For this assignment you will take on the role of a government adviser and select one of the issues below and brief a policy maker on the issue including the background and your recommendations/propose

1 Trade and Green Economy 1. Introduction The potential trade risks of a transition to a gre en economy — protectionism, conditionality, subsidies — are is sues of long standing and not unique to the green economy. The u rgency of the global challenges which a green economy transfo rmation is intended to address, and the scale of the actions b eing taken by many countries to build green economies, does howev er bring renewed focus to these risks. At the same time, the new greening of markets asso ciated with a green economy may provide opportunities for many developing countries to find global markets for goo ds and services with low environmental impacts. This will, however, test the supply capacities of developing countries as re flected, for example, in domestic trade infrastructure. The green economy offers an opportunity to improve both global trade governance and the domestic trade envi ronment to ensure that trade contributes positively to a green economy in the context of sustainable development and poverty eradication.

2. Policy options for green transformation and trade implications As a growing number of countries adopt strategies and policies to promote a transition to a green economy , this will have implications for trade flows and trading oppor tunities. The following external and internal measures and pressu res, not necessarily mutually exclusive, may serve as drivin g forces to a transition to a green economy via international tra de.

1) Local regulations and rules. For example, some U .S. states have imposed recycling requirements on newsprint, w hich is likely to have significant implications for the for est industries of its trading partners. 2) Environmentally-driven consumer pressure from ma jor customers: For instance, the Chief Executive Office r of one of Canada’s most competitive paper companies remarked that the pressures from his European customers have become s o severe that he is now running his mills to European, rathe r than Canadian, standards. 3) National legislation and plans: For example, man y Chinese business leaders expect to face much stronger envir onmental regulations and an environmental tax over the next five years under China’s 12th five-year plan. Many are buildin g major changes into their long term trade and investment p lanning to accommodate the need for sustainable development. 4) Unilateral policy measures: Many countries seem committed to the use of trade measures to persuade other coun tries to change their domestic environmental practices, desp ite the fact that many measures may be contrary to GATT-WTO rule s (see Table 1 and discussion). 5) International environmental, climate change agreements/conventions: The outcome of negotiations on climate change will have an influence on trade, e.g ., by affecting the consumption of various natural resources which are traded and shifting demand for various low-carbon technolo gies (see Table 1). Some countries have expressed concerns that a gree n economy transition could cause their export industr ies to experience declining demand or competitiveness. 1 These concerns can be real and need to be addressed throu gh pro- active policies at both national and international level. 2 Competitiveness and environmental standards are of ten considered enemies. There is evidence, however, tha t trade policy and environmental policy can act as compleme nts in the development of conditions within which firms can in novate and become more internationally competitive. 3 Germany and Japan have amongst the toughest environmental regimes in the world, yet both are among the most able to compete interna tionally.

Their strategies are clear: innovate now and captur e markets in the future. It should be stressed, however, that te chnological capacity is key to such success. Table 1 shows three broad categories of policy mea sures:

regulatory measures, fiscal measures and trade capa city development measures which may affect trade. The 't raffic lights' in the right-hand column provide simple signals by assessing GATT-WTO rules and disciplines. Green light illustr ates that policy measures are generally free from trade concerns. Ye llow light requires moving slowly with caution and underlines the need to revisit the rules to seek further clarity. Red ligh t means "stop" or “no-go-zone” under current WTO rules. The following sub- sections discuss each of these green transformation measures, their trade-related concerns and proposed responses . 1 See Cosbey‘s (2010) analysis on trade and competitiveness impact. 2 See the subject of Rio 2012 Issues Brief #4 on New Growth Strategies in a Green Economy.

3 For example, Japan refused to shelter its industry from the oil shocks of the 1970s. Indeed, it increased the domestic pressure b y adding taxes to the price increases. This contributed to Japanese industry’s inventing the energy efficient technology of the 1980s. March 2011 Produced by the UNCSD Secretariat and UNCTAD No. 1 RIO+20 Issues Briefs www.uncsd2012.org 2 2.1 Environmental regulations, standards, labelling and certification Concern : There is a large body of environmentally-related rules and regulations. 4 The regulations, standards and labelling may represent significant obstacles to market entry. Suggestion : One type of standard with potential to promote a green economy dictates the energy efficiency of a p roduct in use.

