Sustainability moved decisively towards being a core value of the global community in 2015.

In September, the United Nations General Assembly adopted a new 2030 Agenda for Sustainable Development including 17 Sustainable Development Goals (SDGs) that provide depth and clarity to the international community’s ambitions for economic, environmental, and social progress over the next 15 years. In addition, 195 countries came together in Paris in December and concluded a new climate change accord that lifts the trajectory of the global response to the build-up of greenhouse gases (GHGs) in the atmosphere and commits the nations of the world to significant actions to reduce the threat of climate change. The breadth and depth of these commitments to make sustainability a fundamental element of the global community’s “collective journey” creates both challenges and opportunities for the international trade and investment regimes.

As a critical forum for global economic governance, the G20 (with strong leadership from China as the host nation for the 2016 G20 Summit) could provide important direction to the World Trade Organization (WTO), countries engaged in regional and bilateral trade and investment agreements, and managers of  both public and private banks and funds that seek to promote economic development on the importance of conducting their activities in a manner that reinforces the SDGs and the 2015 Paris Climate Change Agreement. This paper offers an array of ideas on how to weave the concept of sustainability into the fabric of international cooperation on trade, investment, and development – including the institutions of global economic governance.

In advancing this agenda, the G20 has an opportunity to address some of the tensions that are inherent in the concept of sustainable development and to provide a framework for operationalising the world community’s commitment to a sustainable future. Absent such efforts, there exists a real risk that the trade and investment regimes will advance principles and practices that conflict with the SDGs and with the actions required to fulfil the global community’s goal of mitigating the risk of dangerous anthropogenic climate change, as well as the “intended nationally determined contributions” (INDCs) to reducing GHGs submitted by 188 nations.

China is particularly well-positioned to play a leadership role in developing and promoting this proposed initiative as it has powerfully demonstrated in recent decades how economic success can advance the sustainability agenda – and has long been committed to a peaceful and mutually beneficial development agenda that pursues “win-win” solutions to advance a “harmonious world.” In fact, a commitment to operationalise the concept of sustainability within economic development strategies and institutions would be a logical extension of former Chinese President Hu Jintao’s vision of a “scientific outlook on development,” which has been reaffirmed and extended by China’s present leadership including President Xi Jingping.

Sustainability as a central pillar of global cooperation in the 21st century

One reason for the success of the negotiations leading to the SDGs and the 2015 Paris Climate Change Agreement was a willingness to leave behind 20th century frameworks and assumptions. In both cases, the world community united around a concrete action agenda that goes beyond past talks and targets and moves towards a multidimensional “solutions” strategy for global cooperation. Both agreements draw all nations into the pursuit of ambitious global efforts with a clear emphasis on every country playing a role on the basis of “common but differentiated responsibility” and “respective capabilities.” And both offer an integrated vision of how international cooperation should proceed with a clear recognition that economic, environmental, and social priorities must be pursued in parallel.

Furthermore, both the SDGs and the new Climate Agreement recognise that real progress on these challenging agendas of sweeping scope will require more than the signatures of presidents and prime ministers on a UN declaration. Success depends on building a “bottom up” implementation strategy of much broader engagement than has been emphasised in the past, drawing mayors, governors, premiers, CEOs, and civil society leaders into the conversation and ensuring that cities, states, and provinces, as well as the business community and the NGO world, all play a role in delivering the results that have been called for. The same spirit of broader engagement and emphasis on a solutions orientation that meets the “on the ground” needs of people everywhere would be useful in energising global economic governance and integrating sustainability into the trade and investment regimes as a core principle and guide to action.

Sustainability in the international trading system

While global governance related to sustainability reached a high water mark in 2015, the WTO continues to struggle. In a number of nations across the world, critics of freer trade have cast doubt on the value of recent trade agreements and have celebrated the demise of the Doha Round of negotiations. These critics suggest that trade liberalisation tends to diminish economic prospects in some countries and for some workers, and that the economic growth produced by trade often comes at the price of environmental degradation. There is a long literature that evaluates such claims both in theory and practice. While the depth and substance of these claims can be debated, what is beyond doubt is that many people, organisations, and political leaders around the world have come to believe that the trading system diminishes, rather than enhances, prospects for sustainable development.

If a global commitment to international economic integration is to be revitalised and trade liberalisation and free flowing foreign investment are again to be seen as critical engines of economic growth – and thus potentially important drivers of sustainable development – the arguments of the critics must be addressed. In particular, the G20 should confront the fear that the trading system and the institutions of international economic governance, including the WTO, will undermine, rather than reinforce, the recently sharpened focus on sustainability as a core concern of the global community. To put a finer point on this observation: a G20 initiative to demonstrate that the trading system will be managed in a manner that takes sustainability seriously could enhance the system’s legitimacy in a very important way.

