China’s attempt to reduce emissions was faced by unlikely critics. Last week the EU and US filed a complaint to the World Trade Organization against China’s duty on exported metals, aimed at reducing overproduction and carbon emissions.

Disputes like the above can only be expected to increase in the future as concerns regarding actions for emissions reduction and maintenance of trade competitiveness are playing a major role in climate change negotiations. The Kyoto Protocol does not adequately address the issues of effects of mitigation actions on trade competitiveness which is a major consideration for the multinational corporations and a reason for their inertia against emission reduction policies.

Under the current protocol different developed countries will need to make emissions reduction commitments varying according to their historical responsibility and capabilities while none of the developing nations including major markets like China, India or Brazil are required to make legally binding commitments. Additionally the manner of each country’s implementation would be varied and lead to unfair advantages.

In the future countries might use tariff or other trade restrictions to induce compliance with emissions reduction commitments. Additionally border taxes and subsidies may be introduced to maintain competitiveness. The use of such measures is difficult to justify under present WTO law and attempts to introduce explicit provisions for such possibilities are bogged down by disagreements over definitions.

Introduction of border taxes by a country with reduction commitments to maintain trade competitiveness could lead to cloaked protectionism and spark off trade wars. Indeed the US climate change bill has a provision for introduction of border taxes for certain products originating in China, India and similar developing countries left to the discretion of the US government. The jury is still out on whether this provision is protectionist or not, but is no doubt appealing to the American commerce chambers.

These trade issues should not be resolved with opaque bilateral agreements which could possibly weaken a multilateral climate treaty but also create unfair playing fields in the international market. One approach which could work is enforcing global sectorial emission standards but one would doubt its acceptance by developing countries. Also there is a question over which body would resolve disputes, the WTO or the UNFCCC?

Most of the trade issues are related to how the treaty provisions are designed and need not be in conflict with WTO. Thus the working groups of the new protocol need to be sensitive to the interconnectedness between mitigation provisions and trade, and design provisions to eliminate conflicts with WTO rules.

With a little over a week before countries meet in Copenhagen these issues will play a major role in making or breaking the new deal.