HOW TO REACH A BALANCE BETWEEN TRADE AND SUSTAINABLE DEVELOPMENT?

How to Reach a Balance between Trade and Sustainable Development?

Trade considerations are increasingly important in shaping economic policies in all countries, developed as well as developing. A multilateral trading system that supports sustainable development is more important than ever, in order to assist governments to open their economies to global trade. Trade and sustainable development’s amalgamation is inexorable. Progress in one area depends upon progress in the other. A stable and predictable system for international trade is valuable for promoting technological innovation and investments – which are fundamental for sustainable development. In fact, the concept of sustainable development includes social justice, equal income distribution, full employment, safe and healthy working environments, environmental protection and socio-economic welfare. One can argue that the most relevant principles related to sustainable development are embedded in the World Trade Organization (WTO) preamble. The primary assumption is that trade liberalization leads to greater prosperity, which in return creates better condition for sustainable development governance at the global level. WTO recognizes that open trade is not an end in itself. It is tied to crucially important human values and welfare goals captured in the WTO’s founding document, the Marrakesh Agreement. Despite the fact that sustainable development issues are part of the WTO’s mandate, most of the world’s development indicators have been steadily deteriorating in the recent past and at the global level and do not truly take into account sustainable development. Trade liberalization without adequate sustainable development will lead to heavy deterioration, on a global massive scale.

The current methods of valuing global economies, such as the one based on the Gross Domestic Product (GDP), do not take into consideration many negative effects of economic growth related to trade liberalization, like pollution, climate change or reduction in natural resources, among others. After Rio + 20, it seems clear that it is important in the long run a strong commitment from the international community to sustainable development. The recent experience has shown that GDP economic growth does not make economies more resilient to economic shocks. On the contrary, it has made economies more vulnerable. In response to this demand, the InclusiveWealth Report 2012 (IWR) presents an alternative method based in some factors such as a country’s natural, human, and manufactured capital to its overall value. The benefits of committing to sustainability concerns are crystal and clear. The challenge for the international community is to redefine how, and in particular how soon. Will WTO members be able to respond to this challenge? Is WTO the most appropriate forum to enforce sustainable development issues based for instance on IWR guidance basis?

In the Marrakesh Agreement WTO members’ do recognize that trade policies should support raising standards of living, ensure full employment and economic growth, and seek the optimal use of the world’s resources in accordance with the objective of sustainable development. In this regard, the fundamental principles of WTO agreements offer a framework for ensuring predictability and fair implementation of measures that may address sustainability concerns at the international trade level. WTO seeks to achieve a crucial balance: on the one hand, it supports the right of members to take measures to advance legitimate goals related to sustainable development; and, on the other hand, it ensures such measures are not disguised protectionism.

It is true that the extent and nature of the incorporation of sustainable development issues into WTO is still highly contentious among WTO members. There is a major disagreement among WTO members regarding the nature of the WTO’s mandate and its impact on international trade rules. Some argue that trade liberalization plays an important role for countries, both developed and developing, towards sustainable governance policies. Others oppose that WTO’s rules play an important role towards a general decline in sustainable issues. The most contentious source of disagreement among WTO members is how sustainable development issues should be actually enforced for trade liberalization purposes. At this stake, some fear that WTO may demand the advancement of sustainable development norms that not all members may be able to fully implement. Others argue that WTO preamble only obstructs interpretation of WTO rights and obligations from impairing achievement of the highest goals that major international legal instruments claim to promote, namely sustainable development. No one can deny that many of the future challenges facing the WTO system are related to sustainable development issues and the IWR may be a very useful tool. Such issues are likely to include the relationship between environmental challenges such as global warming and trade, and trade and energy, raising living standards, ensuring full employment, using the world’s resources sustainably, among others.

The WTO’s ability to reconcile multilateral trade liberalization with sustainable development is a central concern to the institution’s legitimacy and is, therefore, vital to further advancing free trade at the global level. WTO members have to persuade a skeptical public that trade liberalization can contribute to sustainable development improvement. That’s the reason why an appropriate legal framework within the WTO system is essential to reach a balance between trade and sustainable development. Continuing support for trade liberalization depends on the ability of WTO members to ensure that trade liberalization benefits are widely and sustainable distributed, and then the legitimacy of the trade regime will be widely accepted. Otherwise, WTO will fail to recognize the fundamental message of sustainable development. However, the almost last two decades of WTO have not been encouraging. The Committee on Trade and Development has not achieved anything remarkable. It has continued a record of uselessness that dates back to the old General Agreement on Tariffs and Trade (GATT) level. Most of the cases at WTO Dispute Settlement Body (DSB) concerning import bans related to sustainability issues have been struck down by the WTO because they were, in fact, mere pretexts for disguised protectionism. An analysis of sustainable development issues inside the WTO dispute system shows that from all disputes submitted to the DSB only ten per cent of the disputes were in fact concerned with sustainable development issues (Costa, 2013, p. 344).

