Clearly, the importance of this label in terms of market impact was given quite some weight. The US probably thought they had a pretty strong case when being able to show that importation was not dependant on the label, but the AB seems to think these initiatives run deeper than that, as do arguably their effects so perhaps it is appropriate (though setting up for a more complicated analysis). Put simply, the scope for what constitutes a mandatory technical regulation seems to be nuanced with this ruling. Interestingly, this is about “owning the concept”, as much as it is about regulation. The US clearly sought to control the “dolphin safe” label, and with that will for control came WTO responsibility that the AB apparently did not think they fulfilled in a satisfactory manner.

So yes, what this means for eco-labelling remains to be seen, but perhaps something can be tentatively teased out already: These labels are certainly not regarded as some fringe activity, with clear competitive advantages being acknowledged by the AB. This is obviously dependant on the support and ambition of the label, but the focus on the attempt to control the conceptual basis of the label puts an abstract twist on eco-labelling that will make it harder to weasel ones way out of WTO responsibility through regulatory wizardry. Thus, due to their market impact, the AB seems to require a deeper approach to labelling that go beyond just importation requirements, which of course will be important if other environmental labelling schemes ramp up in speed and importance. That is to say the voluntary nature of these labels cannot necessarily just be a legalistic construction, with recognition that the economic and competitive implications might nevertheless make them “mandatory” and thus subject to TBT.

Definitely an interesting ruling coming out of the AB. I haven’t really gone into detail, but it seems to me that the decision to reject the AIDCP as an international standard still leaves the door open for more stringent and fairer labelling schemes that are more generally applicable. It’s above all the even-handedness of the US labelling measure, or rather the lack of it, that seems to have bothered the AB in reaching the conclusion that it had discriminatory effects. And indeed this would be entirely in line with the mission of the multilateral trade body.

If you are going to Rio+20 and are interested in trade & environment issues, don’t hesitate to get in touch with me and I’d gladly meet up for a coffee and a discussion on these issues!

Also, if you are interested in the “experience” of being at Rio+20, please do follow my writings here, at the Oikos blog, and at SEI:s coverage and participation in the conference.

Lastly, if you have anything interesting published on the trade/SD linkages and how they relate to Rio+20, don’t hesitate to let me know about it!

That quote is from an enjoyable article by Catriona Mckinnon that I came across recently. It sets the stage nicely for some thoughts I’ve been having lately on the concept of intergenerational climate change justice. This little string of philosophy is something of a departure from my usual writings on more closely linked trade and environment issues, but I hope you’ll enjoy it.

With regards to intergenerational justice, first a note on justice itself. It is not knowing what the right thing to do that is fundamentally at issue here with regards to intergenerational justice on climate change. Philosophical tools can help with that, such as Rawls famous ‘veil of ignorance’. As interesting as this is, reality is not quite so pure. The hard thing is to actually do these right things despite the circumstances being what they are, and not try to act as if you were connected to circumstances other than the ones you are actually in. It is ultimately impossible to separate any agent from its circumstance, no matter how philosophically rewarding it is to attempt these types of grasps at objective truth. Put more practically, if a person actually experienced Rawls “original position” and came to the conclusion that a certain course of action was the right one to take, it would not necessarily be the one he actually took once he was put into an actual circumstance, where specific incentives and constraints would apply to him. Appeals to us entering “public man mode” when looking at things such as intergenerational equity may thus be unproductive as an instructional mechanism for how to achieve justice in this area. Put simply, the gap between a truth arrived at through objective examination and how to actually apply that truth so as to achieve the result that truth suggests, is so big as to be a chasm. This since we, always and to a great degree, are forced to act under the constraints and incentives of our positioned circumstances.

To combat this fundamental divide between knowing what to do and actually acting on it on an indidivual agent level (particularly when this goes against the interests of the agent when considering the circumstance he is in i.e. alive today as opposed to tomorrow in the case of climate change) appeals are often made in various forms to a sort of “meta-solidarity” that hopes to transcend even negative consequences and circumstances of the agent in order to act on what is determined as “right” or “true” when having examined the problem as an objective one. This appeal troubles me, and strikes me as largely unrealistic to hope for as a primary working guide for action. Why should we trust the more general to ever trump the particular in terms of where our loyalties lie? It seems to me that the opposite is more “natural” in how we conduct our affairs the vast majority of the time. These appeals to meta-solidarity seem to me to be little more than the old hope for people to adopt the mindset of a “public man” that takes the interest of “society”, and basically lumping these things as if they were coherent decision-making units. But there are no such single entities in reality. Fragmentation of, and differences in, positioning between agents is what we have to deal with.

Thus, knowledge is not enough. No generation wants to be the “middle” one, the transition period where the seeds are sown but little is reaped, and control of “objective” knowledge and “truth” does not change this fact, since these are not one with action guidance.

