UNCTAD Deputy Secretary-General Pedro Manuel Moreno spoke on 12 September at an event titled “Conversations on Trade, Global Economy and Climate Nexus” during the World Trade Organization’s (WTO) Public Forum.
Following the event, Mr. Moreno discussed some of the key points, emphasizing the urgent need to align trade policies with climate aspirations.
Q: What trends are shaping global trade and how can we strengthen the multilateral trading system?
There are several emerging trends influencing global trade, especially concerning the developing world.
These include the influence of digital technologies on what we trade and how we trade, the regionalization of trade, the shifts in global supply chains, which intensified during the COVID-19 pandemic, the potential trade fragmentation due to geopolitical strains, and an increased focus on sustainability amid threats of climate change and environmental damage.
I’d like to highlight the potential dangers of economic fragmentation. Estimates by the WTO and the International Monetary Fund (IMF) suggest the potential losses from fragmentation could range from 5% to 7% of global GDP. This would be like removing the GDPs of India and Italy from the global economy. The cost is massive.
Fragmentation also hampers the international cooperation that is vital for addressing global issues. Our world needs substantial resources to face ongoing crises, such as fighting climate change, while pursuing the Sustainable Development Goals (SDGs). Fragmentation reduces available resources and cooperation, pushing us off-course.
And as the saying goes, “When elephants fight, it’s the grass that suffers”. In the context of trade, developing countries might find themselves caught in the crossfire of trade disputes or face growing pressure to take sides in economic conflicts. Nobody will win.
The intersection of climate change and economic development is increasingly shaping the future of trade, with many countries focusing more efforts on decreasing their carbon footprints. Trade should be one of the engines of this transformation. But fragmentation and less cooperation are sand in the engine.
Tackling climate change and its repercussions demands resources, green products and technology exchange. In a divided trading system, this is far more difficult to achieve.
That is why our best bet today remains a multilateral trading system that is transparent, predictable and inclusive – and delivers on the development aspirations of developing countries.
Q: What are the key findings from UNCTAD’s research on trade and climate and some of its key initiatives?
First of all, a just energy transition is crucial. We all know that climate change is inherently unfair. Many of the countries most affected by climate change have contributed the least.
But paths towards low-carbon growth for developing countries will need to vary based on their capabilities. The speed of decarbonization is not only a matter of will but also the ability to do so. The use of punitive measures is not the way to accelerate their transition.
Instead, the focus should be on support for trade-related decarbonization. Support should include sharing intellectual property and technology for green technologies – a commitment in the Paris Agreement that remains unfulfilled.
Developing nations also need vast climate finance – ensuring it doesn’t offset other development finance. Before the COVID-19 pandemic, we estimated that developing countries needed $2.4 trillion annually to achieve both climate and development goals. Given the current situation of cascading crises, this number is now higher. But the bottom line remains the same: We need to move from billions to trillions.
The situation is further complicated by soaring public debt in the developing world. Around 3.3 billion people live in countries that spend more on debt interest payments than on health and education. Imagine the limitations they face when trying to invest in a green transition.
Second, we need to promote green structural change in developing countries.
Trade in environmental goods has surged, hitting nearly $2 trillion in 2022 – a jump of over $100 billion from the previous year. But increasing trade in climate-friendly goods and services is not enough for an inclusive transition. Developing countries remain mainly exporters of the required raw materials and importers of the finished “green goods”. This must change urgently.
We need to help them build and strengthen domestic and regional green supply chains. Trade can facilitate this by offering access to environmentally preferable goods, promoting renewable energy systems and assisting countries to seize opportunities from the energy transition.
Third, it’s important to align trade and climate concerns in multilateral agendas.
While the Paris Agreement doesn’t directly mention the word “trade”, its relevance for climate action has become undeniable. The upcoming UN Climate Summit (COP28) will include for the first time a “trade day” and WTO, UNCTAD, ITC and ICC will have a joint pavilion. This offers a platform to show the strong links between trade and climate policies.
Also, our World Investment Forum in October will highlight the interconnectedness of climate and trade issues, placing an emphasis on the energy transition and investment in green economic transformation.
Developing nations require around $1.7 trillion in investments annually for renewable energy but received only $544 billion in 2022. Despite global investments in renewables nearly tripling since 2015, the majority has been directed to developed nations, with Africa receiving only 2%. Addressing this disparity is urgent.
Q: How can MC13 promote global trade that benefits both people and the planet?
WTO members can shape a trade system that serves as a catalyst for sustainable development, climate responsiveness and inclusiveness. It’s important to capitalize on the momentum of the urgency for climate action.
MC13 should work towards achieving a trade system that is an engine for sustainable development, climate action and inclusiveness. Thus, any initiative seeking to improve climate and trade outcomes must be mindful of the needs of developing countries. Otherwise, we may deepen further inequalities.