Trade judges aren’t climate judges, but they could be soon

Whatever the overall outcome of the current global climate summit in Glasgow, one result seems certain: The climate negotiators will edge closer to transforming international trade judges into climate judges. Decisions about whether professed climate actions that affect trade are in fact legitimate measures taken in response to climate change will not be decided within the global framework for addressing climate change. They will be decided in international dispute settlement in the World Trade Organization.

This is no longer merely a hypothetical possibility. Climate-related trade disputes are increasingly imminent in the WTO. While climate activists gathered in Glasgow, the United States and the European Union sealed a separate peace on reducing the steel and aluminum tariffs imposed on U.S. imports of those metals from the EU by former President Donald Trump, ostensibly for reasons of American “national security.” Significantly, as part of this deal, these WTO members signaled that they “will work to restrict access to their markets for dirty steel,” presumably by imposing new tariffs on imports of carbon-intensive steel products from other countries.

These would be the first-ever carbon-related trade restrictions in the world.

As for the other countries that could be targeted for these new carbon-related tariffs, first in line would undoubtedly be China, which is the largest steel producer in the world and accounted for 57 percent of world steel production in 2020. China has 10 times the steel production capacity and makes about 10 times as much steel as the United States, which was the world’s fourth-largest producer last year.

But Chinese steel producers are much more reliant than are U.S. steel producers on traditional blast-furnace production, which is heavily carbon-intensive. In contrast, the U.S. industry mostly uses modern electric arc furnaces, which emit much less carbon. The carbon intensity of U.S. steel production is only two-thirds that of Chinese production. Likewise, the carbon intensity of steel production in the main European steel-producing countries — Spain, Italy, Germany, and France — is considerably less than that in China.

The U.S.-EU deal follows the recent introduction by the European Union of a proposed “carbon border adjustment mechanism” that would likewise impose higher tariffs on imports of “dirty” steel and other carbon-intensive products such as fertilizers and cement. President Joe Biden and numerous members of Congress have suggested the imposition of similar broad climate-related trade restrictions by the United States. Canada and Japan have expressed interest in applying similar trade limits. 

Whether any of these proposed climate-related trade restrictions would be legal as currently envisaged under international trade law — and thus be upheld by the WTO — is highly debatable. One reason why is the utter failure so far of the climate negotiators to grapple with defining what is, and what is not, legitimate as a national “response measure” taken to address the mitigation and adaptation challenges of climate change. Without a definition by climate negotiators of a climate response measure, there can be no legal certainty about which national measures that affect trade can potentially be justified as climate actions.

Climate rules speak of “response measures” but do not define them. In climate negotiations, the discussion of climate “response measures” has generally been limited to the narrow context of the domestic workforce adjustments needed in developing countries to deal with the adverse extraterritorial effects of climate policies adopted by developed countries. Few in these talks have ventured to broach the topic of the potential impacts on the exports of other countries of climate-related import trade restrictions imposed by countries seeking to drive up overall climate ambitions (while also safeguarding, shall we say, the competitive interests of their domestic producers.) 

Although trade has often been a marginal part of this climate discussion, there has long been a hesitancy among climate negotiators to grapple directly with the international legal implications of the connections between national responses to climate change and trade and trade law. Climate and trade have remained in their own separate silos. Speaking at the United Nations Climate Conference (COP24) in Katowice, Poland, in 2018, UNCTAD senior economic officer Alexey Vikhlyaev summed up this challenge succinctly: “Trade has become a taboo subject when talking about climate change.” 

Nothing is likely to be accomplished to end this taboo and address this trade-related climate issue in Glasgow. But, soon enough, as countries begin to enact measures to keep their climate promises, and as pressures begin to mount everywhere to insulate domestic industries against the specter of lessened competitiveness because of anticipated “carbon leakage” of jobs and production offshore, this unanswered question will have to be answered somewhere. As it stands, that somewhere will surely be the WTO. 

Measures that affect trade — however, they may be described — fall within the scope of the WTO treaty. If the climate negotiators do not provide a definition of a legitimate climate response measure, then, for the 164 countries that are parties to the Paris Climate Agreement and are also WTO members, the task of defining which national climate measures are permissible and which are not when those measures restrict trade, will be left to WTO dispute settlement. 

Trade judges will become climate judges amid a climate trade war much broader than the ongoing trade conflict between China and the United States.

James Bacchus is a Distinguished University professor of Global Affairs at the University of Central Florida and an adjunct scholar at the Cato Institute. He is a former chief judge for the World Trade Organization and a former member of the U.S. Congress. His forthcoming new book from Cambridge University Press, “Trade Links: New Rules for a New World,” will be published early in 2022.