The global trade system, long celebrated for its role in promoting economic growth, now stands at a crossroads. Technological advancements and decades of trade liberalization have facilitated unprecedented levels of global interdependence. However, this interdependence has brought with it novel challenges and strains on existing resources—including the management of crises of the commons such as climate change and biodiversity loss, and the remediation of social inequalities among and within countries.
We must ask ourselves: Can the trade law edifice, built for another time, survive and sufficiently manage the growing demands of the sustainability agenda? How far should our institutions be defended? What should be preserved and what should be rethought?
Addressing the increasingly urgent tension within the trade and sustainability agenda involves tackling the myriad questions this intersection raises. Can the goal of ever-freer trade be pursued in tandem with pressing sustainability goals? Does the pursuit of sustainability necessarily herald a return to protectionism and unilateralism? What kind of governance and institutional processes are needed to pursue sustainability within an increasingly divided and fragmented trade system? And can the trade system prioritize distributional and equitable outcomes while also pursuing the most economically efficient outcomes?
International trade has long provided a powerful tool for delivering economic benefits to nations participating in the transboundary exchange of goods and services—and broader gains to their societies. Indeed, the trade system that emerged after World War II as part of the Bretton Woods international order reflected the thinking of Cordell Hull, the longtime American secretary of state, who argued that “if we could get a freer flow of trade . . . so that one country would not be deadly jealous of another and the living standards of all countries might rise . . . we might have a reasonable chance for lasting peace.”Footnote 1 But the logic of an open international marketplace to knit countries together, create a shared sense of potential prosperity, and promote peace and security has disappeared from recent political discourse. Instead, free trade has become the target of sharp attacks from across the American political spectrum and all around the world. These critics suggest that the trade system diminishes the lives of many people by unleashing forces that harm the environment, displace workers, worsen inequality, and tolerate government repression. While the validity of the details of this counterclaim can be debated, it cannot be disputed that: (1) the system, as it has evolved, has shortcomings; and (2) popular support for trade has collapsed both domestically and internationally. The legal regime structuring global trade thus needs to be regeared to fulfill Hull's vision and make it fit for purpose in the twenty-first century going forward.
I. Excesses of Market Fundamentalism
Some of the difficulties facing the trade system can be traced to the excesses of economic theories popularized under the banner of neo-liberalism, now critiqued as market fundamentalism, which puts too much emphasis on greater efficiency (often by restructuring marketplace rules to promote economies of scale that tend to reward the largest enterprises) and all too often ignores market failures (including most notably environmental harms or what economists call uninternalized externalities). Trade skeptics note that the present World Trade Organization (WTO) architecture has been profoundly shaped by the neo-liberalism that dominated the 1980s and 1990s and has lost sight of the non-economic core values that must be reflected in global governance, and which were so central to Cordell Hull's vision—and for which he was awarded the Nobel Peace Prize.
The case against the trade regime as it now exists therefore centers not only on its narrow emphasis on economic efficiency (thereby advancing the interests of multinational corporations) and material gains, but also on its inattention to many other priorities—including a successful response to climate change and other environmental challenges, human rights, the treatment of workers, and persistent poverty. Of course, trade need not be undertaken in a manner that runs roughshod over these concerns, many of which fall under the umbrella of sustainability. But the current trade regime too often seems to do so—and is thus perceived by many to be fundamentally off-track.
II. WTO Reform for a Sustainable Future
To restore the trade system's legitimacy and political viability, the WTO must be rebuilt with new economic underpinnings, better alignment with societal values, and a core framework that offer nations sufficient policy flexibility to address domestic concerns. All of this might be described as implementing (at long last) the WTO's sustainability mandate as spelled out in the opening paragraph of the 1994 Marrakesh Agreement, which set up organization and called for the trade system to operate “in accordance with the objective of sustainable development.”Footnote 2 It might also be understood as restoring Cordell Hull's vision of how best to manage international economic interdependence based on what might be described as “soft neo-liberalism”Footnote 3 or perhaps flexible multilateralism.Footnote 4
At the heart of this reform agenda must be an economic system based on a twenty-first view of corporate responsibility and acceptable business practices value: notably, the idea that negative externalities be internalized.Footnote 5 In practice, this would mean that businesses must stop their pollution spillovers or pay for the harm they cause. Likewise, any entity that depends on privileged access to public natural resources should be required to pay a fair market price for these inputs to their production process. In simple terms, this new foundational principle would establish sustainability as the cornerstone for all corporate activity in the twenty-first century and bring an end to the business models that extract private gain at public expense.
National governments should be the starting point for the regulatory structures required to implement this new baseline for all commerce. But regarding internationally traded goods, the WTO should be prepared to reinforce the sustainability principle and ensure that no enterprise obtains a competitive advantage in global commerce from underperforming against established environmental or social standards—including but not limited to commitments to reduce greenhouse gas (GHG) emissions.
