September 16, 2024

The World Trade Organization (WTO) has released a statement that it is concerned that the EU's unilateral advancement of a carbon price through their cap and trade system is going to hurt world trade.

The European Union has decided to start charging companies the full carbon price when they import goods from countries with no carbon price. Seems reasonable since a massive tax on production in the block would result in production leaving for lower-tax jurisdictions pretty quickly.

The WTO disagrees, of course. They warn of lawsuits through the WTO from countries who do not have and will not have a price on carbon, and "developing" countries who cannot really afford one. Large import levies couched in carbon price language look like barriers to trade to the WTO. Instead, they want a global carbon price to be negotiated at the IMF, OECD, and UN.

A global agreement is extremely unlikely. Nation states that rely on fossil fuel production, heavy manufacturing, and have populist right-wing governments are not exactly interested in increasing the cost of endemic production and the price of their exports.

There are 78 carbon pricing and taxation mechanisms in the world. Negotiations were trying to set different carbon prices in different regions with the EU setting $80 a tonne and Africa $20.

The main concern voiced by the WTO on the carbon pricing is that it "harms economic growth".

You will notice that both those numbers are below the price on carbon necessary to affect production shifts to avoid catastrophic climate change.

The WTO has somehow turned the narrative that free trade is part of the problem with climate change to one that says subsidies are to blame:

There are $1.2tn of annual fossil fuel subsidies, $600bn of trade-distorting agricultural subsidies, $300bn of water subsidies and $22bn of harmful fisheries subsidies, [Okonjo-Iweala, head of the WTO] said.

This narrative fits nicely into the free-trade ideology of the 1990s that the WTO was designed to protect. The problem is that the outcome of current negotiations is likely to delay the implementation of any climate-related trading mechanism to well after it is needed, according to the IPCC.

Left out of all the discussion about the EU's implementation of a protectionist carbon price is that the USA is just about to do the same thing.

The fact is that the whole of Africa has contributed only 3% to global emissions, but receives less than that as a proportion of global FDI for developing its own production infrastructure. Increasing the price of its exports will reduce its ability to implement climate-positive solutions, and will severely reduce what is now a major part of its production program: foreign direct investment (FDI). Effectively, Africa is being made to pay much more to counter climate change than the continent has contributed to it.

The clear issue with the free-trade paradigm is its purposeful design to allow companies to move offshore to avoid higher tax and regulatory areas. The dictates of the WTO continue to be at odds with completely viable nation-state regulatory frameworks, while promoting a program of increasing costs for those who cannot pay.

Unfortunately, a fairer trade regime is not even being promoted by the BRIC-type countries who are now benefiting from the established free trade regime because their industrial policies have adapted, which is why you see China challenging many trade barriers being put up by the EU and the USA. Adapting again will not be easy for these countries.

Even Brazil, which has made moves to limit deforestation since Lula came president again, has had to lean on oil as a major part of its economic program. The dream of shifting to a production exporter is undermined without the necessary investments in modern production to do that.

Economic imperialism continues.