In a few other articles and writings I’ve seen (both academic and journalistic), shame is also proposed as a potentially potent weapon to exact the change we want in terms of intergenerational climate change justice. Typically, authors are interested in something along the lines of the successful World War One poster ads that had a daughter ask her father “What did you do during the great war, daddy?” i.e. an appeal to future self-respect by acting courageously in the moment, rather than experiencing the shame of having been someone who shirked his duty during the war. Shame is a powerful tool, particularly when phrased in such an evocative manner as in that war poster, but is it enough? There is nothing humans tend to be so creative about as minimizing shame and inventing brilliant narratives for why things don’t apply to us but to everybody else. For example, note people with massive carbon footprints who do the occasional fundraisers for climate awareness, thereby OK:ing themselves in their minds. There is something positively Catholic about such mental forgiveness of ones sins, but unfortunately climate change is not a matter of belief, and that footprint does not change despite the fact that we are very good at making ourselves feel better about it.

So the intergenerational climate justice aspect is looking tough to move forward at the moment, at least without a better frame than appeals to wishy-washy concepts of meta-solidarity or the whip of shame. That in and of itself is a shame, because truly it is a voice that is handicapped in its own advocacy efforts.

1. The struggle with accommodating power shifts in international economic governance.
2. The rise and acceleration of regionalism, spearheaded through international trade and the formation of trading blocs.
3. The uncertain future trajectory of globalization and the internationalization of production processes (vulnerabilities and opportunities).
4. The decline of international top-down regulation and the rise of international “informal” law making structures.
5. The complicated new role of the sovereign nation state as impacted by points 1-4.

I will go into this general situation a bit as several of these are, in my opinion, “root” causes and drivers of many issues and problems in governing both trade and environment/climate.

In a recent speech on changes in trade policy, Pascal Lamy (DG WTO), said:

“Just in the last ten years, we have seen the share of developing and emerging economies in global GDP rise from 37 to 49 per cent at purchasing power parity.  From the beginning of this century, then, the developing economies’ share of world economic activity has risen from just over one third to nearly half.  By any standard, this is a rapid transformation. Export volumes have more than quadrupled in the last 30 years.  The value of south-south trade has increased from about one-tenth of total trade to some two-fifths.  The developing country share of global exports has jumped from 33 per cent to 43 per cent over the last decade. China’s exports have been growing at a staggering 20 per cent per annum in value terms. A similar picture of shifting composition arises in respect of foreign direct investment.  While global FDI inflows have stagnated on average over the last decade, the share accounted for by emerging and developing countries has jumped from 19 per cent to 52 per cent.”

These are incredible figures whose acceleration makes it increasingly untenable for the global community to ignore the tensions that are caused by this new order of things.

In another highly pertinent speech Lamy basically made the argument, though with appropriate subtlety, that we also need to rethink what sovereignty really means in a modern world where interdependence is greater than ever.

“With the world becoming ever more interconnected and challenges becoming truly global, governance remains to a large extent local. The discrepancy between the reality of today’s interdependence, the challenges resulting from it, and the capacity of governments to agree politically on how to deal with them is striking.”

In this situation where local politics, not global politics, determine the global governance agenda, problems arise due to it clearly not reflecting the reality of what is actually happening in terms of international interconnectedness. The old paradigm of the Westphalian order of 1648, with national sovereignty as a core, is crumbling. But it is not crumbling quietly or without friction. Indeed, the current problems we have to form a functioning equity system in terms of responsibilities on the climate side and trade (and in many other areas) is directly linked to still having this prevailing model of political national sovereignty while international commercial relations follow very different rules indeed. People see this and term it a “low trust” environment between nations. Which it is. But it is important to not stop there. Trust is built on a bedrock of common values, but what we have today are two highly different value paths experiencing friction in between themselves as they attempt to navigate around each others existence. To solve this problem of the Westphalian order of sovereignty visavi modern interdependence, I do believe like Lamy that leadership is a key issue. But it is not THAT we need leadership that is at issue. It is WHO should be in a leadership position and to what extent that is the tough nut to crack. Fundamentally however, this question of who still feeds in to the traditional paradigm of sovereignty, where culturally coherent nations are still the “units” among which the “great game” is played. In the modern commercial world of deep interdependence however, these units are less self-sufficient than ever before, restricting their operating space and redefining their traditional role as regards the outside world. Put simply, one could make the slightly vulgar argument that nations are basically a group of cultural units that keep their raison d’ etre through clear cultural autonomy. With less of such autonomy available where interdependence is no longer a choice but simply the state of things, the fundamental core that underlies sovereignty is put under considerable pressure.

