A Small Sign of Life on the Climate-Trade Front

A recent article by Wendy Cutler and Jane Mellsop, “World should take note of a new trade and climate change deal,” brought something to my attention that I had completely ignored when it happened. That was a mistake. Though small, as Cutler and Mellsop note, it sets a significant precedent with the potential to grow.

The article is about the Agreement on Climate Change, Trade and Sustainability (ACCTS) by New Zealand, Costa Rica, Switzerland, and Iceland, with Norway possibly joining later. The text is not yet public, but some details have emerged. The main provision is that the parties will eliminate tariffs on almost 300 environmental goods, including electric vehicles, solar panels, wind and hydraulic turbines, wool fiber, recycled paper, electric statis converters, and wood products, among many others. This is far more than the 54 items included in an Asia-Pacific Economic Cooperation (APEC) forum agreement in 2012 but roughly comparable to the 304 items on the table during the World Trade Organization (WTO) Environmental Goods Agreement (EGA) negotiations that were suspended at the end of 2016. The ACCTS countries were all parties to the EGA talks. (For further details on that agreement, see the Scholl Chair’s 2021 paper here.)

In addition to tariff elimination, the ACCTS includes a voluntary framework for ecolabeling to help consumers get accurate information, a framework for eliminating fossil fuel subsidies with only limited exceptions, and an agreement on liberalizing market access for more than 100 environmentally related services subsectors. This appears to be the first time services have been included in an environmental agreement.

Particularly important is the fact that the agreement is designed to be an open plurilateral agreement, meaning that other countries are welcome to join if they accept the agreement’s obligations. The ACCTS’s open plurilateral nature also means that the concessions the parties make, including tariff eliminations, are available to all countries, not just the agreement members. This is consistent with WTO rules, but also encourages “free riding,” where a country benefits from the lower tariffs without having to make the same commitment.

The open plurilateral aspect of the ACCTS is an important step forward because it allows countries to put aside the question of who is going to benefit the most and instead focus on the real beneficiary—the climate. When the Scholl Chair was studying the EGA and why the Biden administration did not try to resuscitate it, we concluded that the main reason was concern that the biggest beneficiary would be China because it made so many of the items affected by tariff reductions. In fact, the main beneficiary would be a better climate for everybody. This turned out to be the first of many missed trade opportunities for the Biden administration, something I will write about in a future column.

Despite the innovations in the ACCTS, it would be natural to think it is not very important. The members are all nice countries that play a constructive role on the world stage, but they are not large economies, and there are only four of them. The ACCTS, as it currently stands, is not going to move the climate ball very far forward, but it has the potential to grow and have a bigger impact.

This reminds me a bit of the way APEC has approached much of its work—start small with optional commitments and, over time, build a bigger structure with more substantive commitments. In the case of APEC, “over time” often means 10 or 15 years, which is way too long to wait for a climate agreement, but the concept is an attractive one. It allows skeptical countries, or those lacking a political consensus on an issue, to hold back, see how an agreement develops, and join when it is possible for them to do so. From that perspective, the ACCTS has the promise of growing into something bigger.

The ACCTS is also significant because it demonstrates a fresh approach to trade negotiations that might ultimately prove healthier than what we have now. Comprehensive multilateral negotiations are stalled, largely due to India’s opposition, and the joint statement initiatives under the WTO umbrella are taking a long time to conclude and are only producing modest outcomes. The ACCTS members, in contrast, are saying, “Let’s just get on with it and do what we think makes sense. The others can catch up later.”

The message to the rest of us is if you have a good idea, particularly one that addresses a global crisis, don’t sit around and wait for the big countries to lead. Go ahead and act and let the others catch up. This contrasts sharply with the Biden administration’s approach, which too often has been to set up committees and conversations that rarely finish anything. To quote the late Toby Keith, what we need is “a little less talk and a lot more action.” New Zealand, Costa Rica, Switzerland, and Iceland may well have started something that not only could lead to a larger climate agreement but also provides a lesson in decisiveness that all countries should take to heart.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.