Author: Giridharan Ramasubramanian, ANU

On 25 September 2019, five countries — Costa Rica, Fiji, Iceland, New Zealand and Norway — announced a new initiative, the Agreement on Climate Change, Trade and Sustainability (ACCTS) that provides a fresh opportunity to use trade agreements to tackle the challenges of climate change and sustainable development.

The agreement needs to do two things if it wishes to be an influential and effective international grouping. The ACCTS should facilitate the transition to a more circular economy among member countries and successfully shape discussions at the nexus between trade, climate and sustainable development in other international forums and institutions.

Policymakers who wish to mitigate climate change have started thinking about how their countries could make the transition from a linear to a circular economy. In a linear economy, resources are extracted and transformed into goods that are commercially exchanged and used before they are scrapped, leading to large amounts of waste. The circular economy involves using resources more efficiently across their life cycles by closing, extending and narrowing material loops that could decouple primary raw material consumption from economic growth. This will facilitate sustainable development by improving overall resource efficiency and lowering carbon emissions.

Currently, the ACCTS aims to provide legally binding policy action in three specific areas: elimination of tariffs on environmental goods and new commitments on environmental services; disciplinary measures to eliminate fossil fuel subsidies; and the development of guidelines for voluntary eco-labelling programs. This is a tangible start and successful implementation in these areas would show the efficacy of trade agreements in dealing with climate and sustainable development issues.

When the five states commence negotiations in early 2020 it is important for them to pay attention to the design of the ACCTS — an example of concerted open plurilateralism. A central idea behind this concept is that self-reinforcing cooperation can emerge within small groups of self-interested actors and feed into more comprehensive problem solving.

Negotiators working on the ACCTS describe it as a living agreement that could expand in membership, as other countries are brought on board, and expand in scope as new issues at the intersection of trade and climate are brought to the table. They have also characterised the ACCTS as a pathfinder that would provide an institutional template for future agreements that could shape the agendas in other climate and trade forums.

Two potential issues fall within the scope of the ACCTS: the removal of barriers to trade in secondary materials, goods and waste, and the development of guidelines for eco-design and recyclability standards. Export restrictions are often applied to the trade of secondary materials that prevent their circulation in new products. Environmentally stringent and consistent designs across borders will raise standards in individual countries and positively influence international production value chains that shape the design and manufacturing of many products. Progress in these two areas will help facilitate domestic attempts to transition to a circular economy.

In terms of expanding membership, countries such as Finland and the Netherlands have already started thinking seriously about transitioning to a circular economy and would be interested observers. More broadly, the European Union is seeking to incorporate climate provisions in its trade agreements, making it a ripe candidate to join. While larger developing countries such as China and India are using language associated with the circular economy, they have inhibited progress on climate-trade related issues in other forums in the past. Their eventual inclusion, along with other G20 countries, would have to be carefully negotiated.

The ACCTS could also drive momentum in other institutions. Long-standing efforts to reach an Environmental Goods Agreement in the World Trade Organization (WTO) have stalled but progress within the ACCTS could provide a model for renewed negotiations. Similarly, the G20 and the Friends of Fossil Fuel Subsidy Reform have sought to tackle fossil fuel subsidies with little success. Yet, this small group of countries could provide an alternative pathway in shaping progress on this issue. No intergovernmental agreement has attempted to establish codes and guidelines for eco-labels and the ACCTS offers a chance to do just that.

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