But different countries all have different standard s, meaning higher costs for exporters and less dissemination. An international harmonization of standards and labelli ng would be a solid step towards lowering entry barriers, but the re is no obvious forum for such harmonization (Cosbey, 2010). 2.2 Unilateral border carbon adjustments (BCAs), ai r and sea transport levies Concern : The risks associated with environmentally-related border tax policies are that they may be disguised protection of domestic firms. Countries could face significant di fficulties in establishing that the proposed border measure would be compatible with WTO rules. In particular, border ta x adjustments or international transportation levies have the pot ential to impact negatively trade and the conditions of competition for developing country exporters, or to penalize them unfairly. Suggestion : The solution may be regime design, ideally based on internationally agreed principles (Cosbey, 2010). 5 Nevertheless, the issue of BCAs will likely remain on the table i n the negotiations on climate change, in the trade negoti ations of the Doha Development Agenda and in the multilateral tra ding system in the near term. Some have suggested that a firm M ultilateral Environmental Agreement (with explicit reference to trade measures) can form the basis for origin-based charg es on traded goods. 6 This requires strong carbon monitoring, reporting and verification (MRV). In the absence of a global agre ement, MRV may be developed on a bilateral or regional basis. 2.3 Subsidies and domestic support mechanisms Concern : Recently, there have been a number of trade dispu tes related to 'green subsidies' and domestic support f or green sectors. For example, the US government has petitio ned in late 2010 to take China to WTO dispute settlement for it s support to clean energy sectors. One question is whether envir onmental threats like climate change might provide a strong enough base to re-examine the WTO rules on domestic support to ensure that renewable energy can be promoted effectively. 4 For details of a sectoral analysis, see Cosbey, 20 10. 5 For example, one of the key negotiation issues on taxing international transportation is how to build on special and diffe rential treatment principle so that small and vulnerable economies, such as small island states dependent on tourism trade, are protected. 6 See Sussex Energy Group Policy Briefing, No. 8, Ma y 2010. Suggestion: In discussing specific subsidy-related rules of relevance to climate change, some have suggested th e careful revival of an expired clause in the WTO subsidies a greement specifying that certain environmental subsidies wer e "non- actionable" (meaning that they are permitted) as a way of encouraging support for clean technologies (ICTSD, 2008). In this regard, developing countries have proposed that the environmental subsidies they provide shall be consi dered “non- actionable” under WTO rules. 2.4 Technology transfer and intellectual property r ights Concern: Intellectual property rights (IPRs) have long bee n a tool to promote innovation and the dissemination of new ideas and inventions. 7 The crucial issue is how they help or hinder developing countries’ gaining access to technologie s and enhancing indigenous technological capacity for the ir development (Cosbey, 2011). Suggestion : A global green economy package could promote the faster development of green technologies through co llaborative arrangements that enshrine the sharing of technolog ies and the utilization of financing mechanisms like the green climate fund to acquire and place in the public domain IPRs for key climate- related technologies. These types of initiatives wo uld be a solid step toward a green economy (ICTSD, 2008). 2.5 Liberalization of environmental goods and servi ces Concern: Liberalizing trade in environmental goods and ser vices (EGS) has been on the agenda of the WTO Doha Round since the beginning. Yet, very little has been achieved. Two particular areas of controversy involve "dual use" technologies that may be used to reduce emissions as well as meet other consumer needs, and agriculture products. Suggestion : Any liberalization package will need to be complemented by a set of financial and technical as sistance measures. The impact of trade liberalization for cl imate change mitigation efforts will only be as effective as the broader enabling framework within which it is put into play (ICTSD, 2008).

Developing countries need to have the prospect of d eveloping capacities to compete domestically and internationa lly in the EGS industry. 7 Odagiri, H. et al eds. (2010), Intellectual Property Rights, Development, and Catc h Up: An International Comparative Study , Oxford University Press. 3 Table 1. Examples of green transformation measures and related trade implications Green transformation measures Assessing GATT-WTO compatibility Examples of regulatory measures WTO-rule compatibility and conditions Energy efficiency standards 1) These have been introduced in most OECD countrie s, but also in certain developing countries.