Following from that, it is critical that members recognize the current limitations of the WTO legal framework and reach out towards a common agenda on trade and sustainability having the IWR as a valuable reference to advance further developments on this matter on a more concrete way. One can generally say that WTO enforcement on sustainable development is a subject matter of tense controversies among members. However, sustainable development is here to stay. Thus, how can DSB de facto enforce and pronounce itself against the use of sustainable development rules as a disguised protectionism? How can DSB recognize whether the proposed trade measure is truly for the purpose of safeguarding sustainable development issues? In this context, the realistic option for lessening the chilling effect of disguised sustainable related trade measures is to regulate their applicability by means of a Ministerial statement. And the IWR is a valuable reference to identify whether country’s natural, human, and manufactured capital actually supports the trade measure or whether it shows that the measure is simply a disguised protectionism. A Ministerial statement guideline based on IWR will provide the DSB with specific rules on the interpretation of the WTO system towards more certainty on sustainable development matters.

References

Costa, L.M. OMC e Direito internacional do desenvolvimento sustentável. São Paulo: Quartier Latin, 2013.

Ligia Maura Costa. Professora Titular na FGV-EAESP. Advogada em São Paulo.

AGENDA AWANI: SUSTAINABLE ECONOMIC GROWTH

Agenda Awani: Pertumbuhan Ekonomi Mapan

Agenda Awani: Sustainable Economic Growth

The interview is about Trade, WTO and Beyond GDP. What has to be done in order to achieve sustainable development?

Kuala Lumpur, Malaysia, May 2014

Interview available at: https://www.youtube.com/watch?v=DhAeOuVgXsI

G20 & GLOBAL GOVERNANCE

G20 & Global Governance

In the wake of the 2008 global financial and economic crisis, a new global governance structure emerged: the Group of Twenty (G20). During and subsequent to the global crisis, the G20 emerged as a new coordinating body among international governance institutions. The international institutions created after the World War II and their governance structures are no longer able to reflect the economic and political realities of today’s world. As the first decade of the 21st century sketched to a close, policy-makers, the media and academic research have been increasingly discussing the new role of the G20 in the world economy and in global governance. To begin with, does the informal G20 process and mechanism offer legitimacy to overcome the growing challenges of the globalization? Would G20’s enlarged leadership club be able to overcome the inherent problems of the decision making process at the international arena? How could multipolarity be translated into changes in authority and influence within multilateral organizations like the G20? Last, but not least, what kind of global economic governance is emerging at the beginning of the second decade of the 21st century?

In the aftermath of the 2008-2009 global financial and economic crises, the G20 was elevated to a leaders’ summit forum for international economic cooperation. The rise of the G20 can be seen as an echo of the world’s current multipolarity. The current global order confronts several challenges simultaneously, including tackling numerous and increasingly complex issues such as global financial and macroeconomic instability, climate change, rule of law, public health, food security, sustainable development, trade protectionism and several other issues that have been strengthened through globalization. As global challenges are interconnected, neither G20 leaders are able to discuss only the international financial and economic system without also discussing other issues, such as trade, sustainable development and the reform of international institutions.

In recent decades, far-reaching shifts have transformed the world economy and geo-politics at the global level. Emerging countries have grown faster than developed countries in the last decade. This assumption has as a result a shift in the distribution of the world’s income. Indeed, China is currently the second largest economy in the world, behind the United States. As the relative economic weight of the emerging nations exceed that of the middle-ranking Group of Seven (G7) economies, the world economy has actually shifted from “unipolarity” toward “multipolarity”. The rise of the G20 brings challenges to the global governance system, as it is structurally and procedurally in contrast with the earlier organizations of the post-World War II.

The G20 model is structurally and procedurally in contrast with the earlier organizations of the post-World War II, in particular the World Bank (WB) and the International Monetary Fund (IMF). It is true that the G20 is nothing more than a process and a mechanism for leaders to meet and agree on coordinated policies and to provide guidance on demanding global challenges. The rise of the G20 brings also challenges to the global governance system, as it is a process and a mechanism with structure and procedures completely different from the post-World War II current international institutions. For the G20 to be a sustainable forum of international economic cooperation and balanced growth, it must be legitimate. To be legitimate, it must be effective, efficient and more representative than the G7 and the G8. On the assumption that the world’s economy is in a transitional period, some reforms in the G20 may boost its role and legitimacy in a more multipolar world. It is true that the G20’s coordination of institutions shows innovation and a new form of global governance. In brief, the G20 may represent the new dynamic of global politics. Despite the limitations that the G20 faces, it is currently the best option for convening the challenges of complex global governance issues.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP and associated professor at Sciences Po. Paris.