M-RCBG Associate Working Paper No. 237

Trade-Climate Linkage in Free Trade Agreements: A Way Forward for Green Growth
Employing A Case Study of the US-Mexico-Canada Agreement

2024 Policy Analysis Exercise Prepared for the Inter-American Development Bank

Adriana Melchor
Alisha Shaparia

Executive Summary

Climate mitigation efforts are lagging due the perceived tension with developing country economic growth and weak governance structures to support compliance with and enforcement of environmental treaties like the Paris Agreement. North-South preferential trade agreements can serve as strong tools to promote decarbonization by linking free or preferential market access to green outcomes. In addition, such linkage can also deliver strong positive externalities: increased security of critical supply chains for developed countries and economic development opportunities for low- and middle-income countries. 

The growing appetite to link trade and climate is apparent at the multilateral, regional and bilateral level. Specifically, environment-related trade provisions (ERPs) are becoming increasingly common in preferential trade agreements (PTAs). Since negotiations of such agreements involve fewer parties, they offer a strong testing ground for innovative approaches to linkage. Thus, this report endeavors to outline ambitious policy options to restructure ERPs in North-South PTAs to support 21st century trade negotiations and climate policymaking. 

To illustrate the opportunity to strategically leverage trade to support decarbonization, security and development goals, the PAE employs the US-Mexico-Canada Agreement (USMCA) Chapter 24 as a case study, analyzing its implementation in Mexico. We hope that the recommendations from this report will contribute towards the USMCA 6- year review in 2024.

Download the paper in PDF format.