The “Common But Differentiated Responsibilities” – WTO Conundrum

[Kartikeya Garg obtained his LL.M. in International Law from the Graduate Institute of International and Development Studies, Geneva (IHEID) and as a lawyer, has worked at the Trade and Environment Division of the World Trade Organisation (WTO).]

[The views expressed in this article are personal. This article has been prepared for informational purposes only.]

Introduction

Climate change mitigation has been at the forefront of many recent multilateral initiatives and transcends overlapping fields of international law. Although the series of Conference of Parties (COPs) have been organised under the ambit of the United Nations Framework Convention on Climate Change (UNFCCC), a successful implementation of obligations under the Paris Agreement is only possible if States also focus on environmental considerations in the context of other organisations and fora, including the World Trade Organisation (WTO).

Against this backdrop, the EU has set an ambitious target of achieving a 55% reduction in carbon emissions compared to 1990 levels by 2030 and achieving carbon neutrality by 2050. To facilitate these targets, it launched a series of legislative proposals, known as the “Fit for 55” package in 2021. One such proposal is its Carbon Border Adjustment Mechanism (CBAM). This attempts to balance costs incurred by domestic industries due to stringent carbon pricing policies with those of imported products originating from countries with comparatively less stringent (or non-existent) carbon pricing policies (Larbprasertporn, 2014). CBAM envisages this balance by requiring importers to purchase carbon certificates corresponding to the carbon price that would have been paid if they had been produced within the EU. By equalising carbon prices, CBAM aims to prevent industries from moving to “carbon havens” and endeavours to uphold the overall effectiveness of global carbon-limiting environmental policies.

Some developing countries, however, have raised serious objections to this proposal, claiming that the imposition of different carbon pricing certificates based on a product’s country of origin may breach the WTO’s Most Favoured Nation (MFN) Principle. While the EU has repeatedly claimed its compliance with WTO rules, some developing countries have also on multiple occasions in the WTO’s Committee for Trade and Environment (CTE) claimed that, by equalising carbon taxes for developed and developing countries, CBAM would also violate the environmental law principle of Common but Differentiated Responsibilities (CBDR).

CBDR is the bedrock of most Multilateral Environmental Agreements (MEAs) in the world. Developing from the principle of equity, its earliest expression in its current form was in the 1992 Rio Declaration, with Principle 7 declaring that, “(…) In view of the different contributions to global environmental degradation, States have common but differentiated responsibilities. (…).” In other words, it requires that developed countries not only take the lead in combating climate change, including their effects, but also assist developing countries with funds, technology, and knowledge to address climate change (UNFCCC).

While there is no question that CBDR is an indispensable part of MEAs, its status as an emerging principle of customary international law is still questionable. Although it has formed crucial parts of treaty law and soft law instruments, it has not been expressed in legally binding terms. In fact, developed countries such as the United States have resisted the application of any interpretation of the principle that constitutes any obligation under international law towards developing countries.

Additionally, despite Members raising the violation of this principle under the ambit of the WTO in the CTE, there is presently no mention of CBDR in any WTO agreement. In fact, it, could arguably contradict MFN (where the latter aims at non-discrimination while the former allows different rules for Members). Therefore, a hypothetical claim before WTO Adjudicators that CBAM violates CBDR could not be directly raised, because the principle lies outside the scope of WTO “covered agreements“. There are, however, possible avenues which could, impliedly, include CBDR as an important rule of international law to consider while interpreting WTO provisions:

a. The Marrakesh Agreement Preamble

The need to harmonise trade and environment disciplines was not lost on the framers of the Marrakesh Agreement, which explicitly recognises the objective of sustainable development and the need to protect and preserve the environment. Crucially, it also recognises that this be done “in a manner consistent with [Member’s] respective needs and concerns at different levels of economic development.” A case could be made out that differentiating between developed and developing countries with respect to their contributions to protect the environment explicitly includes CBDR as a founding principle of the WTO as well. However, the Preamble notably excludes the aspect of historical contributions that is inherent in CBDR and is focused only on levels of economic development. There could be a situation in the future where states’ capacities to tackle environmental damage will increase due to increasing economic development, but historical contributions might remain the same (Ladly, 2012).