2) In 2006, 57 countries with 80 percent of the wor ld’s population had energy efficiency standards and labe ling programs in place. Yellow light: WTO’s Technical Barriers to Trade agreement prohibi ts standards that create unnecessary obstacles to trad e, and favors international standards over national on es.

Environmental labeling schemes For example, carbon labeling schemes describe the c arbon dioxide emissions created as a by-product of manufacturing, transporting, and disposing of a con sumer product .

Yellow light: It is unclear whether labeling can be based on proc ess and production methods (PPMs) that do not affect th e end characteristics of final products. The WTO-US Shrimp-Turtle case seems to give a green light, subject to conditions for acceptability. 8 Regulations, standards and targets for renewable en ergy 1) China: 15 percent from renewables by 2020; 2) EU: 20 percent of energy from renewables by 2020 ; 3) US: 35 billion gallons of alternative fuels in 2 017. Green light: National targets for renewables per se do not generally raise trade concerns so far. However, government measures to achieve the targets may raise trade concerns. Examples of fiscal measures WTO-rule compatibility and conditions Domestic carbon and energy taxation 1) Energy taxes on consumption; 2) Embedded carbon taxes proposed in some countries but actually implemented in few. Green light: Domestic carbon and energy taxes do not raise trade concerns as long as national treatment and non- discrimination principles apply. Carbon/energy tax on imports or exports Border tax adjustment on imports/exports proposed i n some countries but not yet implemented in any. Yellow light: 1) Under GATT rules border tax adjustments are poss ible for taxes levied directly on products.

2) It is unclear whether adjustment can be made for taxes on unincorporated input (such as energy) duri ng the production of goods. Subsidies and domestic support mechanisms part I Subsidies to biofuels are common in many developed and developing countries. Subsidies and domestic support mechanisms part II Subsidies to renewable energy Red light:

The SCM (subsidies and countervailing measures) agreement of WTO does not allow enterprise- and sector-specific subsidies, if they cause adverse ef fects for foreign producers. The Agreement prohibits two types of subsidies: tho se contingent on exports and those contingent on the u se of domestic over imported goods. 9 Sustainable government procurement Green procurement policies in several countries Green light: Environmental factors can be taken into account in government procurement decisions under the WTO Agreement on government procurement (GPA) Examples of capacity development measures WTO-rule compatibility and conditions Trade facilitation, promotion, and financing, as we ll as Aid- for-Trade for green sectors 10 See Section 3. Green light: Trade facilitation and trade finance do not general ly raise trade concerns so far. Note : The current institutional home for global trade r ules and disciplines is WTO. However, the current W TO rules seem to be not clear on the principles for the design and implementation of tra de-related instruments for a green economy, as ther e is no multilateral consensus on best practices yet. The aim of developing this table is to serve a s a reference for policy deliberation on trade rule s and green economy.

Source : adapted from ICTSD, Climate Change and Trade on t he Road to Copenhagen, 2008, http://ictsd.org/i/publications/12524/. 8 For details of the conditions and analysis, see Cosbey (2010) and Cosbey (2011). 9 For a possible extensions of the scope of energy s ubsidies to include exemptions from user fees or ge neral taxes and environmental externalities, see http://www.climatepolicyinitiative.org/.

10 For illustrative green sectors, see Table 2. 4 2.6 Sustainable public procurement Concern: Not counting compensation to public employees, pu blic procurement is estimated to represent 6-10 percent of GDP. With sustainable public procurement, governments can sel ect and purchase products and services that minimize advers e environmental and social impacts. This can in turn create critical mass for market development. Sustainable government procurement is sometimes accompanied by a requireme nt for domestic content or sourcing. Suggestion : Domestic content requirements would probably breach the non-discrimination provisions of the WTO Agreement on Government Procurement (GPA) (Cosbey, 2010). How ever, most developing countries are not parties to the GP A and would as result be immune from direct challenge under int ernational law for utilizing social and/or environmental crite ria (Kjöllerström, 2008, Sustainable Development Innova tion Briefs, DESA). 3. Trade promotion and financing — the positive age nda Table 2 illustrates selected green sectors that have export potentials. Trade facilitation and financing in the se fast growing sectors could assist exporters in seizing new green export opportunities, from organic fruits to clean technol ogies.

