Addressing Trade-related Climate Measures at the WTO

Communication from JAPAN

The following communication, dated 25 September 2024, is being circulated at the request of the delegation of Japan.

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1  Background

1.1.  Recently, there has been increased interest in the intersection between trade and climate change within and outside the WTO, in particular regarding trade-related climate measures (TrCMs).

1.2.  Within the WTO, both the United States (_WT/CTE/W/260) and China (_WT/CTE/W/263), as well as other Members, have recently submitted papers to the Committee on Trade and Environment (CTE) to address this issue. The CTE is scheduled to hold a dedicated thematic session on TrCMs in October.

1.3.  There have also been suggestions to take up similar issues in a thematic session from the viewpoint of the TBT Agreement at the Committee on Technical Barriers to Trade (_G/TBT/W/813, _G/TBT/W/814).

1.4.  Building on this work, this proposal aims to sketch out a tentative vision of where such discussions may potentially lead to, and to provide suggested steps to move the issue forward.

2  Suggested scope of discussions

2.1.  As various different TrCMs are considered or implemented by Members, there is interest among a broad range of Members to discuss technical issues related to TrCMs on a pragmatic basis, to avoid unnecessary impediments to trade and to take into account challenges faced by developing country Members.

2.2.  Specifically, methodologies for measuring embedded emissions[1] have been repeatedly mentioned as an important area where Members can cooperate to avoid fragmentation, so establishing a WTO framework in this area would be a useful objective.

2.3.  On this topic, there are already multiple initiatives underway in other fora, both among government officials (e.g. OECD/IFCMA, IEA and Climate Club) and the private sector (e.g. ISO and various industry initiatives). While avoiding duplication of efforts and building on the work of other fora, there is scope for the WTO to play a distinctive role, not just in terms of information sharing, but also by setting out guidance that methodologies on embedded emissions should follow.

2.4.  To be clear, we do not intend to propose discussions to formulate or adopt standards for measuring emissions per se, which would not be well suited to the WTO. Rather, we envision a framework to guide Members' decisions regarding such methodologies, given their potential effect on international trade.

3  Contours of possible guidance on methodologies for embedded emissions

3.1.   Guidance formulated at the WTO on embedded emissions could have unique value by confirming commitments on certain issues where appropriate, providing clarity and predictability for the private sector, in addition to more general expressions of intent.

3.2.  Therefore, Members could initiate technical discussions on TrCMs that could lead, at an appropriate time in the future, to guidance consisting of the following:

A._    A combination of two sections, namely:

(a)_      A section confirming broad horizontal (cross-sectoral) commitments to cooperate on methodologies for measuring embedded emissions, and

(b)_      Sector- or good-specific attachment(s) for interested Members that would refer to detailed methodologies developed in other fora, providing additional credibility and visibility to such methodologies.

B._    The horizontal section could lay out basic common elements such as the following:

(a)_      Members putting in place requirements to measure embedded emissions for goods traded across borders will base their measurement methodologies on relevant international standards, where available.

(b)_      Methodologies for measuring embedded emissions will be applied on a non‑discriminatory basis, and should not be more trade restrictive than necessary to fulfil policy objectives. When identifying unified requirements to measure embedded emissions, Members will aim to avoid excessive regulatory burdens and costs on businesses, including small and medium-sized enterprises, to secure open trade, while pursuing climate goals.

(c)_       Members are encouraged to adopt practices such as the following:

_                                 i._      Setting de minimis thresholds to exempt small-volume transactions.

_                                ii._      Allowing for the use of default values where obtaining granular emissions data is impractical or excessively burdensome, and supporting the development of these values in a collaborative manner.

_                               iii._      Ensuring appropriate protection of business confidential information, including by only requiring data strictly necessary for environmental purposes.

(d)_      Members are encouraged to promote technical cooperation to facilitate capacity building efforts to adopt or apply measurement methodologies in trading partner countries.

(e)_      Members could also clarify the relationship between requirements to measure embedded emissions and existing WTO agreements with potential relevance, for example the provisions and principles related to the TBT Agreement, in conjunction with activities in the TBT Committee.

C._    In an "attachment", Members that wish to do so could identify more detailed sector-specific arrangements that they intend to adhere to.

(a)_      For instance, if certain Members accept internationally recognized standards which align with the elements in the horizontal section in specific sectors, such as iron & steel or hydrogen, they could jointly notify their commitment to do so to the WTO under this guidance.

D._    In order to encourage broad participation, the guidance could include assurances that it would not serve to either acknowledge or deny the underlying compatibility of specific TrCMs with provisions in the WTO agreements.

4  Next steps

4.1.  Ongoing multilateral discussions in the CTE on TrCMs could be continued and intensified with the aim to develop the guidance suggested in this proposal. In addition to formal CTE meetings, relevant thematic sessions and informal meetings, as well as possible collaborative efforts with other WTO committees, could all be useful in this regard.

4.2.  Thematic sessions would provide an opportunity for input from external stakeholders to share knowledge on work conducted outside the WTO, and more tightly identify areas where the WTO could add value regarding embedded emissions methodologies.

4.3.  Informal CTE meetings, to which all Members would be invited to participate, could provide additional opportunities to ensure discussions move forward in a focused and constructive manner.

4.4.  It is hoped that by the summer of 2025, Members will be able to take stock of the progress of these discussions, and suggest concrete outcomes for MC14.

4.5.  We welcome constructive engagement with all WTO Members to further refine this proposal towards such an outcome.

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