Trade policy for sustainable development

Trade is highlighted in Agenda 2030 as an engine for inclusive economic growth, poverty reduction, and sustainable development. Trade policy instruments at global, regional and national levels can help promote sustainable development. This article explains how.

At global level, the World Trade Organisation (WTO) is the main actor in international trade and trade policy. The founding agreement of the WTO recognises that cooperation should be conducted with a view to sustainable development.

WTO members have negotiated sustainability-related multilateral agreements that apply to all members and plurilateral agreements that are applied only by participating countries. An example of a multilateral agreement is the WTO Agreement on Fisheries Subsidies. The plurilateral Agreement on Government Procurement promotes international competition in procurement markets on a non-discriminatory basis. This agreement allows for the use of technical specifications to promote the conservation of natural resources or to protect the environment. The National Board of Trade has investigated how WTO members could promote climate goals within a plurilateral trade agreement. Our report: Trade and Climate Change: Promoting climate goals with a WTO agreement

WTO agreements include exemptions to the trade rules which allow, amongst other things, for policy measures to protect the environment and human health. The use of these exemptions requires that policies are not applied in a way that is arbitrary or introduces unjustifiable discrimination between countries. The EU’s carbon border adjustment mechanism (CBAM) is an example of an environmental policy that is applied using the environmental exemption of the General Agreement on Tariffs and Trade.

Furthermore, several trade-related sub-goals in Agenda 2030 are about promoting sustainability through the WTO. For instance, the goal to reduce inequality within and among countries has a target to implement special and differential treatment. This allows favourable treatment of developing countries compared to other WTO Members and affords developing countries certain rights. An example is to allow for longer implementation periods for trade agreements. The EU’s Generalised Scheme of Preferences applies special and differential treatment to give developing countries specific trade preferences including reduced tariffs for exporting to the EU.

Sustainable trade policy can also be supported at a global level through regulatory cooperation initiatives, including on international standardisation. For example, the UN World Forum for Harmonization of Vehicle Regulations offers a framework for globally harmonised regulations on vehicles, with benefits for environmental protection and trade.

Regional and intergovernmental trade policy for sustainability

Modern trade agreements between countries or groups of countries include a range of subject areas, such as public procurement and technical barriers to trade. This increases countries' opportunities to promote sustainable trade to a greater degree than is possible at the global level. For example, recent EU free trade agreements include a separate chapter with trade and sustainable development provisions. The provisions are intended to make it easier for the signatory countries to create good working and social conditions, to promote gender equality, and to cooperate on the environmentally sustainable trade. 

However, for trade agreements to make a significant difference to sustainability goals it is necessary to do more than just include provisions in the agreement text. A recent study by the National Board of Trade showed that regional trade agreements with environmental goods provisions generally do not affect trade flows in environmental goods. Read more: The Role of Trade in the Green Transition

In addition, more could be done to promote environmental goods trade in regional trade agreements including more liberal rules of origin, improved regulatory cooperation and TBT chapters, and liberalising complementary services.
Report: Rules of Origin for the 21st Century 
Report: An All-Star Approach to Regulatory Cooperation in the Area of Technical Barriers to Trade

Another development is in the use of less formal bilateral trade discussions to promote sustainability goals. For example, the Trade and Technology Council between the EU and the US included several sustainability-focused working groups, and they agreed on a common international standard on megawatt charging systems for electric heavy-duty vehicles. Read more: Supporting the Green Transition through Regulatory Cooperation within the Trade and Technology Council (TTC)

What can countries do at a national level?

Countries or regions can use trade policy instruments to promote sustainability goals by liberalising goods and services trade on a unilateral basis. For instance, the United Kingdom removed tariffs on a list of environmental goods. These actions have the added benefit that they contribute to domestic productivity and sustainable growth.
Export promotion can also facilitate sustainable trade through programs that support small and medium-sized enterprises or female entrepreneurs, for example.

A contribution can also be made through providing developing countries with education, capacity building and technical support. For example, the National Board of Trade supports companies from developing countries to export to Sweden and the European Union by assisting with implementing rules, import procedures and market information. Read more: Open Trade Gate Sweden

The National Board of Trade’s free training programme for civil servants in developing countries: Trade Academy Trade Policy