This article is part of a Synergies series on Next generation trade arrangements for environment and sustainable development. Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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Amid the sound and fury of the geopolitical upheavals affecting the global trading system in recent years, something significant has been happening at the intersection of trade and climate policy. It is happening without anyone quite deciding that it should. A patchwork of unilateral measures has emerged, including carbon border adjustments and green industrial strategies in the United States (until recently), China, and the European Union, which is reshaping global trade in carbon-intensive goods without being designed through cooperative negotiations with the countries most affected.

This article argues that sector-based “transition compacts,” which are broadly defined as negotiated packages that bundle trade disciplines, investment commitments, technology transfer, and transition timelines, offer a more coherent, equitable, and durable path forward.

The idea is not new. The United States and the European Union came close to concluding something approaching this kind of arrangement for steel and aluminium in 2021 with the Global Arrangement on Sustainable Steel and Aluminium (GASSA). The arrangement was primarily focused on market access, carbon intensity disciplines, permissible green subsidies, and possible accession by like-minded economies. While investment commitments, technology transfer, and transition timelines were not part of the negotiated provisions, subsequent analysis, including from the Roosevelt Institute and the Center for American Progress, has argued that any GASSA successor incorporate stronger provisions for developing country participation, including technology transfer and escalating decarbonization benchmarks. 

In another example, the recently ratified Agreement on Climate Change, Trade and Sustainability (ACCTS) shows that binding trade-and-climate disciplines can be written and agreed among willing partners. With a focus on lowering barriers to environmental goods trade, reducing fossil fuel subsidies, facilitating trade in environmental services, a new carbon measurement mechanism, and a pathway for new members and expansion, the building blocks of a transition compact-type of arrangement are already becoming visible. 

A major feature of the current patchwork of unilateral measures noted above is that consequences are not distributed equally. Developing countries face adjustment costs not of their own making, compliance with standards they had no hand in designing, and market access restrictions that take no account of their economic vulnerabilities.

Yet the picture is not uniformly bleak. Recent analysis of green iron production in Africa shows that processing the continent’s iron ore into green hot briquetted iron (HBI) using renewable energy would generate over 520,000 jobs and reduce global emissions by 79 million tonnes of CO₂ equivalent per year as the African green HBI displaces the coal-based pig iron that Chinese and many European steelmakers currently use as feedstock. Africa captures industrial development, Europe accelerates decarbonization, and global emissions fall.

This is what the transition could look like as it is clear that mutual gains are available in principle. What prevents them from being realized is not a lack of intent to decarbonize but the absence of trade rules that make the cooperative outcome the rational choice for individual countries.

The World Trade Organization (WTO) has demonstrated that it can negotiate sector-specific trade rules when political will exists. For example, the Agreement on Agriculture established that domestic support policies with trade-distorting effects are a legitimate subject of multilateral disciplines. The Agreement on Fisheries Subsidies, entering into force in September 2025, extended this logic to environmental ends. Neither is a model of ambition, but they establish something important: the WTO can apply sectoral rules that reach behind the border into domestic policy choices. 

Yet the record of the most recent WTO Ministerial Conference in Yaoundé (MC14) shows how far ambition falls short of what binding disciplines require. More than two-thirds of individual ministerial statements delivered in Yaoundé referenced sustainability, but G20 fossil fuel subsidies remain in the hundreds of billions annually.

The limits run deeper than political blockage. The WTO carries structural design flaws: weak disciplines on state subsidies, a consensus process giving every member a veto, and rules inadequate for the scale of China’s state-directed industrial strategy. A further problem compounds this for climate purposes. WTO rules regulate “like products” without accounting for how they are produced. Yet climate-linked measures depend precisely on that distinction. The long-standing debate over process and production methods (PPMs) has never been resolved, and this legal gap sits at the heart of the friction between existing trade rules and climate objectives. The ACCTS, which is small in membership but legally binding and WTO-compatible, demonstrates that willing partners can reach binding trade and climate disciplines without requiring WTO consensus, even if the broader question of PPMs remains unresolved for the multilateral system as a whole.

The de facto patchwork of arrangements now governing trade in carbon-intensive goods is being written by and for the major industrial blocs. Research finds that one jurisdiction’s green industrial policy typically triggers mirror responses from others within six to twenty-four months, driving a subsidy race that advantages economies with the deepest fiscal resources. The resulting gaps are structural, not technical, as power imbalances become baked into regimes designed without adequate developing country participation. Recent empirical analysis confirms the asymmetry: subsidy programmes preferred by advanced economies are generally WTO-permissible, while localization measures more accessible to emerging economies face legal challenge. The rules are not neutral between development trajectories.

The EU’s Clean Trade and Investment Partnerships (CTIPs)—of which the EU–South Africa CTIP is the first—represent a genuine step towards addressing the equity issue (amongst other issues) by bundling trade, investment, clean energy, and technology transfer into a single bilateral partnership. However, CTIPs remain non-binding and risk perpetuating asymmetric relationships. The core problem afflicts almost every international climate equity commitment: provisions are aspirational rather than binding, with no consequences when not honoured. What could distinguish a transition compact from its predecessors is that equity provisions are embedded in a trade arrangement with compliance mechanisms. The difference between a technology transfer commitment in a nationally determined contribution and one linked to market access is the difference between a political statement and a legal obligation.