To fashion “international governance” in such times is difficult.  Most everyone agrees that current attempts at “world governance”, if one can even consider such a thing to exist, do not reflect the reality of power dispersion that the world is in the middle of. Indeed, despair that we will ever be able to conjoin issues harkening back to sovereignty and national political games with the current order of commercial interdependence have lead many to simply believe that there will be no solution to issues that require this synergy. Alan Oxley, an Australian trade advisor, gave a controversial talk at a recent seminar where he posited that the current “leadership” debate is completely misaligned, and that this was proven by having 20 years of climate change work but actually going backwards in progress. Further, that unproductive sidetracks of unilateralism would be the result of continuing along the non-functioning multilateral paths that we currently have. Connecting back to sovereignty again, his fear of unilateralism is ultimately a fear that the sovereignty aspect of national politics would prevail over the global mindset, with further interdependence (including the kind that is truly needed, as is the case with climate change) shunned instead of dealt with head on. Oxley is a controversial figure, but his fear of unilateralism and its greater focus on national priorities is of course not entirely without merit. We probably have not done a very good job of sequencing our multilateral efforts, choosing to ignore fundamentals that would have been better to focus on head on first rather than hoping that a magical future of cooperation will just kind of work things out if we try hard enough. It is not lack of effort that is missing, the problems are deeper.

Is all this unkown? No, but it is clearly more intuited than it is posited outright. In its recently released biannual “Foresight Report”, UNEP laid out the 21 greatest environmental issues facing mankind. Appropriately, aligning governance with sustainable development was number one. And in governance, nothing substantial is likely to happen until we have a functioning system of equity. And the equity debate will not be solved without a clear solution with regards to relative sovereign national power, with this issue being unavoidable due to the main driver of relentless changes undergoing international commercial power and interdependence.

This move towards a period of greater conflicts is a recurring theme in my writing and I do believe that we will have to face a “time of trials” before a new system of international economic governance can emerge that better reflects a new power dispersion. Of course, the WTO will continue to be the “front-lines”, as it is where the products of the low-trust environment ends up (A good example of despair over this low trust environment here).

Now, there is an extremely important point of distinction that I believe is not being made all too often. Commercial interdependence is greater than ever before and sometimes seems to live a life quite of its own without much heed to specific nations. Meanwhile, however, commercial relations as they are governed by the WTO, which is a fundamentally member based organization, only have members that are sovereign nations. Thus ultimately these are the interests that are played out in negotiations. I believe this has profound implications for other trends, such as the move towards greater prevalence of soft law governance in many areas of international law. The reason being that there are interests lacking borders that find little other recourse than to engage in these types of initiatives. Simply put, much power in the international sphere today lack clear international institutional homes, as these tend to be dominated mostly by the compartmentalized interests of sovereign nations. Much of international power and many of the most pressing international issues seem to be becoming less and less dependant on traditional national boundaries, though our traditional paradigms of thinking about these issues linger on.

As a slight digression but along the same vein, it is however encouraging that there are attempts at “catching” some of these changes. The WTO and OECD recently announced that they are changing from measuring gross trade flows to a value-based measuring system. What does this mean? Well, it means that we will get less distorted trade figures by looking at how much value is actually contributed by each country in the production chain, rather than overemphasizing (not to mention double-counting) the final shipping nation data and country of consumption data. This has been talked about for a long time so it’s wonderful to see that this is “going official” now. These statistics will improve our understanding of modern trade flows and production chains.

Going back to the double-bind of sovereignty and commercial interdependence in a landscape of not-so-well-adapted governance structures, I recommend taking a few moments to watch the following videos. The first is a TED talk where a very dramatic Paddy Ashdown discusses related topics (TED is all about presentation after all). The second one is a talk at Chatham House where some truly big picture strokes are drawn on the current state of the world and globalization by Parag Khanna (who if I’m not mistaken is currently at one of the LSE think tanks). You might have to scroll down a bit to find it. If you are interested in these issues that I have been writing about here, I think you will find both of these talks highly enjoyable.

In my next article, I plan to touch briefly upon the intergenerational equity question with regards to climate change and the current debates on the future of economic governance. I alsohope to write a technical piece/discussion soon as I both have some new thinking and find an absolute ton of helpful new material being published. My time is of course the prime limiting factor for how quickly I can get these out here on the site.

PS: A question to readers. Does anyone know if there is a somewhat reliable indicator of world aggregate demand? Absolute trade figures are booming last I checked, but how is aggregate demand globally looking? Are we trading more and more within a landscape of overall shrinking demand or is aggregate demand following suit with the expansion in trade? This has been occupying my mind lately but I haven’t been able to find recent and reliable figures anywhere. Any trade economists out there who knows? Please write a comment or send me a private message if you know some good statistics for this.

Biofuels, by which I here mean primarily bioethanol and biodiesel, are a truly intriguing type of renewable energy. First of all, unlike most renewable energy types, biofuels can be traded on a large scale between nations. This is no small advantage when one considers the heavy criticism levied against solar and wind with regards to the rather static character of their energy supply. Second, biofuels are relatively “plug-and-play” with much of the existing transportation fleet, especially with regards to biodiesel.

