The effort to combat climate change is also an opportunity for least developed countries (LDCs) to leverage their advantages and benefit from trade opportunities offered by green specialization, Deputy Director-General Jean-Marie Paugam said on 3 December. Speaking at a Trade House event at the COP28 climate summit in Dubai, DDG Paugam noted that many LDCs enjoy significant potential in renewable energies, low-emission agricultural production and alternatives to fossil fuel-based products. But seizing these opportunities requires a strengthened WTO, he said. His remarks are below.
Minister Ville Tavio,
Under Secretary-General Rabab Fatima,
Excellencies,
Ladies and gentlemen
I am pleased to join you today as we bring this critical conversation to the Trade House Pavilion on the COP28 Presidency’s thematic day focused on health, relief, recovery, and peace.
Today’s conversation is about the lessons that we could learn from the COVID-19 pandemic and the way LDCs have confronted and recovered from it: is there any lesson learned that could be inspiring us for the fight against climate change?
It is true that both crises have a lot in common. In both cases, LDCs were and are hit the hardest by the COVID-19 pandemic and the climate change crisis. The Climate crisis ruins LDCs agriculture, increases food insecurity, and destroys trade infrastructures.
On the trade front also, LDCs were hit harder by the COVID-19 pandemic and have experienced the slowest recovery since then. Their services exports still need to recover from pre-pandemic levels, remaining at half percent of global service exports. In fact, trade has acted as an amplifier: while LDCs connected to global supply chains saw the most significant drop in their merchandise exports during the pandemic, they also recovered faster.
What does this tell us about the climate crisis?
Take Vanuatu as an example. In 2015, due to climate change, Vanuatu suffered enormous devastation from the tropical cycle Pam, with 90% of its central Port Villa destroyed, hugely impacting its tourism industry. But the country’s services trade, largely dependent on tourism, has proven resilient to external economic shocks. The country partnered with the international community to strengthen its technical assistance programs, rebuild its port infrastructure after cycle Pam, and build up its tourism industry. In 2020, the country graduated from the LDC status.
The key point I am trying to illustrate here is that the fight against the climate crisis can also bring trade opportunities to the LDCs, that can be leveraged with the support of the international community.
And this is a major difference with the COVID-19 Pandemic. There were no economic opportunities brought in by the pandemic: only losses.
But today, the deployment of net-zero strategies unleashed by the Paris agreement can generate a reallocation of comparative advantages. Instead of specialising on what you are relatively “better at”, decarbonation invites you at specialising on what you are relatively “greener at”, as the WTO chief economist likes to put it.
This is where the new trading opportunities could lie for many LDCs. Many of them enjoy significant endowment and potential in renewable energies, low-emission agricultural product, alternative to fossil-based products such as plastics.
The question is of course: will the LDCs be able to grab these opportunities? Will they be allowed to benefit from the green specialisation?
There is absolutely no guaranty that they will. To the contrary, some current trade trends are quite worrisome in that regard.
The first one is global fragmentation. It is now being documented that trade policies are becoming more and more influenced by National Security considerations, Industrial Policies considerations, Sustainability considerations. All these are very legitimate but if the resulting trade policies are not minimally coordinated and made compatible, then we may witness a progressive fragmentation of the world trading system. I am talking about the current proliferation of carbon pricing schemes, border adjustments, decarbonisation standards, products regulations…. etc.
We know that such trends may not only reduce world growth potential, but also reduce chances of achieving the Climate objective of the Paris agreements. In other words, we would lose both on economic and environmental fronts. And LDCs would probably be the first to pay the heavy price.
The second threat come from the risk of exclusion from the trade values chains. And this is a threat which is particularly affecting LDCs.
While countries legitimately use different policies and instruments to fight climate change, compliance with each policy generate increased costs and barriers to trade for LDCs, which adds more pressure, challenges, and vulnerabilities to what they already face.
As part of a fragmented world, LDCs face new requirements for technologies and products, including those related to traceability, emissions measurements, standards, and compliance procedures.
In a nutshell: your economy maybe the greenest of all greens, but you may not be able to prove it to your customers abroad!
If those two threats combine, global fragmentation and exclusion of LDCs, then we would witness a worst-case scenario for the world economy. A divide between countries specializing in “greener technologies and products” and LDCs being left behind with the “brown” and the old economy.
How can we prevent such a scenario from happening? Strengthening the WTO is both a pre-condition and an effective way to confront these threats.
First, because the multilateral trading system offers the best anchor for LDCs to pursue their development strategies. Acceding to the WTO is rightly seen as a passport for trade and business environment reforms that will help attract foreign investments. LDCs know that. Today for instance, Timor-Leste and Comoros are making considerable efforts in their negotiations to join the WTO. I am also proud to report that our Members have recently adopted an important decision aiming at mitigating the potentially adverse effects of LDCs graduation on their trade regimes.
Second, the WTO offers the only guaranty against further fragmentation of the global trading system derived from uncoordinated policies. WTO strongly invites its Members to prevent the risks of fragmentation by discussing their sustainability and climate trade policies within the WTO. The good news is that they have now started doing it. Our forthcoming Ministerial Meeting, here in the UAE in February 24 will offer a landmark opportunity for them to provide guidance for the future of these discussions.
Third, the WTO is the place were transaction costs and compliance costs from diverging sustainability policies can be reduced for LDCs and for everyone. The WTO has all the tools to foster transparency of these policies, through notification procedures, and reduce the potential for trade frictions through our consultative processes.
Fourth, there are many ways to “green” your trade policy and leverage it in the fight against climate change. No “one size fits all”. LDCs, as each country willing to support them, can pick and choose the trade policy tools that better suit its needs: trade facilitation, government procurement, standardisation, tarifs, agricultural reform, trade finance and many other. This is why the Secretariat of the WTO is lauching here at COP28 a trade policy toolkit, for each Member to consider.
Finally, the WTO’s Aid for Trade Initiative supports developing countries and LDCs in building strong trade institutions and bolstering infrastructure and productive sectors with high export potential.
Since 2006, over USD 631 billion have been disbursed in aid-for-trade, with one-third going to LDCs. Aid-for-trade patterns are also evolving to help LDCs respond to climate challenges. For example, in 2021, over one-third of aid for trade commitments was in response to climate goals.
Ladies and gentlemen, my message is simple: helping LDCs to addressing climate challenges and benefit from new opportunities associated with the decarbonization of the global economy requires a concerted effort from the international community.
I hope today’s conversation can inspire us to live up to this challenge.
Thank you.
Source: wto.org (Collected by Pham Bang Tam)