Advancing this new framework would require WTO action on a number of fronts as spelled out in the Villars Framework for a Sustainable Trade SystemFootnote 6—a reform agenda developed by a worldwide network of policymakers and researchers operating under the banner of the Remaking Trade Project.Footnote 7 This Framework offers a comprehensive review of what might be required to align the WTO with the Sustainability ImperativeFootnote 8 and provide new legitimacy for the trade system. Four elements of the Villars Framework deserve special attention as the central pillars for a revitalized WTO that resolves the trade-sustainability tensions highlighted above:
A. Align the Trade System with Climate Change Commitments
Perhaps the greatest current trade-sustainability tension arises from the perception that today's trade system operates in ways that increase GHG emissions and make it harder for nations to deliver on the commitments to a net-zero future by around mid-century. The WTO needs to confront this suggestion with a clear strategy to reinforce and not undermine the Nationally Determined Contributions (NDCs) to the global climate change response that all WTO members have put forward. This strategy must include redoubled efforts to reduce tariffs on environmental goods and services and promote the dissemination at speed and scale of the clean energy technologies, projects, services, and infrastructure required to deliver deep decarbonization across the global economy.Footnote 9
It should also reflect a commitment to net-zero emissions in both maritime shipping and aviation with an action agenda coordinated with the International Maritime Organization (IMO) and the International Civil Aviation Organization (ICAO) as well as relevant industry associations and companies. While shipping accounts for only about 3 percent of global GHG emissions, it is the part of the GHG control challenge that is inescapably connected to tradeFootnote 10—and therefore must be a core component of the trade system's commitment to a net-zero emissions future.
B. Define Appropriate Sustainability Standards
As noted above, the WTO must help enforce sustainability standards regarding traded goods. But first, the WTO must help to define the standards that will be enforced—ensuring that these requirements are established on an inclusive, transparent, scientifically sound, and analytically rigorous basis. To be seen as appropriate and legitimate, sustainability standards need to be negotiated through processes that include broad participation—and not asserted unilaterally.
With the European Union running out in front with its proposed Carbon Border Adjustment Mechanism (CBAM), there is particular urgency for the WTO to move its sustainability standards efforts forward.Footnote 11 But it must be clear that the WTO role is not to set the standards but rather to help to convene those with expertise including the International Organization for Standardization (ISO), Organization for Economic Cooperation and Development (OECD), UN Conference on Trade and Development (UNCTAD), International Trade Center (ITC), UN Environment Program (UNEP), as well as relevant industry associations and academic institutions. These standards will need to include protocols for measurement of the GHGs associated with traded goods, appropriate pricing for border adjustments, and standards of equivalence (or rough comparability) across divergent policy approaches.
C. Restructure the WTO Approach to Subsidies
The WTO's current approach to subsidies focuses entirely on whether the challenged government support disrupts trade. But to be consistent with the WTO's Marrakesh mandate on sustainability, the first question that should be asked would be: is the subsidy in question sustainability-enhancing or sustainability-diminishing? Subsidies that are positive from a sustainability perspective (such as those promoting clean energy or sustainable farming) should be presumptively allowed, subject to a structure of disciplines designed to ensure that their impact on trade is minimized. These rules might require that: (1) the subsidy's purpose be made clear; (2) the incentives created are transparent and effective; (3) the burden on trade not be disproportional to the sustainability gain; and (4) the government funding not result in market-dominant firms that engage in predatory practices or otherwise unfairly obstruct opportunities for others.Footnote 12
Subsidies that diminish sustainability—such as those for fossil fuels, production-based agriculture, or fishing in a manner that leads to over-capacity and the over-exploited fish stocks—should be called into question with pressure exerted to bring them to an end. The first step in this regard would be to promote transparency—and to highlight the problematic subsidies.
D. Fairness and Equitable Treatment of Developing Nations
To be seen as legitimate, the sustainability agenda outlined here can only be advanced within the WTO if it is paired with an initiative to ensure that developing nations are supported in their efforts to meet the emerging sustainability standards and market expectations. The existing WTO approach to equity—based on a principle of special and differential treatment of developing nations—does far too little to help producers in the developing world to compete successfully. A new approach will be required that includes financial assistance, but also capacity building, innovation promotion, and technology transfers.
It might be useful to institutionalize this initiative by rechartering the International Trade Center as an International Sustainability Center, with a mission that is expanded to including helping small- and medium-sized enterprises in the developing world to meet the sustainability standards they face as they seek to export goods.
More generally, the entire reform process must be undertaken in a manner that reflects the needs of the developing world and enables a just transition to a clean energy future.Footnote 13 At the same time, it must be recognized that the developing world has a profound interest in a functioning WTO rather than a fractured trade system where each nation asserts its own rules and cuts its own deals. Indeed, the existence of institutions (most notably the WTO) and a rules-based multilateral system profoundly helps smaller and less powerful nations which might otherwise be disadvantaged in ad hoc bargaining with nations that are bigger and stronger.
III. Conclusion
The trade system stands at a watershed moment. While it has delivered enormous benefits over the past eighty years to a wide range of countries, its future looks very uncertain. The current structure of rules and practices are seen as out of touch with current realities in both geopolitics and the marketplace. Absent transformative change, the WTO risks slipping into irrelevance. Resolving the tensions between trade and sustainability represents a critical step toward a reinvigorated trade regime – and a sustainable future in which the global community successfully limits climate change.Footnote 14 But much broader reforms that regear the trade system to deliver on its promise as a mechanism of global governance that supports sustainable development across the world will be required.