In the last 10 years, and especially in the last 5, we have seen a remarkable increase in the international biofuels trade between nations. Today, it is a booming industry where many players compete fiercely for market share and international competitiveness. It is staggering to see that world biofuels production has experienced actual exponential growth. World biofuel production grew from below 30 PJ in 2000 to 572 PJ in 2009 for biodiesel and from 340 PJ in 2000 to over 1540 PJ in 2009 for bioethanol.

Why so quickly and why now? Well, other than general environmental awareness, arguably one of the most important factors has been the establishment of relatively predictable markets. For example, the EU Renewable Energy Directive (EU-RED) from 2009 has stipulated that 10% of EU transport fuel is to come from renewable energy sources by the year 2020. Together with a few other instruments, this has meant that demand for biofuels has soared in the European market as the transition to meet the target is underway.

Though the EU is arguably the most important market in the world right now for biofuels, the story is similar in many other countries as of late. In the US, the Energy Independence and Security Act from 2007 mandates an aggregate of 36 billion gallons of renewable transport fuel to be in use by 2022. In Brazil, which by the way has the oldest and most fleshed out program of any nation, has an entire national program (commonly referred to as “Proalcool”) that dates all the way back to the 1970’s. That story is a fascinating one in its own right but I’ll here just quickly mention that Brazilian bioethanol (from sugarcane) is generally considered the most price-competitive in the world. In China there has been some hesitancy towards biofuels, but in August 2007 the National and Development Reform Commission announced a Medium and Long Term Development Plan for Renewable Energy which said that renewable energy as a share of total primary energy consumption should rise to 15% by 2020, and biofuels are expected to play an important part in this target. In India, an ambitious plan has been set out to have a 20% share of biodiesel and bioethanol blended in with gasoline and mineral diesel by 2017.

With these commercial interests quickly ramping up, this has also probably been one of the most contentious areas of all in the whole trade & environment field, and that is saying something. The EU has already slapped the US in 2009 with anti-dumping duties which dramatically limited their market share on the European market. Meanwhile, draconian tariffs and highly questionable biofuel standards in terms of fairness continue to be rife in this area. Especially Brazil has been a vocal critic of the rather blatant protectionism that has been raised against its highly efficient and cheap bioethanol production. Critics argue that the EU renewable energy directive is essentially geared towards biofuels (and especially biodiesel) produced from rapeseed which, incidentally, happens to be what fits European producers especially well. Meanwhile, in the US, comparatively inefficient biofuel products made from maize have enjoyed massive subsidies while creating questionable overall environmental benefit, while also being protected by sky-high tariffs on competing imports. It really is a testament to the extreme competitiveness of Brazilian ethanol that despite these tariffs they are still a viable player on the US market.

I could go on and on about the unlevel playing field and thoroughly skewed nature of the international biofuels market, but suffice it to say for our purposes here that it is not exactly free and open in its makeup.

With that said however, there is still considerable trade going on and in 2009, net biofuel trade reached 130 PJ of energy. Trade flows are directed at the most lucrative markets, which at the time of writing is still the EU and the US. It is important to understand that this is a heavily government-dominated area, where trade policy, tax exemptions and the plethora of implementational instruments all play a significant role in affecting the markets that exist.

On a political level, this is an interesting field because it straddles goals of energy security, environment and climate, as well as development. It is very hard to separate these when looking at the production and trade of biofuels and its accompanying policies. Several developing countries are today vibrant players in the global biofuels market and it looks likely that this trend will only continue due to the natural comparative advantages that often arise for developing countries from land availability and feedstock options.

Unfortunately, trade restrictions are not the end of the controversies surrounding biofuels. The popular Food vs. Fuel debate runs like a river through all things biofuels and in all honesty one can probably not say that the debate has been decided yet. The fear is that land, which is already becoming very scarce in the world, is more productively put to use growing food for people instead of fuel. Especially, the more inflammatory arguments often went, fuel that go into cars in rich countries. This Food vs. Fuel debate is an area all of its own and if you are interested in more info, I really recommend a book, aptly titled Food vs. Fuel which is co-written by Francis X. Johnson, whom I’m currently working with at SEI.

Many people raise concern over the wisdom of proceeding with biofuels at all, whereas many people advocate that biofuels are a great and environmentally friendly option when the policies are done right. International trade complicates the matter. Since verification mechanisms are typically a lot harder when feedstock growth occurs halfway across the world from the end-market, there is much worry that huge and bustling markets will incentivize environmentally unsustainable practices in developing countries that desire market access in the lucrative biofuels trade. Mozambique, for instance, has been observed by some as being a place where national policies are outlined specifically to conform with EU criteria so as to gain market access. Some arguments have been raised that this in practice means that the governments that control the “best” markets essentially has the role of a soft imperialist that readily affects national policies in third countries. This of course raises certain troublesome political issues with regards to sovereignty. These are exceedingly tough questions and one of those ethically “sticky” areas that are a hallmark of many intersections in trade and environment policy.

