Kyoto Protocol and World Trade Organization on a “collision course”

National restrictions on emissions of carbon dioxide and other greenhouse gases may soon clash precipitously with provisions established by the World Trade Organization (WTO), according to Harvard Kennedy School Professor Jeffrey Frankel in his new Working Paper.

Environmental regulation causes “leakage”, whereby countries outsource manufacturing to other countries that have less stringent emission standards. Motivated by fears of leakage and lost competitiveness, national legislation to implement the Kyoto Protocol is likely to include measures against the import of carbon-intensive products from nations deemed not to be doing their part.

There are possible precedents for such import measures to be WTO-consistent, if designed carefully. But Frankel contends that the import measures are more likely to be designed politically than in a way that would genuinely address leakage concerns. Frankel believes that as a result, the two entities will “crash head-on”.

In “Global Environmental Policy and Global Trade Policy” Frankel writes about the delicate nature of this balance:

“In early 2008, legislation to enact long-term targets for reduced emission of greenhouse gases included provisions for possible barriers against imports from countries perceived as non-participating -- in both Washington, DC (where the bills have not yet passed) and in Brussels (where the EU Commission Directive has gone into effect). Such provisions could be interpreted as violations of the rules of the WTO, which poses the nightmare scenario of a WTO panel rejecting a major country’s climate change legislation.”

Frankel also writes that there is a larger, on-going issue between the organizations: Environmentalists fear the WTO is an unwelcoming obstruction to green issues; the WTO feels environmentalists cross into trade territory.

“Environmentalists are keen to interject themselves into the WTO,” Frankel writes. “Those who live in the world of international trade negotiations tell those who live in the environmentalist world that their concerns may be valid, but that they should address them outside the WTO, in their own, separate, negotiations, and their own multilateral agencies.”

The paper is structured in two parts – the first addresses the broader issue of whether free trade can impede environmental goals, and the second focuses more directly on the trade aspects of climate change policy and its effects.

Jeffrey Frankel is the James W. Harpel Professor of Capital Formation and Growth at Harvard Kennedy School.