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From the outset the Kyoto Protocol and the United Nations Framework Convention on Climate Change have had to contend with perceived tension between effective action to slow climate change and maintenance of competitiveness. The first section of this report explores the nature of the concerns over competitiveness, trying to dissect them in a meaningful way and assess the need for concern. It looks at both the "non-Party problem" — concerns about competing with firms in states without measures to combat climate change—and the "implementation problem": concerns about competing with firms whose governments set up climate change actions in ways that benefit certain sectors.

The second main section of the report considers the relationship between the Kyoto Protocol and the WTO. Kyoto's present provisions do not contain any specific trade measures, but some of the measures taken to implement the Protocol could overlap with WTO rules. The temptation to use more overt trade measures to offset competitiveness losses will grow as Parties consider more stringent targets under future commitment periods or successors to the Protocol. The analysis here asks what trade law might be applicable to each of the various possible instruments states might use to address climate change and competitiveness concerns.