I’m currently writing on the WTO law implications of biofuel trade, so I will surely return to this very interesting and fast-moving area.   

I’ll do an overview of the main issues here, because these are truly important things to understand and examine, not just in Trade & Environment, but for geopolitics at large.

Note before I get into it 1: Please understand that there is enough material here to write a book or three and that by necessity I’ll have to keep it breezy. Hopefully this small overview will iron out most of the general confusion.

Note before I get into it 2: This is highly relevant to Trade & Environment issues. I have previously noted that we seem to be moving towards a “messier” landscape of global governance where alternate pathways forward will be explored while multilateralism remains stalled. Understanding the general gist of how bilateral and regional deals interact with current multilateral WTO rules is obviously very important in such a landscape (hence the recent questions from people not usually interested in the WTO I suppose).

Note before I get into it 3: Loose use of terminology confuses a lot of people in this area. In WTO Article XXIV, which regulates exceptions to MFN through preferential agreements, there are only two things mentioned: Free Trade Agreements (FTA:s) and Customs Unions (CU:s). Thus, the key thing to get in terminology is that the vast majority of agreements that people talk about when they go on about “bilaterals” or “regional agreements” or “preferential trade agreements” etc etc are strictly speaking to sort under FTA:s in the WTO terminology. Customs Unions are relatively rare by comparison.

First things first – Yes, it is allowed and possible to veer from the principle of MFN in the WTO through FTA:s (whether they be bilateral or regional agreements) due to Article XXIV in the GATT. There is also a special “enabling clause” adopted by the WTO in 1979 that particularly and even more favourably allows such exceptions between developing and developed countries and between two or more developing countries.

Great. So WTO law does technically leave room for exceptions to MFN, and countries lately use these exceptions a lot to create preferential trade situations and “play favourites” through these agreements. So what is all the fuss about? Let me do my best at explaining.

The role of preferential trade agreements have been debated since the very formation of the GATT itself and the history of this is fascinating. None other than John Maynard Keynes himself was at first against the rule of MFN, arguing with passion for keeping the freedom to impose discrimination as a country saw fit i.e. “preferentialism”. Of course, he disliked the word discrimination and phrased it rather as freedom of choice for countries to conduct their own trade policy rather than being universally bound by MFN (and arguably thinking in no small part about the welfare of the fraying British Empire).

Displaying some impressive intellectual flexibility however, he later on came to embrace the MFN criteria fully and instead became a vehement opponent to the preferential “freedom” that he had previously espoused, fearing instead that it would lead to just the type of rampant protectionism and dangerous regional blocs mentality that had been at cause for the second world war.

Thus, Keynes ultimately came to hold the view that lately has become pretty much unanimous among trade economists: MFN good, preferential possibilities bad because they ultimately lead to beggar-thy-neighbor policies between nations by opening up the possibility of “playing favourites”. As we all know, when someone is the favourite, there are others who aren’t, and this leads to bad political relations. Add a couple of other negative factors that hollows out trust between nations and before you know it, you have world war two.

Historically, it’s really interesting to note however that this unanimous embrace of MFN didn’t become prevalent until pretty late in the game. When Free Trade Agreements (FTA:s) were still relatively rare in the world trading system, a lot of people did not see much harm in them. Tipping my hat to Jagdish Bhagwati of Columbia, it could perhaps be fair to say that he saw where this “death by a thousand cuts” was taking us, giving some early warnings about the dangers of setting upon the path of undermining the principle of MFN through exceptions.

Wait, you may say, if this possibility for “preferentialism” was recognized as bad by both Keynes and as of late by everybody else, then why was Article XXIV instituted in the first place? Surely there must be lots of explanation in its origin containing rigorous logic and very carefully laid out reasons?

Nope.

The origins of this main MFN exception provision of GATT Article XXIV is shrouded in mystery. Bhagwati posits that it was probably envisioned as being used extremely rarely. If that is the case, paying mind to the hundreds of FTA:s we now have and counting, that rationale was mistaken.

If one looks at the text of Article XXIV, it actually does seem to put up quite harsh requirements. The definition in Article XXIV says that duties and regulations on substantially all the trade between the two trading partners should be removed for an agreement to qualify as a Free Trade Area. Also, these agreements cannot mean that the “duties and other regulations of commerce” are higher to third countries than they were before the FTA was made (i.e. leaving the door arguably quite open for huge trade diversion while focusing more on the technical similarity of treatment as before the FTA).

