Navigating the climate-trade nexus in Asia: A path to sustainability

The Climate Challenge for Asian Trade Policy

Asia is home to over half of the world's population and boasts diverse landscapes, from bustling urban centers to extensive agricultural regions. However, this diversity also makes Asia particularly vulnerable to the impacts of climate change, such as rising sea levels, extreme weather events, and devastating floods. These climate challenges intersect with trade policies, especially as the world shifts towards carbon reduction and green technologies. Yet, discussions among trade policymakers about the impact of environmental policies on trade practices have been limited.

This limited dialogue is partly due to the global focus on building consensus to combat climate change, as seen in the United Nations Framework Convention on Climate Change (UNFCCC). With the 28th Conference of the Parties (COP 28) scheduled for late 2023 in Dubai, the importance of considering the trade-related implications of climate measures is growing. Environmental provisions have been included in various trade commitments for some time, but the urgency of the climate crisis is pushing trade policy into the forefront.

The interconnectedness of environmental issues across borders has long been recognized, from concerns about acid rain to ozone depletion. However, global climate change challenges are on a different scale, leading to international treaties like the Kyoto Protocol and the Paris Agreement. These treaties obligate governments to take action to reduce greenhouse gas emissions.

As these commitments are put into practice, it becomes increasingly important to consider how climate-related policies will impact trade flows and practices. While there are some multilateral efforts within the World Trade Organization (WTO) to address trade and environmental concerns, there are currently no specific global trade agreements focused on sustainability. The complexity of trade, sustainability, and climate issues has led to alternative approaches, including regional forums like APEC and ASEAN, as well as bilateral initiatives, to address these emerging challenges.

A Multilateral Approach: The Role of the WTO

The establishment of the World Trade Organization (WTO) emphasized sustainable development and environmental protection. However, WTO negotiations have primarily centered on reducing trade barriers and eliminating discriminatory practices. The most specific environmental element in the WTO's agenda is the negotiation on market access for environmental goods and services initiated in 2014.

WTO rules allow member countries to adopt trade-related measures for environmental protection under certain conditions, including non-discrimination and avoiding unjustifiable discrimination. While WTO dispute mechanisms have addressed trade and environmental issues, challenges within the WTO's dispute settlement system have raised questions about its effectiveness.

In light of these challenges, regional organizations like APEC and ASEAN have played vital roles in advancing sustainability in trade. APEC, for example, committed to reducing tariffs on environmental goods and facilitating discussions on sustainable growth. ASEAN adopted the Framework for a Circular Economy, demonstrating its commitment to sustainable development and climate goals. Both regional organizations have provided platforms for member economies to collectively address environmental challenges in trade.

ASEAN Initiatives: Embracing Sustainability

The Association of Southeast Asian Nations (ASEAN) recognizes the need for sustainable growth and a circular economic model. ASEAN's Framework for a Circular Economy outlines strategic priorities, including harmonizing circular products and services, trade facilitation, innovation, sustainable finance, and efficient resource use. ASEAN aligns its trade agreements with sustainability goals, covering topics such as climate, the green and blue economy, circular economy, energy, labor, and the Sustainable Development Goals.

Environment Chapters in FTAs: A Step Towards Sustainability

Bilateral, plurilateral, and regional trade agreements have become vehicles for embedding environmental and sustainability commitments. While early agreements like the US-Singapore FTA included basic environmental chapters, recent agreements like the revised US-Korea FTA have strengthened commitments and established dispute mechanisms for environmental provisions. The European Union's trade and sustainable development chapters encompass environmental, labor, and human rights concerns and have been included in negotiations across Asia.

Moreover, plurilateral agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) feature environmental chapters that promote robust environmental protection and law enforcement. While more FTAs include environment chapters, implementing these commitments, particularly those involving collaboration, remains a challenge. Environmental chapters are typically excluded from the general dispute settlement mechanism found in FTAs.

Green Economy Deals and Agreements in the Asia Pacific

Countries in the Asia Pacific region are exploring alternative economic policies beyond FTAs to address sustainability in trade. For example, the Singapore-Australia Green Economy Agreement and the Agreement on Climate Change, Trade, and Sustainability (ACCTS) initiated by New Zealand, Costa Rica, Fiji, Iceland, Norway, and Switzerland aim to address environmental goods, services, fossil fuel subsidies, and eco-labeling programs. Climate and economic cooperation initiatives include the UK-Singapore Green Economy Framework and the Indo-Pacific Economic Framework (IPEF).

Conclusion: Navigating the Climate-Trade Nexus in Asia

As the world accelerates efforts to combat climate change, it becomes imperative to align trade policies with climate commitments. The intricate interplay between trade and climate policies represents a key challenge, particularly in Asia. This region, characterized by climate vulnerabilities and robust trade networks, has the potential to accelerate climate-related solutions.

Balancing trade and sustainability is the crux of the challenge. The efforts of regional organizations, bilateral agreements, and alternative trade initiatives in Asia reflect a growing commitment to addressing this multifaceted issue. Trade can either exacerbate or mitigate climate-related challenges, making it crucial to bridge the gap between trade and climate policies.

This inaugural piece in the Asian Trade Centre's series provides a snapshot of the current landscape of trade policies in the region regarding climate and sustainability. It sets the stage for deeper explorations into specific challenges and necessary adjustments within trade rules and procedures. As the climate crisis intensifies, Asia stands at the intersection of challenges and opportunities, and addressing these gaps is not just a necessity; it's a pathway to sustainability amid an increasingly uncertain climate.