Avoiding Green Protectionism – A New Program of World Growth – December 2010

This eNewsletter introduces a new World Growth program – ‘Avoiding Green Protectionism.’  World Growth welcomes comments and contributions.

The continuation of large financial and trade imbalances create pressures for trade barriers. Environmental activists, impatient at lagging international negotiations, will seek to craft those trade barriers to advance their environmental goals.  The resulting ‘Green Protectionism” will harm both trade and the environment.

World Growth’s program aims to demonstrate the economic and environmental risks of Green Protectionism and demonstrate more effective ways to expand trade and protect the environment.

Why Green Protectionism is a Problem

Calls for green trade barriers are on the rise – from legislatures – the U.S. Congress and the European Parliament; from Governments – President Nicholas Sarkozy of France; and from uncompetitive producers. Getting this issue wrong will be costly – environmental policy will be weak, economic growth will fall and the multilateral trading system will be eroded.

Import Bans on Illegal Timber Inaugurates the Era of Green Protectionism

Many people think policies to reduce greenhouse gases will drive the push for trade barriers to protect less competitive producers from higher energy costs.  Green protectionism is now already on the rise.  It has already begun with legislated controls on imports of illegal timber products.

The First Climate Change Trade Barrier – The EU Renewable Energy Directive

The first climate change trade barrier was reckoned to be a carbon tariff.  It is not. It is the decree by the European Parliament to restrict imports of biofuels from developing countries.  EU Member States plan to impose these restrictions in December.  Trouble in the WTO is likely.

Are Carbon Tariffs Inevitable?

It is frequently argued that “Carbon Tariffs” will be allowable under WTO rules, in the same way taxes can be imposed on imports at the same level of Goods and Services Tax (GST) paid on domestic products. No such serious analysis has been done in this area.  There are serious doubts WTO rules would permit carbon tariffs.

The Second Global Green Protectionism Campaign – To Restrict Imports of Paper from Asia

The illegal logging campaign has found in ally in the campaign to restrict imports of cheaper paper from Asia using anti-dumping duties and countervailing subsidy duties.  This is the second phase of the first global campaign for Green Protectionism and reveals new alliances among Greens, organized labor and uncompetitive businesses.

Why Green Protectionism is a Problem

Calls for green trade barriers are on the rise – from legislatures – the U.S. Congress and the European Parliament; from Governments – President Nicholas Sarkozy of France; and from uncompetitive producers worldwide to block imports of paper and Palm Oil from Asia. Getting this issue wrong will be costly – environmental policy will be weak, economic growth will fall and the multilateral trading system will be eroded.

More green trade barriers could be emerging.

Calls for protection against more competitive imports have always been infectious. Now dressed up as “protecting the environment” the infection will spread.

Environmental activists like Greenpeace and WWF have long called for changes to WTO rules to allow trade restrictions to support environmental goals.  They resent the fact that WTO rules do not allow politicization of trade and prevents the use of the threat to restrict trade to pressure others to change environmental policy.

Conflicts between trade rules and environmental rules do arise.  This not inevitable and most are avoidable. Clashes usually arise because the issue has been wrongly analyzed, the policy is poor, or there is political motive – old fashioned protectionism or Green zealotry.

This e-newsletter introduces a new World Growth program – ‘Avoiding Green Protectionism.’  The aim it is to help address the proper responses to the crossover between environment and trade policy. Getting this wrong will be costly.  The result would be weak environmental impacts and erosion of the fundamental right to economic growth and to free trade.

Import Bans on Illegal Timber Inaugurates the Era of Green Protectionism

Many people think policies to reduce greenhouse gases will motivate the push for barriers to protect less competitive producers from higher energy costs.  Green protectionism is now already on the rise.  It has already begun with legislated controls on imports of illegal timber products.

In the UK, the European Parliament and the U.S. Congress laws have been enacted which make it illegal to buy a timber product unless it has been established beforehand that it was legally procured.  The U.S. measure’s approach is problematic in its own right.  The measure has been inserted into legislation banning the purchase of protected wildlife and applies to imports of timber products from protected species.

This policy response would be a kin to taking a sledgehammer to crack a nut. The amount of illegal traded timber products traded globally is quite small – the conventional claim is around 9 percent of global trade.

It is concentrated in exports from Russia, Brazil and Indonesia.  Actions have been taken in both Indonesia and Brazil to curb illegal logging.  Not only will it be less than that estimate, the nine percent claim was also not backed by by empirical research– most is was based on NGO reports which are politically inspired.

The latest Food and Agriculture Organization (FAO) assessment of the state of global forestry reports that the downward trend in illegal logging, first noted five years ago before the illegal logging campaign got fully underway in Europe and the United States, has continued largely for domestic reasons.

The whole concept is also unworkable.  The only authority that can effectively proscribe compliance with national law is a national government.  How can a furniture retailer in North Carolina or Lyons be responsible for ensuring the manufacturer in China, Indonesia or Vietnam is acting legally?

This is the result of a misguided campaign, funded lavishly by the British Government and aid agencies in Europe and the United States, to restrict forestry in developing countries.  To put pressure on them, the strategy has been to exaggerate the extent of illegal logging.