Table 2. Selected green sectors with trade potentia ls Agriculture Organic agriculture in Uganda (UNEP Green Economy: Developing countries success stories, 2010) Certified sustainable agriculture in Hawaii (Food Alliance, United States of America) Fisheries Sustainable native fish management in Peru (UNCTAD Biotrade Initiative) Sustainable tuna fishing (Marine Stewardship Council) Forests Sustainable forestry practices for pulp and paper p roduction in Brazil (Program for the Endorsement of Forest Certification, Brazil) Tourism — trade in services Sustainable sea tourism in Honduras (Coral Reef Alliance) Conservation charging in Abrolhos Islands (Brazil, IBAMA) Energy Hydro power exports in Lao PDR a (Ministry of Energy and Mines, Lao PDR, www.poweringprogree.org ) Biofuel production in Brazil (Brazilian Ministry for Mines and Energy) China — the world’s largest producer and export of solar photovoltaics (Ren21, 2010) Sahara Desert Solar Project for solar electricity export to Europe (Bloomberg, March 08, 2010) Manufacturing Lean manufacturing in Japan (Toyota Production Syst em) Renault (France) pledge to use set percentages of r ecycled plastic in its cars (EU, 2010) Global low-carbon supply chains (Carbon Trust, 2006, Carbon footprints in the supply chain) Waste recycling and water treatment technologies (ICT, 2010) Source: Author. Note : a In 2008 the hydropower exports amounted to about 3 0% of total Lao PDR's exports. Agreement for future hydropower exports are in place with Thailand, Viet Nam and Cambodia. However, with these hydropower p rojects, villages disappeared under the reservoir — and tens of thous ands more living downstream have been affected. Not everyone considers these exports sustainable without thorough environm ental assessment as well as sufficient resettlement and adaptation support. 5 3.1 Targeted trade facilitation — minimizing non-tariff barriers for green trade Concern : Small producers can be disadvantaged by mandatory certification schemes. Trade facilitation and capac ity building programs need to help relieve the certification bur den on small- scale producers. For example, the cost of certifica tion remains one of the most contentious issues in organic agric ulture both for small scale farmers and for commercial operators. Suggestion : One option is the creation of a government institution helping to facilitate affordable inspec tion and certification services. For example, the Conservati on Agriculture Trust of Kenya (CATOK), a non-profit trust duly reg istered under the Trustship Act of Kenya, was formed to assist fa rmers and agricultural exporters access the services of inter nationally recognized organic inspectors and certification bod ies (Ndugire, 2010, UNECA African Trade Policy Centre, No.80). Moreover, the transition to a green economy will m ean a large-scale transfer of technologies and acquisitio n of technological capabilities in developing countries. Trade facilitation can increase the transfer and diffusio n of clean technologies to developing countries by enhancing t ransparency of trade and business regulations and the rule of l aw. 3.2 Trade finance — a green trade enabler There is an opportunity to mobilize committed trad e financing to strengthen a global green economy pack age and enhance the transition to a green economy (see Box 1). The Green Climate Fund recently agreed at Cancún could be a source of trade facilitation financing packages to assist poorer countries to finance development of new green sectors with ex port potential. A global program of green trade financin g in developing countries may be helpful to create synergy between international and national initiatives.

3.3 Aid-for-Trade The WTO work program on Aid-for-Trade aims to mobi lize additional funding to help suppliers from developin g countries build capacity to compete in international markets. Depending on country demand, it could play an important role in promoting trade in green products. The UNDP Project on “Aid-f or-Trade in Central Asia: Support to Economic Development along Trade Corridors” aims to enhance private sector capacity to increase exports, with a special focus on promotion of envir onmentally friendly technologies and green commodity productio n.

Box 1. The new trend in green trade financing Republic of Korea Export-Import (EXIM) Bank plans t o develop a Green Pioneer Program that provides US$20 billion annually until 2020 to 200 selected g reen enterprises in the field of renewable energy.

