Bilateral and multilateral trade agreements can encourage a move towards the greening of business and a reduction of the effects of climate change. However, not all trade agreements possess the foresight to address such issues, with some directly undermining this process.

The world’s wealthy and advanced countries all industrialised through a common pattern – namely use of fossil fuels, access to almost unlimited resources and credit made available through a sophisticated banking and finance system. There is now under way a worldwide greening of industry, driven by the huge demand generated by China and India as emerging industrial giants. This is the world in which new green trade industries will have to be fashioned.

All would be well if this phenomenon of shifting wealth could extend “business as usual” indefinitely. But this is not possible. Even if the planet allowed such expansion in fossil fuel usage and resource spoliation to continue indefinitely, the geopolitical pressures arising from tightening pressure on oil, coal and gas supplies, and on commodity supplies more generally, would rule out continued business as usual expansion. The fact is that the “Western” model of industrialisation cannot scale to accommodate the rising industrial powers of the 21st century. This is a profoundly inconvenient truth.

Yet there are moves under way to develop industrial systems that depart from BAU assumptions – as promoted by rising industrial powers like China and India in their mixed “green” and “black” energy and resource strategies. How then does world trade impinge on these developments?

Trade Agreements embodying a positive approach

A WTO global Environmental Goods Agreement (EGA) was mooted in Geneva during the Doha Round with the ostensible aim of promoting trade in green products and services. The case for such a comprehensive “clean tech” trade deal creating a free market in green goods (to match the existing global free market in oil and other fossil fuels) is strong. It would be a huge market in itself and have every prospect of growing to be the biggest market of the 21st century and could give a huge fillip to efforts to curb global warming.

Signatories to a trade agreement would agree to phase out tariffs and trade barriers on goods that are central to the promotion of green growth. The proposed Environmental Goods Agreement represents one way forward – particularly if it could be expanded beyond a simple tariff reductions measure to incorporate an exemption of “environmental goods” from other WTO actions.

An important precedent has already been achieved by APEC; the Asia-Pacific countries agreed to such a clean tech deal (on a voluntary basis) at their APEC Ministerial meeting in Vladivostok in 2012. The statement from the APEC member countries committed them to reduce tariffs on “environmental goods” to less than 5 percent by 2015.

So whether it is a Clean-Tech Agreement, or a Sustainable Energy Trade Agreement, or just a plain Environmental Goods Agreement (as per the APEC statement and the Geneva meeting of July 2014), the purpose of such an agreement would be to dismantle barriers to free flow of goods needed to promote green growth and curb global warming. As such it would provide for free trade in green goods and energy sources just as free trade already applies in the case of fossil fuels.

Such a WTO-endorsed agreement would underwrite market expansion around the world for green goods, giving developing countries an incentive to base their industrial strategies on green growth rather than black, coal- and oil-fired growth. It shows the trade system working in potential synergy with trends toward green growth.

Trade Agreements with a Potentially Negative Impact

Together the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership would cover more than 60 percent of global GDP and could in large measure provide an alternative to the current WTO world trade rules – without the checks and balances incorporated in the global trade regime. The main provisions of this series of US-initiated agreements are concerned with much more than “free trade” and are focused more on building institutional machinery internationally that is consistent with domestic US institutions and procedures. Indeed environmental provisions seem to be very low on the order of priorities and nowhere give evidence of engaging with such global issues as climate change.

The TPP has a chapter on trade and the environment, leaked to and published by Wikileaks in January 2014. This chapter on the environment actually says very little (which is doubtless the intent) other than committing the parties to the TPP to respect existing international environmental treaties and limits itself to the anodyne comment that ‘the parties recognise the desirability that trade and climate change policies be mutually supportive’.

Trade conflicts in the greening of business

There are many ways in which the governance of world trade can impact on greening tendencies, either slowing them down or seeking to impose trade penalties, thereby adding to the complexity of the current situation. Consider just two cases: namely the use of local content requirements as a means by which countries can promote their own green industries and, by contrast, the resort by countries to impose border tax adjustments on countries accused of exporting goods with associated high carbon emissions.

Many countries are now making good use of “local content requirements” which are effectively the 21st-century equivalent of infant industry protection. This applies particularly in the field of renewable energy industries, as utilised in spectacular fashion by China but also by India, Brazil and South Africa (the ‘BICS’—less Russia)—as well as by several EU member countries and individual US states. Some states, such as China, have successfully utilised local content requirements in the building of their green and renewable energy industries with consequent positive impact on decarbonising energy systems and reducing the energy insecurities associated with reliance on fossil fuels.

Another form of interaction between trade and environmental policy involves the scope for countries to give preference to imports produced in an environmentally sustainable fashion. The issue of climate change mitigation looms large here, notably through the imposition of border taxes on carbon-intensive commodities that are not subject to a mitigation plan.

Under such circumstances as listed above, there is much to commend countries like Australia walking away from involvement in such agreements, thereby correcting the mistakes made in agreeing to the AUSFTA 10 years ago, and looking instead to new environmental agreements concluded within the ambit of the WTO.

Professor John Mathews is a Professor of Management at the Macquarie Graduate School of Management and is a leading scholar of the greening of capitalism and the role that China and East Asian countries play in this process. This article has been adapted from Professor Mathew’s article in the Australian Journal of International Affairs.