The foundations for such an initiative are already in place. The 1994 Agreement that created the WTO makes clear in its Preamble that sustainable development is to be a core principle of the organisation. The Marrakesh package of agreements contains numerous other references to various
dimensions of sustainability as well as the need to protect the environment. But the critics remain worried that the trading system’s vision of sustainable development is more focused on development than sustainability, and is more concerned about economic growth than environmental
progress. More broadly, they doubt that global economic governance will be managed in a way that advances the SDGs and the commitments of 188 nations to control their GHGs and reduce the threat of climate change.

The G20 could confront these fears head-on with an initiative to embed the concept of sustainability more deeply into the principles and practices of the WTO and all future trade agreements whether bilateral, regional, or multilateral. Such a Sustainability Initiative might include a number of elements.

Sustainability endorsement

As a clear signal of the G20 nations’ commitment to sustainability as a core principle of international cooperation, the September Summit could adopt a resolution declaring that the institutions of international economic governance should be guided in all of their work by the SDGs and the 2015 Paris Climate Change Agreement.

WTO sustainability commitment

The G20 might further suggest that the trade regime formalise this commitment through a WTO General Council interpretive statement reiterating the importance of sustainable development as a goal, acknowledging the 2015 international agreements that heighten the global community’s focus on sustainability as a core principle, and indicating (perhaps using section 104 of the North American Free Trade Agreement as a rough guide) that WTO practice, including dispute settlement panels, will seek to interpret and advance trade principles in a manner that is consistent with the SDGs and climate change commitments. This statement could include an express acknowledgment that, in the event of a perceived inconsistency between a country’s obligations under WTO rules and its obligations under the Paris Climate Change Agreement or the 2015 sustainable development agenda, the WTO will interpret the GATT rules (notably Article XX), and any other trade or investment obligations, in a manner that permits the SDG initiatives or GHG controls to go forward, so long as the country has chosen policy options that treat international and domestic interests similarly and has not overlooked obvious ways to reduce inconsistencies with its WTO obligations.

Second, the G20 might suggest a WTO General Council interpretive statement that explicitly places the SDGs and Paris Climate Change Agreement within the exemptions listed in Article XX of the GATT. Given the multilateral consensus behind both of the 2015 agreements, activities undertaken in implementing these agreements might be presumptively covered by Article XX(b) (measures “necessary to protect human, animal or plant life, or health”) or XX(g) (measures “relating to the conservation of exhaustible natural resources”). Such a clarification would allow nations to pursue climate change actions and sustainability projects with less fear of interference from the international trade system.

But the language would need to be carefully crafted to avoid creating a new structure that protects hidden trade barriers in the guise of sustainability.

Sustainability impact assessments

The 2016 G20 Summit could break new ground with a call for the undertaking of “sustainability impact analyses” as an analytic underpinning for all new trade agreements – building on a similar commitment that the EU has launched. Such “SIAs” might require governments at the launch of negotiations to identify: (a) opportunities to enhance efforts to make progress on the SDGs or to implement the 2015 Climate Change Agreement, (b) tensions or risks that might arise from expanded trade or investment under the proposed topics for negotiation, and (c) a game plan for fulfilling the opportunities and mitigating the risks that have been highlighted. Such a requirement, modeled on the Environmental Impact Assessments required by many nations, would further ensure the alignment of trade practice and future trade liberalisation efforts with the logic of sustainability as a defining feature of international cooperation.

Support for sustainability-enhancing market access

The G20 Summit might further agree to participate in and expedite trade negotiations that would expand the flow of goods, services, and capital that support the implementation of the climate change and SDG agendas. For example, the Environmental Goods Agreement, which would reduce tariffs for environmental and energy technologies that support implementation of climate change commitments and the SDGs, does not enjoy universal participation among G20 members. Participation by the entire G20 could promote broader support for trade liberalisation in this critical sector. Such an initiative would fit nicely in the post-Doha world of trade liberalisation through sectoral agreements that can garner broad support.

The G20 could also provide new momentum for the various WTO programmes that promote export sectors in developing countries (and thus the prospect of sustainable development) including: duty-free and quota-free (DFQF) market access, Aid for Trade (AfT), and the Enhanced Integrated Framework for Least Developed Countries. Although the WTO Ministerial Conferences at Bali (2013) and Nairobi (2015) made substantial progress on these fronts, further work is needed to expand sustainable development opportunities for the world’s poorest countries.