But wait, you say, surely a lot of the regional and bilateral trade agreements that we are seeing can’t qualify for such a high treshhold? What exactly does “substantially all the trade” mean? From a textual interpretation, such a critical view is perfectly understandable, as it does seem like a very high treshhold to fulfill to qualify for MFN exception. In 1994 there was an interpretative aid to article XXIV adopted that tried to give some clarity on this mysterious Article. Maddeningly, the interpretation of Article XXIV (8) where the “substantially all the trade” requirement is located, is left out however. Why? Perhaps due to a mix of disagreement, confusion and an unwillingness to rock the boat when everybody is “doing the preferential”.

The WTO Appellate Body gave a bit of guidance in the case Turkey – Textiles where they essentially said, speaking of customs unions, that the meaning of “substantially all” was not agreed upon by WTO members, but that it “accords some flexibility” (to customs union members). They also said that it did not mean “all the trade” and it definitely meant more than “some of the trade”. And that was about as much clarity we received from the Appellate Body in this case regarding the meaning.

With such confusion mixed with widespread use, it’s no wonder that the late Gardner Patterson, a former Deputy Director General of the WTO remarked:

“Of all the GATT articles, this is [Article XXIV] one of the most abused, and those abuses are among the least noted. Unfortunately, therefore, those framing any new [free trade area] need have little fear that they will be embarrassed by some GATT body finding them in violation of their international obligations and commitments and recommending that they abandon or alter what they are about to do.”

This statement succinctly summarizes the situation, although the “least noted” part is probably not true today, now that people are getting worried about just where this will all lead.

There is no consensus rule in the WTO with regards to making Free Trade Agreements for WTO Members. The only requirement is that they (when using Article XXIV to avoid MFN) have to be notified to the other WTO members. Now, technically, there is a requirement that these notifications are to be examined in the Committee on Regional Trade Agreements (CRTA) with regards to their WTO consistency. However, due to never being able to reach consensus, which is required, these reports are basically never adopted, leaving this to be of marginal relevance in practice.

On a final technical note: Article XXIV is thus widely used to avoid MFN, which is Article I of the GATT. Can Article XXIV be used as a defence in other WTO Agreements than the GATT? The jury is still out on this one with regards to general applicability, but trade professor Michael Trebilcock of University of Toronto posits that Turkey-Textiles gives certain indication that this may be possible if another WTO Agreement “incorporates” Article XXIV of the GATT by referring to it somehow (though not necessarily directly).

So what does this all mean?

It means, in my opinion, that by leaving the door open for “preferentialism” through Article XXIV we did not inoculate the trading system to the “beggar-thy-neighbor” policies that brought the world to the brink of destruction once before.

This was all well and good when there were still relatively few FTA:s in existence, but with the “explosion” of agreements that utilize the exceptions to MFN, we are starting to see some eerie similarities to the “Untrusting Trading Blocs” situation that ultimately ended so poorly in the 1930’s. Particularly as I believe there is a high degree of risk that such trading blocs will tend to be dominated by a single economic hegemon. Proponents for this approach tend to say that its main benefit lie in being able to achieve a deeper degree of economic integration due to having less players at the table. This of course can be true. But it’s important to not stop there when looking at this. Assumptions tend to be made that once these huge regional blocs have been built up through preferential agreements and “playing favourites”, that they will then just naturally sit down and start negotiating and integrating with each other. I believe this to be a Pollyanna version of reality, and am quite unconvinced that it will happen. More generally, I believe it was simply a big mistake to put in exceptions to MFN, because it has made it much easier to avoid the hard questions on global economic governance cooperation.

Yet here we are.

For our purposes here, I hope this basic primer on a deceptively deep area of international trade has been useful.

Other than being something of a downer, there is more subtlety to his statement than what one might see at first glance. Why exactly should we assume, as the statement does, that these important things are to be held in a noose by the poor economic outlook? When did the hope for progress in these areas transmute into waiting for “better times” to come along and rescue us, somehow magically sweeping along everything else with it?

If one buys the argument that we are living in a world where physical resources are constrained and likely to get moreso in the coming decades, then there must by necessity also be limits to economic growth along traditional models of resource usage to achieve that growth. Put differently, we are not in a position to expect a prolonged period of unabated growth along traditional models anytime soon. Thus to say that we cannot solve climate change or coordinate macroeconomic policy because the financial times are bad, is essentially to make the argument that to progress in the very areas that would take us away from this narrow and unsustainable view of economic growth, we must first have lots and lots of traditional economic growth! This is an interesting catch 22.

In terms of “realpolitik”, Lamy is right of course. Strong progress looks unlikely to happen in these crucial areas at this point (multilateral trade, climate change & “macroeconomic coordination”). But, unwittingly, such statements go a long way to show how much our mental models still need to change for us to even have a prayer of solving these issues. When blaming non-proggression on the financial crisis it becomes a perfect example of how the truly major and important issues of our time are still mentally construed as something exogenous to the “normal” of continuing with traditional growth models that we are familiar with, and everything else having to adapt to that. Put simply, what in fact are the most important issues is in practice seen as the “other stuff” to deal with once the “real stuff”, i.e. traditional economic growth, is taken care of. The UN in a number of reports have warned against this type of thinking, but it still seems highly prevalent. Quite literally, sustainable development and other important issues are not “core” in our economic thinking to the degree that they need to be for truly positive change to happen in these areas.

