By Dr Jan Yves Remy
It was not so long ago, in March 2022, that Prime Minister Mia Amor Mottley of Barbados went to the World Trade Organization (WTO) in Geneva seeking concrete answers on how the WTO was helping developing countries with one of their most pressing needs – financing their climate adaptation and mitigation efforts to transition to green economies and reduce their greenhouse gas emissions (GHGs).
Fast forward just seven months, and so much has changed. The WTO’s Director General, Dr. Ngozi Okojo-Iweala, has made sustainability and climate change action one of the central issues defining her administration, with her efforts to date culminating with the release of the World Trade Report 2022 on Climate Change and International Trade at the climate change negotiations in Sharm El-Sheikh, Egypt (COP27). In turn, PM Mottley has refined her thinking and broadened the appeal of her core message: that the “Bretton Woods” international financial institutions – the IMF and the World Bank – must be reformed to help developing countries fund adaptation and cope with the irreversible loss and damage from climate change. Dubbed the Bridgetown Initiative, PM Mottley’s proposals have received the nod from influential friends at COP27, like French President Macron, and look set to unleash a new wave of thinking about the way global institutions are approaching risk and pricing capital for climate-resilient projects across the world.
In a powerful show of force then, both leaders seem intent on placing climate at the core of the international communities’ attention; while different, their demands are inextricably linked. In this SRC Trading Thoughts I ponder, is there a way that the Bridgetown Agenda and international trade can come together to solve the pressing needs of the global South?
What’s in the Bridgetown Initiative?
The Bridgetown Initiative, named after the capital of Barbados where it was launched in July 2022 among high-level global finance thought leaders, aims to make green and development financing more fair, accessible and affordable so that developing countries can meet their climate obligations under the Paris Convention and fund their development agendas under the Sustainable Development Goals. As described by Avinash Persaud, Barbadian Special Envoy on Climate Finance and one of the Initiative’s key proponents, there are three main pillars being advanced for reform of the current finance architecture:
First, the Initiative proposes a Global Mitigation Trust seeded with IMF Special Drawing Rights (SDRs), which are rights of IMF members to borrow specific amounts from another at low-interest rates. Many are held by developed countries and are worth over USD 1 trillion. If a portion of these SDRs – about USD 500 billion – were offered to the private sector at 2.4% interest rates, they could be used to fund the mitigation projects and investments using technologies and incorporating high environmental standards such as those set out in the Just Energy Transition partnerships.
Second, it calls for more concessionary finance to be made available to governments by multilateral development banks – at better than commercial rates – to fund adaptation projects. Specifically, the multilateral development banks would work with the IMF to rechannel their SDRs to regional development banks. This financing would be made available even to high and middle-income countries of CARICOM – like St. Kitts and Nevis, Barbados and Trinidad and Tobago – that have been hard hit by Covid-19, inflation, and debt, but which are not always eligible to receive such funding under current criteria.
Third, and to address the chronic debt of some countries, especially those in CARICOM, the Initiative proposes Barbados-style natural disaster and pandemic clauses in all debt instruments – whether held by governments or private creditors. These clauses would ensure that debt service would be suspended for two years after a declared natural disaster, meeting a threshold, and would release liquidity to governments for spending on social programmes. Second, reconstruction grants would be provided to assist countries in circumstances where the loss and damage by a climate event are over 5% of GDP. This would trigger payment out of a fossil fuel compensation fund, to be financed by producers of fossil fuels, many of which have made windfalls from recent oil prices.
The Initiative adds to the creative approaches being taken by Caribbean entities to the climate financing issue like the Belizean Debt-for-Nature Blue Bond, the Caribbean Development Bank’s Recovery Duration Adjustor, and ECLAC’s Caribbean Resilience Fund.
How can the Bridgetown Initiative Benefit Trade?
The heightened global attention ushered in by the Bridgetown Agenda is bound to augur well for the sustainability agenda at the WTO. Not only can it revitalize topics like debt and trade financing within WTO circles that some countries like CARICOM, have been calling for, but it will also buttress the emphasis in the WTO’s 2022 Aid for Trade Review on prioritizing climate financing by the donor community.
But it is also in line with the evolving core agenda of the WTO. Increasingly, the WTO has been carefully crafting an image of being more of a friend than foe in ongoing efforts to ensure that trade rules make the transition to green economies more reachable. A key plank of that agenda rests on the financing community making available to governments and the private sector the funds for the investments and technologies that will undergird the transition to green industries, fuel green trade and increase the production of environmental goods and services that the developing world needs. If the developing countries cannot obtain financing to invest in the green economy, they will be left behind; their economies will remain uncompetitive and unsustainable and they will be unattractive to investors.
For CARICOM countries beset with debt, high borrowing rates make it near impossible for their governments to access funds. If the reforms under the Bridgetown Initiative take hold, more private financing can be unleashed for encouraging investments like the one by a French company – HDF – that is set to take the lead in green hydrogen in Trinidad and Tobago. Equally, if regional development banks, like the Caribbean Development Bank, have more liquidity to borrow at concessional rates, they can fund the adaptation projects that favour regional needs, including financing of the tradable growth sectors like renewable energy, the blue economy, and training our people with environmental skills to make them more competitive. The third plank of the Bridgetown Initiative – creating a Loss and Damage Fund out of the windfall profits from fossil fuels – can also find a home at the WTO where plurilateral discussions have started to end fossil fuel subsidies. The creation and administration of Funds – including the one just established for Fisheries Subsidies negotiations to assist developing countries with new fisheries commitments – are not new to the WTO.
And the WTO DG, Dr. Ngozi Okonjo-Iweala is not taking any of these connections for granted. The DG – herself a former Finance Minister of Nigeria and Vice President at the World Bank – has called on better financing for Africa. Just as she did with the pharmaceutical sector at the height of COVID-19 pandemic through her associations with the GAVI Alliance, she is bound to see the WTO as a convenor of choice for bringing together the finance and trade community. Alongside the heads of the other two trade institutions in Geneva, Rebeca Grynspan of UNCTAD and Pamela Coke-Hamilton of the ITC, she has also been taking front stage at COP27 in promoting the message that trade requires investment and finance to increase resilience and reduce vulnerabilities..
The precise connection between trade and finance – and the role of the WTO in bringing them closer together – still requires tweaking, but there is a real opportunity to make the agenda more concrete. At a 7 November event in COP27 hosted by the Government of Scotland and University College London under the theme, ‘When will leaders lead?’, DG Ngozi underscored that “you can have all the finance in the world, and if the trade policies are not right you will not get anywhere.” Equally, PM Mottley has said that to help countries transform their tradable energy, transportation, agriculture and manufacturing sectors, finance is essential.
While the Bridgetown Initiative was not necessarily directed at the WTO – the third of the Bretton Woods institutions – it can be a key supporting pillar for the trade community in mobilizing resources for the kind of reforms and transition needed to make economies more trade competitive and sustainable. With the current leadership in Geneva and the Caribbean, there is a real hope that the much-needed paradigm shift will actually finally happen.
Dr. Jan Yves Remy is Director of the UWI’s Shridath Ramphal Centre for International Trade Law, Policy and Services (www.shridathramphalcentre.com). She is also part of the leadership team of the Remaking Global Trade for a Sustainable Future Project with Professor Dan Esty at the Yale School of the Environment and Yale Law School, Professor Diana Van Patten at the Yale School of Management, Professor Joel Trachtman and Dean Rachel Kyte at the Fletcher School of Law and Diplomacy at Tufts University.