Nonetheless, the preamble does not impose substantive obligations on Members, and is only used to provide the relevant context for the purpose of treaty interpretation. In other words, though the preamble is relevant to the interpretation of terms in WTO Agreements, it cannot be invoked as a basis of deviation from substantive obligations provided therein (China – Rare Earths). This would mean that an inclusion of CBDR through the preamble might not, by itself result in modifying the interpretation of WTO non-discrimination principles.

b. WTO Special and Differential Treatment (S&D) Provisions

Recognising the need to integrate developing countries and Least Developed Countries (LDCs) into the multilateral trading regime, WTO Agreements contain unique provisions which provide developing countries with special rights, and the possibility of being treated differently by developed countries. Both the climate change and trade regimes, therefore, explicitly acknowledge differences in capacity between states and confer obligations accordingly.

Part IV of GATT, for instance, contains non-reciprocity provisions whereby developed countries forego the right to ask developing countries to offer matching concessions or to reduce or remove tariffs and other trade barriers. By asking developed countries to “accord high priority” and “to the fullest extent possible” (GATT Art. XXXVII) provide differential treatment to developing countries, the provisions are phrased in the form of best effort measures, and do not confer substantive obligations on developed countries. Moreover, these provisions are not exceptions to non-discrimination rules and apply only in addition to obligations under Part I and III (EEC – Dessert Apples). CBDR would probably not be accommodated in the form of mere “best efforts” provisions.

The explicit exemption to MFN, however, is the Enabling Clause, which allows developed members to give differential and more favourable treatment to developing countries, and a case could be made to interpret CBDR within this exception. There are, however, a few discrepancies between the two provisions. While CBDR allows each country to determine their own obligations and contributions to climate change mitigation efforts, the Enabling Clause treats developing countries as a category and does not allow for finer differentiations between the two (Pauw and others, 2014). It only differentiates between developing countries and LDCs.

Another discrepancy between S&D provisions and CBDR is the definition of developing countries that determines eligibility for differential treatment. S&D provisions in the WTO are based on a system of self-declaration, where any member can claim to be a developing country and take advantage of these benefits. The UNFCCC, on the other hand, contains an official list of developing countries. Therefore, although both S&D provisions and CBDR advocate differential favourable treatment to developing countries, they are built on premises that are fundamentally different, leading to possible difficulties in harmonization.

c. Article XX Chapeau

Discussions so far have shown that compliance with MFN would potentially be inconsistent with the principle with CBDR. However, an interpretation under Article XX, which sets out general exceptions applicable to all GATT obligations (including Articles I and III) might provide an avenue to harmonise policies. For instance, Article 3.5 of the UNFCCC mirrors language used by the Article XX chapeau in stating that (unilateral) border measures taken to combat climate change cannot constitute “arbitrary or unjustifiable discrimination or disguised restrictions on international trade.” This has been interpreted in US – Shrimp to require sufficient flexibility so that it “accounts for different conditions which may occur in the territories of other Members.” Scholars such as Pauwelyn believe that this interpretation may include historical reasons for differentiation and could therefore apply CBDR as described in the UNFCCC.

Furthermore, WTO adjudicators have, in the past, relied on rules and obligations contained in other treaties in order to interpret requirements under Article XX. For example, in US – Shrimp, the Appellate Body analysed obligations under the Convention for the Conservation of Migratory Species of Wild Animals as well as the Convention on Biological Diversity to interpret Article XX requirements. According to precedent and Article 31(3)(c) of the VCLT therefore, CBDR could be considered as a relevant legal obligation while interpreting WTO agreements.

Conclusion

Thus, although interpreting Article XX could include considerations of CBDR, a solution under the general exceptions provision does not necessarily eliminate the conflict between non-discrimination principles and CBDR. There are important similarities between international trade and climate change regimes, with both being areas that have major economic implications for parties. “The stakes in both issue areas are very high, potential costs of compliance are very high and an endless number of different interest groups are involved.” Despite both international legal regimes advocating the aspects of “sustainable trade”, as well as explicitly acknowledging differences in capacity and obligations of developing countries, tension between international trade law and environmental law persists, primarily due to differences in their underlying philosophies. While the former is based on considerations of efficiency (focusing on enhancing trade and comparative advantage), the latter is fundamentally concerned with considerations of equity (focusing on common concerns of humankind).

Recent discussions in the WTO could, however, encourage further coordination. With increasing calls for reform in S&D provisions, could S&D provisions similar to those in the Trade Facilitation Agreement (segregating commitments and obligations of developing countries and LDCs into different categories, as opposed to treating them as one group) account for different individual climate-change related obligations envisaged under CBDR? Or perhaps, rather than attempting to unify the two legal systems, efforts might better be directed at developing juridical approaches clarifying the intersection between the principles, on a case-to-case basis? Whatever the solutions, with increasing focus on intersections between international trade and environmental regimes, and a corresponding increase in climate-related trading measures, the need for harmonious application of the non-discrimination principles and CBDR has never been greater.