The leading cause of illegal forestry is the search for fuel wood, land and habitat by the poor.  The solution to illegal logging is to increase economic growth (by supporting forestry where it is strong industry), not by trying to put the onus on consumers to use their consumer power to force a manufacturer in a foreign country to act legally.

Developing countries are being treated unfairly.  Imagine the response if the U.S. Congress, United Nations or the European Parliament passed a law making it illegal for any citizen to buy an imported product that had been produced by a business owned by the Mafia?

The First Climate Change Trade Barrier – The EU Renewable Energy Directive

Carbon tariffs will not be the first climate change trade barrier.  The first trade barrier in the name of climate change has already been decreed by the European Parliament and comes into force in December 2010.  It would restrict imports of biofuels from developing countries.

The Renewable Energy Directive requires EU Member States to implement a trade restriction by regulating how much bioethanol and vegetable-based biodiesel may be imported from developing countries. It specifies that, unless the product is produced from land which is managed according to technical standards laid down in the directive, its import should be restricted.

This has already drawn criticism from producers and officials in Indonesia and Malaysia, the world’s largest producers of palm oil, and from sugar producers in Brazil.

Palm oil is much cheaper (and more energy efficient) than rapeseed oil – the only vegetable oil produced in large quantities in the EU.  Similarly sugar cane, from which bioethanol can be produced in the developing world, is cheaper than sugar beet, the only sugar produced in Europe.

EU Member States are to finalize this directive in December. Until they do, exporters to the EU cannot precisely measure how it lines up against WTO rules. On the surface the principles laid down in the Directive look like a clear breach of the most favored nation principle of the GATT and of the terms of the WTO Agreement on Technical Barriers to Trade.

Are Carbon Tariffs Inevitable?

It is frequently argued that “Carbon Tariffs” will be allowable under WTO rules, in the same way taxes can be imposed on imports at the same level of Goods and Services Tax (GST) paid on domestic products. No such serious analysis has been done in this area.  There are serious doubts WTO rules would permit arbon tariffs.

If it were decided to attribute a share of GST collected as a carbon tax, then that GST could be imposed, as it is now, on imports.  But no major economy has said they will do that.  Most will exempt important industries from the full impact of measures to reduce emissions.

A common idea is to impose a carbon tax on power generators.  Most of the greenhouse gas (GHG) emitted in the manufacturing of a product are from generation of electricity consumed in the manufacturing process.

In this case, the carbon tax could not be standard on all domestically manufactured products.  The energy is an input in the manufacture of a product.  Emissions will vary according to the source of the energy and how much power is consumed. Emissions from various energies vary enormously (zero from nuclear, solar or wind, lower from gas, higher from oil, and progressively higher from brown coal and black coal). If products are manufactured simultaneously in different parts of the country from different power sources, the energy input will vary and so would the equivalent carbon tax.

How can a number be determined for a rate of tax to set in a carbon tariff on an import which will equate in value the tax on the domestically produced product, as WTO rules require?  It would also seem that a separate rate of tax would need to be calculated for each product.  This seems administratively impractical.

The Peterson Institute in Washington, DC reviewed all prospective conflicts between climate change mitigation regimes and WTO rules and concluded there was no certainty WTO consistent measures could be introduced which offset the cost penalty of raising power costs to reduce emissions.

It made the horrendous suggestion that a plurilateral code be established in the WTO which exempted any GHG control measure from being challenged under WTO rules. Having struggled for years to rid the GATT/WTO system of carve outs for trade in garments and textiles and agriculture, why would they seek to undermine the system with a climate change carve out?

There is one simple answer for governments in exporting countries – absorb the cost.  Otherwise the measures to keep cheaper imports out become just the same as tariffs.

The Second Global Green Protectionism Campaign – To Restrict Imports of Paper from Asia

The illegal logging campaign has found in ally in the campaign to restrict imports of cheaper paper from Asia using anti-dumping duties and countervailing subsidy duties.  This is the second phase of the first global campaign for Green Protectionism and reveals new alliances among Greens, organized labor and uncompetitive businesses.

As in all the great basic manufacturing industries, higher cost producers in industrialized countries will still do what they can to restrict imports as Asian nations take advantage of their lower cost base.  We have seen this in chemical, steel and cement industries.  We are now seeing it in paper.

The combination of highly productive forest land in tropical Asia linked to lower cost manufacturing is putting pressure on paper producers in the US, Europe and Australia.  They responded in two ways.

First, is the traditional way – pressing for imposition of anti-dumping and countervailing duties on imports from China and Indonesia.

The second is new.  Organized labor in the US and Australia has allied with Green groups and are now arguing trade controls are necessary to save the environment.  Green allies such as Greenpeace, WWF and the Rainforest Action Network have also engaged in sophisticated Greenmail campaign to pressure retailers and their brand names.  The retailers in Europe, the US and Australia refuse to stock developing world agricultural products on the grounds that the producers are unsustainable.

Contrary to the illegal logging campaign, the large producers are sustainable.  The real problem is unregulated forestry by the poor and small operators.  Those who will suffer will be the poor in developing economies.

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