Trade Policy and the Climate Crisis – Factsheet

In addition to offshoring good-paying jobs, driving down wages and increasing inequality at home and abroad, modern trade agreements are also exacerbate the climate crisis by increasing carbon pollution and handcuffing the policy space needed for governments to implement commonsense climate solutions. 

Trade agreements prohibit countries from restricting trade in fossil fuels
At their core, Free Trade Agreements require countries to remove restrictions on the movement of goods across borders.  Oil, coal and natural gas are all goods included in these pacts.  As such, government actions that limit the export or import of fossil fuels can be considered violations of trade agreements.

Actions prohibited by trade agreements not only direct restrictions on trade in fossil fuels, such as a ban or quota on the import or export of oil, coal or gas.  Trade deals also prohibit indirect restrictions on trade in fossil fuels, such as restrictions on oil or gas drilling; restrictions on the building of pipelines or export terminals; and other actions that indirectly restrict trade.  

Trade agreements give corporations tools to attack environmental policies
Most trade agreements give transnational corporations tools to attack the environmental laws, regulations and even court decisions of the countries they operate within. 

Trade agreements empower corporations operating across borders to, either directly themselves or indirectly through governments, sue over policies they believe interfere with trade and investment privileges outlined in those trade deals. 

These challenges aren’t heard in the U.S. court system or any other country’s domestic judicial system, but rather, by an international tribunal of corporate trade attorneys. These tribunals can’t literally overturn a country’s environmental policies, but they can impose penalties worth billions of dollars, such that if a country doesn’t want to face additional suits, it changes its policies to comply with the tribunals’ rulings. 

Corporations can sue not just for a return of money they have invested, but also for the loss of expected future profits.  Two examples, among many, include a U.S. oil-and-gas company seeking nearly a quarter billion dollars in compensation under the North American Free Trade Agreement (NAFTA) when Quebec imposed a moratorium on fracking under the Saint Laurence River and

The firm TransCanada threatened a $15 billion NAFTA suit against the United States after the Obama administration refused to grant it permits for the Keystone XL Pipeline.  

If taxpayers are required to pay the fossil fuel industry for its loss of future profits in order to get the industry to stop polluting, policies that limit climate pollution will become virtually impossible to enact. Unfortunately, policies that restrict fossil fuel projects aren’t the only ones at risk under existing trade pacts.  Trade deals have also been used to attack governments’ green energy projects.  

In 2019, the World Trade Organization (WTO) ruled against solar panel incentive programs put in place by the states of California, Connecticut, Delaware, Massachusetts, Michigan, Minnesota, Montana and Washington.  The ruling came through a case against the U.S. brought by the government of India in retaliation from an earlier U.S. case against India’s use of green energy incentives.  

Trade agreements enable wasteful, throwaway consumer culture
By offshoring once good-paying manufacturing jobs from the United States and other countries to sweatshops abroad, trade agreements also enable short-lifecycle manufactured goods — especially when it comes to consumer electronics.  

Many electronic products — from cell phones, to computers, to gaming consoles, to kitchen appliances — are made with mined components shipped around the globe for assembly. These products are dirty to both make and to dispose of, and should be designed in ways that make them easy to repair and to update.  

Instead, corporations choose to make products designed to become obsolete after just a few years of usage.  This business model simply would not be possible if the workers involved in both the production and recycling of these products were paid good wages.  By enabling the offshoring of manufacturing, modern trade deals enable wasteful, throwaway consumer culture.  

First steps to creating just and sustainable trade agreements
To promote a livable future, rather than accelerate climate chaos, trade agreements must include the following:

  • Strong, binding climate standards with swift and certain enforcement mechanisms;
  • Strong, binding labor standards with swift and certain enforcement mechanisms;
  • Terms explicitly allowing governments to adopt stronger environmental and other public interest rules than those required internationally; and
  • Terms allowing governments to tax the import of carbon-heavy products, as well as goods from countries with weak climate standards.

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