According to the Chairperson of the Bank, the Progr am is developed to promote the exports of green industry as a future growth engine and applies the strategy of creating an overseas market to help companies strengthen their track records and accumu late business development experience. The Program is planned to launch by the first half of 2 011.

b The Japan Bank for International Cooperation (JBIC) has recently signed a US$20 million untied loan agreement with the private Turkish commercial bank Denizbank to finance renewable energy trade loans.

It also signed a green memorandum of understanding (MoU) with the Banco Nacional de Obras y Servicios Públicos to implement green operations in Mexico. Eight U.S. government agencies, including Export-Im port Bank of the United States and U.S. Trade and Development Agency, have launched a coordinated eff ort to promote renewable energy and energy efficiency exports, the Renewable Energy and Energy Efficiency Export Initiative (RE&EE). c ECGD, the UK’s export credit agency, is in negotiat ions with Indian banking institutions to establish two $100 million credit lines, one of which will be ear marked for renewable energy projects. Source : Trade Finance magazine (various dates). b See http://www.korea.net/news.do?mode=detail&guid= 51748.

c See http://www.export.gov/reee/eg_main_023036.asp. 6 4. Conclusions Countries may take measures to make trade policy respond better to social development and sustainable develo pment objectives, including international commitments to poverty reduction, food security, quality jobs, and environ mental sustainability. These measures may actually have po sitive impacts on green exports but some may raise concerns from t rade partners. As suggested by UNCTAD (2011), the intern ational community must agree upon the principles for the de sign and implementation of trade-related instruments in rela tion to a green economy. In conclusion, this brief provides guidance on iss ues to be addressed to reinforce trade, green economy, and su stainable development complementarities. 1) Identify and address trade-related obstacles to a green economy 2) Ensure trade rules enable the transition to a gr een economy, e.g. ensure trade rules provide policy space for de velopment and for the technology diffusion and acquisition necess ary for a low- carbon development trajectory 3) Discuss and resolve issues of regulation, standa rds, labelling and certification to ensure they do not constitute unjustified non- tariff barriers to trade 4) Discuss and resolve issues of unilateral border carbon adjustments 5) Discuss and resolve treatment of green energy an d industry subsidies 6) Conclude and implement effective Doha Round agre ement on environmental goods and services 7) Embrace green trade opportunities by pro-active trade promotion and facilitation programs 8) Ensure access to affordable trade finance, parti cularly for the poorest countries, and particularly for sectors and activities related to a green economy 9) Finance green technology transfer and public pro curement of key patents on latest generation green technologies to put them in the public domain 10) Provide Aid-for-Trade on promotion of environme ntally friendly technologies and green commodity productio n.

These issues may require the further attention of all parties and stakeholders. Many questions remain unanswered and will need to be discussed in effective multilateral foru ms. Further research and policy deliberation would assist in fi lling knowledge gaps and contribute to preparation of countries for the Rio+20 conference and, eventually, a successful transition to a green economy. Key Reading Cosbey, Aaron (2011) “Trade, sustainable developmen t and a green economy: benefits, challenges and risks”, Ch. 2 of The Transition to a Green Economy: Benefits, Challenges and Risks from a Sustainable Development Perspective, Report by a Panel of Experts for the UNCSD’s 2nd PrepCom Meeting, March. Cosbey, Aaron (2010) "Are there downsides to a gree n economy?

The trade, investment and competitiveness implicati ons of unilateral green economy pursuit", background paper for Ad Hoc Expert Meeting on the Green Economy: Trade and Sust ainable Development Implications, UNCTAD, Oct., Geneva, Swi tzerland.

UNCTAD (2011), The Road to Rio+20 For a Development-led Green Economy , United Nations publications, UNCTAD/DITC/TED/2010/8. UNCTAD (2010) "The green economy: trade and sustain able development implications", background note for Ad H oc Expert Meeting on the Green Economy: Trade and Sustainable Development Implications, UNCTAD, Oct., Geneva, Swi tzerland.

The purpose of the Rio+20 Issues Briefs is to provi de a channel for policymakers and other interested stakeholders to d iscuss and review issues relevant to the objective and themes of the conference, including a green economy in the contex t of sustainable development and poverty eradication, as well as the institutional framework for sustainable development . For further information on this Brief, contact Wei Liu ( [email protected] ).