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Talking Trade blog

Crafting a Climate Trade Agreement (CTA)


Published 17 August 2021

Last week’s Talking Trade examined the growing momentum within the US for creating a digital-only trade agreement. As I noted, this idea is more challenging than might be anticipated. Yet it remains important for the US to have a forward looking or proactive trade agreement.

A much better idea is to start a new wave of trade arrangements.  Modeled after the digital-only agreement, the Digital Economy Economic Partnership (DEPA), I propose creating a Climate Trade Agreement (CTA).[1] 

A CTA delivers two key objectives.  First, it provides a mechanism for including a wide range of supportive partners.  Second, it tackles a vital topic of growing importance for all. 

The climate change and trade nexus is challenging.  Current trade rules can address many important topics of relevance to climate but traditionally, clear linkages between the two are limited to sustainable development or environment chapters in some free trade agreements. 

Such chapters are typically disappointing for most.  They do not go far enough to satisfy the climate or environment or sustainability crowd and they make the trade side uncomfortable as maintaining alignment with existing trade rules can be tricky to manage. 

Part of the problem is that the entire policy landscape for managing sustainable trade with a focus on climate or environment remains at an early stage.  Climate has been managed by officials through the UN Framework Convention on Climate Change (UNFCCC).  Trade officials, agencies or ministries may participate, but are not driving the agenda.   

Many of the ideas circulating to address climate and trade are quite new as well.  It isn’t entirely clear, as an example, what sort of trade implications will come from the growing use of carbon border adjustment taxes.  The trade consequences of green subsidies are likely to be significant, but uncertain.

There are some elements of a trade and climate agenda with more consensus, including the potential inclusion of clauses on pollution or managing endangered species.  Some trade agreements include commitments to sign on and implement a variety of climate-related international treaties and conventions. 

The critical importance of the “climate and trade” agenda is clearly crying out for a suitable response.  Yet existing mechanisms for delivering results seem limited.  Adding climate to trade agreements, as noted above, tends to be unsatisfactory.  Asking global or regional institutions to manage any possible trade-related fallout from climate actions taken by the UNFCCC or others is also problematic.

One solution that seems achievable is to create a new style of trade agreement, the CTA.  It could pull out the most useful and innovative element of a digital counterpart, the DEPA.   

DEPA was designed by Chile, New Zealand and Singapore to be “modular” in nature.  It contains a mix of provisions: some that could be viewed as legally binding in areas where common consensus already exists, with some provisions that are more cooperative in nature to allow time for officials and regulators to cohere.  The DEPA has already entered into force for New Zealand and Singapore with new members likely join shortly.

Members can sign up to the entire DEPA deal or can “pick and choose” modules for inclusion in other trade arrangements.  The use of common modules and language means that globally important elements can be more aligned as these ideas are spread and replicated elsewhere.

The climate and trade agenda seems uniquely suited to the DEPA’s modular approach.  The original CTA could contain a similar mix of settled commitments on topics that are regularly added to trade agreements by members and a range of new topics that require dialogue and cooperation.  Topics that are viewed as sufficiently “ripe” could be adjusted in the future.

In fact, the CTA might also pick up another useful innovation from a different digital-only trade deal, the Digital Economy Partnership between Australia and Singapore.  This DEA not only has a range of commitments, but also a series of Memorandums of Understanding (MOUs).  These MOUs cover topics that are clearly important, but have even less clarity how to usefully incorporate the ideas into trade arrangements. 

Equally useful for a CTA, the use of MOUs may make it easier to adjust the CTA in the future.  Rather than get new approval for CTA adjustment, members could conceivably rework the attached MOU as topics develop.  The MOU adjustments could include all CTA signatories or only a few.

Such a flexible approach to trade arrangements is new.  It will likely cause heartburn for lawyers, but it may be the most sensible way to manage such new and evolving topics as climate and trade. 

A well-done CTA could be of interest to a very wide range of potential members.  Climate concerns are not limited to only neighboring countries or to developed members or to a bewildering variety of subsets of members.  The modular approach would allow potential members to move ahead at differing speeds, rather than wait for all members to be ready.  It would not be as easy to hold negotiations hostage over specific provisions as some other approaches. 

The CTA could, at some point, serve as the foundation for new global trade and climate rules.  Provisions could be shifted into different organizations, like incorporation into the World Trade Organization (WTO) or into UNFCCC treaties.  Or it may simply remain as a stand-alone arrangement and be adjusted over time.

The basic point is that a CTA would allow important work on climate and trade to get underway and should draw in meaningful participation from a wide set of potential partners.  Successfully addressing the global challenge of climate while managing trade implications is critically important to us all.

***

[1] Even better, CTA also stands for “Call To Action,” which seems particularly appropriate for a climate and trade agreement.

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Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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