Prohibition on sustainability-threatening policies

The G20 could also push for an agreement on “pollution haven” provisions in future regional trade agreements that would prohibit countries from relaxing environmental standards to attract investment (similar to Section 114 of the North American Free Trade Agreement). Such provisions would strengthen efforts to advance the SDGs and the INDCs that stand at the heart of the 2015 Paris Climate Change Agreement. By reducing the incentive to attract foreign direct investment (FDI) by defecting from the recently made sustainability commitments, the trading system would be seen as explicitly reinforcing the new climate accord, the SDGs, and other multilateral environmental agreements.

Sustainability-enhancing rules

The 2016 G20 Summit might also take up the call for a broader agenda of “sustainability-enhancing rules interpretations” at the WTO and in other trade and investment agreements. Such an initiative – designed to ensure that trade regime practices do not inhibit global, regional, national, or local efforts to reduce GHGs or advance programmes to meet the SDGs – might advance reinterpretations of both core WTO principles and those in related agreements. With respect to core principles, a rules interpretation that moves away from the problematic product/process distinction and acknowledges that in a world concerned about climate change, how goods get produced can be as important as what gets made would be seen as important step towards reconciling longstanding trade and environment tensions.

In this spirit, the G20 nations might invite the WTO (perhaps through the Committee on Trade and Environment) to produce a study that analyses the rules and procedures of the international trading system and identifies those that might negatively impact the global climate and sustainable development regimes. Such a “consistency” review would help the global community limit transboundary pollution spillovers and potential races towards the bottom.

With respect to specific agreements concluded under the WTO, the G20 could push for interpretations of the Agreement on Subsidies and Countervailing Measures (SCM) and the Agreement on Technical Barriers to Trade (TBT) that advance sustainable development and climate change objectives. For example, the SCM Agreement might be interpreted to require the phase-out of fossil fuel subsidies, widespread market distortions estimated to total about $500 billion/year that the G20 has previously condemned as leading to “wasteful consumption,” and to outcomes that “distort markets, impede investment in clean energy sources and undermine efforts to deal with climate change.” As former WTO Director-General Pascal Lamy has noted, “[D]iscussion on the reform of fossil-fuel subsidies has largely bypassed the WTO. This is a missed opportunity.” Fossil fuel subsidies could be regulated as an anticompetitive dual pricing scheme under Articles 1.2, 2, and 5 of the Agreement on Subsidies and Countervailing Measures, promoting more efficient markets and a faster energy transition.

Conversely, the SCM Agreement might be interpreted to maximise opportunities for nations to subsidise renewable energy investments and other activities that promote INDC and SDG attainment. We recognise that G20 members, including China, Canada, the EU, India, Japan, and the United States, have had past disagreements about how to handle renewable energy subsidies. These conflicts are counterproductive because they increase regulatory risks for clean energy investors and produce uncertainty in the clean energy marketplace - raising the cost of capital and reducing the flow of funds to both energy efficiency projects and renewable energy investments. A clear interpretation of the SCM Agreement that allows for domestic renewable energy subsidies under defined circumstances (that avoid hidden protectionism and anti-competitive practices), while retaining strong anti-dumping protections, would facilitate the energy transition anticipated by the 2015 Paris Climate Change Agreement.

Similarly, the TBT Agreement should be interpreted to enable and not inhibit energy efficiency standards, mandatory efficiency labeling, and similar regulations. Thus, the G20 Summit might call for Section 2.2 of the TBT Agreement – which recognises “protection of human health or safety, animal or plant life or health, or the environment” as a “legitimate objective” exempted from the TBT disciplines – to be interpreted to include policies and programmes aimed at attainment of INDCs and promotion of the SDGs.

While some would see these rules refinements and reinterpretations as narrow and “technical,” they would – as a package – go a considerable distance towards reconciling longstanding trade and environment tensions and enhancing the legitimacy of the WTO in a world where sustainability has become a fundamental value.

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This paper has been produced under the E15Initiative (E15). Implemented jointly by the International Centre for Trade and Sustainable Development (ICTSD) and the World Economic Forum, the E15 was established to convene world-class experts and institutions to generate strategic analysis and recommendations for government, business, and civil society geared towards strengthening the global trade and investment system for sustainable development.

This article was first created under the ICTSD project, “China’s leadership role in the WTO and G20: 2015, 2016 and beyond,” funded by the British Embassy China Prosperity Fund and directed by Shuaihua Cheng, Managing Director, ICTSD China.