The family of Just Energy Transition Partnerships (JETPs), launched from COP26 onwards with South Africa, Indonesia, Vietnam, and Senegal, is the most ambitious plurilateral attempt yet. The implementation record is sobering: Indonesia received less than 1% of its pledged $20 billion in the first two years; the US withdrew from three JETPs in March 2025; and private finance failed to materialize at scale. JETPs bundle finance and policy reform but contain no trade disciplines, and thus no link between market access and emissions performance and no compliance ratchet. They are the right instinct through the wrong architecture.

The design lessons are direct: equity provisions must be binding and grant-funded rather than loan-dependent, governance must be co-designed with partner countries, and the architecture must be resilient to the withdrawal of any single major power.

The most instructive precedent for what a credible and effective transition compact could look like is, arguably, the Global Arrangement on Sustainable Steel and Aluminium. It would have linked market access to verified emissions performance, established progressive emissions-intensity thresholds, defined permissible green subsidies, and included a ratchet mechanism for increasing ambition, with an explicit intention to expand to like-minded economies. It was a transition compact in all but name. Its collapse, first under US–EU technical disagreements, then under US tariff reinstatement, was a political failure, not a conceptual one. As noted, subsequent analysis has proposed a “Global Arrangement 2.0” with more explicit developing country differentiation, binding technology transfer, and a compliance architecture resilient to US non-participation. The blueprint exists. The political conditions for revival are absent in Washington for now; but may not always be.

What a fully realized transition compact for steel would contain is now reasonably clear: trade disciplines linking tariffs or border measures to verified emissions performance, phasing down as the sector decarbonizes; investment commitments determining who builds what green capacity, on what timeline, with support for producers who cannot self-finance; technology transfer, ensuring low-carbon production processes are not confined to wealthy countries; and a verification architecture built on existing bodies (including the Global Forum on Steel Excess Capacity, OECD’s Inclusive Forum on Carbon Mitigation Approaches, and the International Energy Agency’s industrial tracking work) rather than new institutions.

Steel is not the only sector where this architecture has been attempted. The International Maritime Organization’s Net-Zero Framework for shipping also showed how far a sector-level transition architecture could go. The April 2025 framework established binding emissions targets, a carbon pricing mechanism, and a fund to support developing countries. Its derailment after US trade sanctions threat is not evidence that compacts cannot work. It is evidence that instruments depending on universal buy-in from a major power that has stepped back from multilateral commitments are fragile by design. Future compacts must function among willing coalitions, without requiring every major emitter from the outset. 

The critical design insight is that a transition compact operates on a different logic from WTO agriculture or fisheries agreements, which discipline distortions in a market-driven system. A transition compact would be explicitly permissive of certain interventions such as green subsidies, preferential procurement of low-carbon goods, or technology-sharing while disciplining others: carbon dumping, subsidy races that advantage only the wealthiest, or market access restrictions that punish developing countries for a transition they cannot yet afford.

This is closer to managed trade than traditional liberal trade policy. But it has a public goods rationale that managed trade normally lacks: coordinating a global transition no single country can achieve alone, and sharing its costs in proportion to capacity.

Transition compacts would not require a new multilateral institution. The most promising path is plurilateral—coalitions of major economies in a given sector, open to others as they build capacity. The Investment Facilitation for Development Agreement (backed by 129 WTO members at MC14) and the ACCTS (concluded outside the WTO but compatible with its rules) demonstrate that this architecture is available. The Trade and Environmental Sustainability Structured Discussions (TESSD), which is now five years old and with 79 WTO members, provides the analytical foundation; transition compacts could be among its concrete solutions. The Coalition of Trade Ministers on Climate, spanning 63 countries and holding its third ministerial at MC14, offers a potential political home. For critical minerals, the Forum on Resource Geostrategic Engagement (FORGE), the successor to the Minerals Security Partnership and launched in early 2026, provides a further starting point. The institutional home matters less than the institutional design: a shared decarbonization timeline, binding equity provisions, and a compliance mechanism with teeth.

The transition compact concept also complements the proposal that has been mooted in recent years for a WTO-compatible climate club. Their economy-wide architecture addresses the free-rider problem with legal rigour. A sector-by-sector approach may be more politically tractable in the near term, better matched to different industries’ transition timelines, and more open to developing country producers who need differentiated support rather than uniform obligations. The two approaches are complementary, not competing.

A more open plurilateralism with coalitions of the like-minded around specific issues and high standards is the most credible near-term alternative on offer from serious trade thinkers. Transition compacts are an architecturally specified and equity-grounded version of exactly this: plurilateral coalitions organized around cooperative management of the climate-industrial transition, with binding equity provisions rather than aspirational ones. 

Are transition compacts politically feasible today? Arguably there is still some way to go. But the case for designing the right instrument is not contingent on current political conditions being favourable. Rather, it is strengthened by the fact that current conditions are producing outcomes that serve neither the climate nor trade nor equitable development. Policymakers are more likely to move towards cooperative solutions when they know, with some precision, what they are moving towards. Sector-based transition compacts deserve to be part of the solution.

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Anthony Cox is Senior Policy Advisor at the Ecologic Institute.

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Synergies is an online platform featuring expert commentary and opinions curated by TESS. We foster dialogue and incubate ideas on how to shape a global trading system that effectively addresses global environmental crises and advances sustainable development. Synergies draws on perspectives from leading experts and practitioners across policy communities from around the world. We cultivate solutions-oriented policy analysis for a sustainable future.

The Executive Editor is Fabrice Lehmann.

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