Among many environmentalists and environmental economists the argument is often heard, perhaps most famously in the book Limits to Growth, that at some point attempts at continuing on a path of unsustainable economic expansion and growth will lead to a form of perma-crisis that simply does not let up without abandoning traditional growth models. What we now term “crisis” from our expectation of unceasing economic growth will become a state of continued economic contraction that is caused not by inefficiencies or market dynamics, but simply by hitting inherent limitations from conducting unsustainable economic activity on a planet with finite resources. This state, warns the environmentalists, is unavoidable unless the transition is made ahead of time to a growth model that manages to do a “decoupling” of the concept of economic growth and environmental degradation, separating them from each other.

Lamy’s statement shows that we are still a long way off from this fabled decoupling of growth and quality of life from environmental degradation and overexploitation. Indeed, it would seem it is still hard for us to even think about it, steeped as we are in the traditional growth model that currently prevails.

This problem of adapting mental models to account for changing circumstances is at the heart of some of my studies as of late. I’ve come to read much interesting work on the psychological aspects of decision making and now believe that this has a lot of relevance for progress in climate change. Primarily I have looked into the findings of behavioural economics, which I believe holds a lot of keys for understanding some of the subtler aspects of how the mind works when complex decisions must be taken.

It can be pretty grim reading at times. Especially since the impression I get is that environmental progress, and particularly the type that goes toward solving the “ultimate intangible” of climate change, seems to be as much a fight against our own basic psychological wiring as it is a moral struggle.

From reading primarily Nassim Nicholas Taleb and Kahnemann/Tversky, it’s become clearer to me that not only are many of the issues confronting us on the climate side of things technically difficult, but also that they quite literally are psychologically punishing for us to confront. According to much of the recent research that’s been done, our emotional wiring is essentially in an obsolete, or at least very unhelpful, state with regards to dealing effectively with the climate crisis that we face. This due to a rather simple reason: the human population at large does not particularly like dealing with intangibles. A sobering thought I had from this was the following: If our “climate survival” thus depends on us transcending a large part of what makes up our own hardwired emotional system, how good are our chances really? Psychological aspects of environmental and climate work is a field within which I am quite sure there are fascinating discoveries to be made. Hopefully, some of the findings in general decision making theories will find their way to being translated to futhering environmental aims as well.

On a more humorous note and speaking of Lamy, is it just me, or wouldn’t it be better to have a go-getter like him at the head of the UN where dynamism is always needed and to have a “grey eminence” like Ban Ki-Moon heading the stability- and predictability-minded WTO? I would be all for some type of “visiting boss” program instituted here between these two organizations to try out my theory…

First, the UN very recently came out with what perhaps could be described as a spiritual successor to the Brundtland Report that came out in 1987 (which popularized the term ‘sustainable development’). In this new report, which you can read and check out here, the attempt is essentially to try and further make sure that this concept of sustainable development is actually operationalized.  It’s a good initiative, since without further leadership on this concept it has the distinct possibility of degrading into a shorthand for being interpreted as everybody getting everything they want, which would be an unsustainable concept if ever there was one.

I have not had time to go through it in detail, but there are some truly key concepts included in this report. The move away from GDP (on which there is more here), the crucial importance of developing actual sustainability indicators and get some measuring going, and several other “big ones” are brought up.

Trade is also mentioned in several places, essentially by saying that all this needs to be done without instituting unfair trade practices and creating green protectionism.

Point 27 I think is so important that i’ll quote it here in its entirety:

“Governments should establish price signals that value sustainability to guide the consumption and investment decisions of households, businesses and the public sector. In particular, Governments could:

a. Establish natural resource and externality pricing instruments, including carbon pricing through mechanisms such as taxation, regulation or emissions trading systems, by 2020;
b. Ensure that policy development reflects the positive benefits of the inclusion of women, youth and the poor through their full participation in and contribution to the economy, and also account for the economic, environmental and social costs;
c. Reform national fiscal and credit systems to provide long-term incentives for sustainable practices, as well as disincentives for unsustainable behaviour;
d. Develop and expand national and international schemes for payments for ecosystem services in such areas as water use, farming, fisheries and forestry systems;
e. Address price signals that distort the consumption and investment decisions of households, businesses and the public sector and undermine sustainability values. Governments should move towards the transparent disclosure of all subsidies, and should identify and remove those subsidies which cause the greatest detriment to natural, environmental and social resources;
f. Phase out fossil fuel subsidies and reduce other perverse or trade-distorting subsidies by 2020. The reduction of subsidies must be accomplished in a manner that protects the poor and eases the transition for affected groups when the products or services concerned are essential.”

That’s quite a list. From an economical viewpoint, what this means is of course that things will have to get a lot more expensive if we are serious about sustainable development. Not exactly news for anyone engaged in climate and environment issues, but still as unpopular as ever with the general public. However, I’m very glad they went after subsidies so directly. The current levels of fossil fuel subsidies are a disgrace, and subsidies more generally can pose a serious threat for sustainable change. As the report rightly alludes to, this goes especially for countries that do a less than impressive job of actually disclosing their subsidies.

Time will tell what kind of impact this report will have. To be sure, it has the stamp of approval from many key figures in international politics. The key realization that the report makes clear early on is that we don’t really need more sweeping statements about the wonders of nature or the fight against poverty. What we need is to actually put those statements into practice and “operationalize” what we already have. Put simply, to make it actually work. This report, between the lines, is thus probably also equal parts frustration and reminder that we are moving much too slowly on these issues. A quote I found poignant may illustrate:

“There is another answer to this question of why sustainable development has not been put into practice. It is an answer that we argue with real passion: the concept of sustainable development has not yet been incorporated into the mainstream national and international economic policy debate. Most economic decision makers still regard sustainable development as extraneous to their core responsibilities for macroeconomic management and other branches of economic policy. Yet integrating environmental and social issues into economic decisions is vital to success.”

There’s no real need for comment on that and I simply couldn’t agree more. This report is a major one that will likely be referred back to for years, so it is worth checking out to see where the UN is currently at with regards to sustainable development.

Speaking of operationalizing sustainable development, this is exactly what the buzz concept of “green growth” is about as well. I highly recommend that you read this new article by the SG of OECD in its entirety, as it is a good example of the strong connect there is between what the UN says needs to be done now about sustainable development and what the OECD is talking about with regards to green growth. It would seem a lot of organizations are basically on the same page about what is needed at this point, though the use of the terminology differs somewhat. It is no secret that not enough progress is being made in global, regional and national environmental policy right now. Hopefully we will start to see a strong compounding effect that gets us out of the current rut and moving forward strongly on sustainability and climate issues.

In the trade world, people have been tightly focused recently on the so called raw materials case, in which China lost against the US, EU and Mexico with regards to their right to impose export restrictions on certain key “rare earths”. These are essentially mining products that are crucial for a multitude of manufacturing purposes, where the export to the world currently happens to be dominated by China. This skewed supplier picture has had many countries worried for a long time about predictability and access to rare earths, further compounded by allegations that China purposefully instituted policies to favour their own manufacturers with rare earths for below market prices. The recent report by the AB was thus a major event not just for trade but for international politics and it signifies some very important clarifications on export restrictions that will undoubtedly have an effect for the future of attempting these types of measures. It was especially interesting to see China use an environmental and conservational rationale (among other things) as attempted justification and not getting away with it.

In all honesty, this decision was expected, and I do think the AB made very much the right decision. The temporary nature of Article XI 2(a) of the GATT doesn’t rhyme very well with how the Chinese conducted their policy of controlling rare earth exports.

Now, a really interesting thing to come out of this case for the intersection of trade and environment is of course the AB’s reasoning on article XX. In the case, China made the claim that even if they were found to be in breach of their obligations to remove their export duties, as seen in their accession protocol, they could still be excused under one of the exceptions found in Article XX of the GATT. The AB did not agree, hence the hooplah in the trade world that finally we have some more clarity about the applicability of Article XX outside the GATT.

Does this mean that Article XX can never be used for any of the WTO agreements, most especially the subsidies agreement and the TBT? No. An accession protocol is certainly not a WTO agreement in the same sense that the subsidies agreement is, and one should not go too far in thinking “that’s it” for article XX justification of anything other than the GATT. What this gives is an indication about a certain sense of restriction for wielding article XX left and right. However, the truth at this point is that we simply don’t know about its further applicability other than in the strict sense when applied within the confines of the GATT. Perhaps future cases will clarify since it doesn’t seem impossible that using article XX for other WTO agreements might come up again before long. For a delightfully wonky bonanza of speculation on the applicability of Article XX, go here.

Just a brief note also on the continuing spat between the EU and almost everyone else on introducing emissions permit requirements for international flights. This is quickly getting vitriolic and both China, outright, and the US, de facto, have told its airlines not to comply with the EU’s directive regarding their flights. If you are not familiar with the background to this, or just generally want an excellent discussion of it, go here as Joshua Meltzer of Brookings has made a fine summary of what this actually means for international trade (unsurprisingly, the usual suspect of article XX rears its head again). This row still centers more around issues of national sovereignty than it does around WTO commitments, but that could change very soon as there are very strong trade implications to the EU’s measure here. In any case, the EU does not seem to be backing down, as can be seen here.