Trade and Environment Newsletter: Issue 17, February 2013

Transatlantic trade deal announced– the next ‘green FTA’?

After several months of talking, the US has announced its intention to begin negotiations on a free trade agreement with the EU. In his State of the Union address on February 12, President Obama announced that the Administration plans to notify Congress of its intent to launch negotiations on a Transatlantic Trade and Investment Partnership with the EU.

The announcement indicated the US and the EU would look to cooperate on environmental matters relating to trade in the agreement, including “social and environmental aspects of trade and sustainable development, based on what each side has already developed in existing trade agreements.”

Both the US and the EU have included obligations to protect the environment in their FTAs. While there are similarities, there are also significant, and perhaps irreconcilable, differences.

Recent FTAs concluded by the EU reflect longstanding European policy that trade restrictions to protect the environment should be permitted based on a “no risk” approach, and that trade should be regulated to achieve environmental objectives. For example, according to a draft text, leaked last year, the nearly concluded Canada/European Union Economic Trade Agreement (CETA) may allow for consideration of the precautionary principle in taking environmental protection measures which affect trade. The EU Singapore FTA enshrines the principles of sustainable development and includes measures specifically designed to promote green growth. (See related story “EU/Singapore conclude ‘green FTA’”).  The EU has tried to impose climate change-based restrictions on airline services and wants import controls on products which do not meet EU carbon emission standards.

Since NAFTA, the US has integrated enforceable provisions for environmental protection into its trade agreements, including with Australia, Singapore, Peru and Chile. Parties are generally obligated to accord high levels of environmental protection and to effectively enforce their own laws. Sanction-based dispute-settlement for all environmental obligations now applies. While the Obama Administration is sympathetic to greening regulatory standards, there remains regard for risk management approaches to trade and the WTO principle that trade restrictions should have a sound technical basis. The US Congress is implacably opposed to international regulation of greenhouse gas emissions, though Obama has announced he intends to take decisive action to reduce greenhouse gases.

But both the US and EU have in their recent agreements sought to regulate illegal logging through trade restrictions. Obligations are based on the US Lacey Act and the EU Timber Regulation – measures which seek to regulate trade based on whether they comply with national laws in other countries. The US Peru FTA for example permits extraterritorial enforcement of measures taken by Peru to protect its forestry sector. The EU Peru FTA contemplates the use of certification systems and mechanisms for the control of timber production to encourage “sustainable trade” in forest products (See related story “EU-Peru FTA contemplates controls on timber trade”). The TPP will also include trade measures to combat illegal logging and fishing activities.

The EU has discriminatory carbon-based restrictions on imports of biodiesel and the US EPA is considering a similar measure.

While it seems obvious a US/EU agreement will address environment and trade, it is less clear how broad differences in policy approaches could be reconciled. The US and EU have longstanding trade disputes over EU trade barriers on beef, GM products and chemicals. The EU has ignored WTO rulings to change its measures in the past.

Green groups will cheer the prospect of trade and environment in a transatlantic deal because they favour greening regulatory standards, and restricting trade to achieve climate change goals. They will press their governments for the agreement to include these measures.

The outcome is important. Given the size and importance of both economies – together accounting for one-third of world trade and almost half of global economic output – it could set a new benchmark for environment in FTAs.

Negotiations will begin following a decision by the European Council, and notification to the US Congress.

EU proposes restrictions on biodiesel imports

The EU will impose new restrictions on imports of biodiesel as part of an investigation into “dumping” of biodiesel from Indonesia and Argentina. The European Commission has published a regulation which, as of the end of January, requires all biodiesel imports and hydro treated fuels from vegetable oil imported into the EU from the two countries to be registered by national customs authorities. Importers of blended fuels must indicate to customs the proportion of the total content of biodiesel in the blends, for future registration.

The registration requirement is expected to hinder exports of palm oil from Indonesia and soy oil from Argentina, both significant exporters of vegetable oils to the EU. According to the European Biodiesel Board together they account for over 90 percent of biodiesel imports into the EU

The decision was taken pursuant to an ongoing investigation by the EU to determine whether the imports have been unfairly ‘dumped’ in the EU market – or sold below cost. If so, the EU may be entitled under WTO rules to impose duties on the imports to raise the price to ‘normal’ levels. The rules require the country alleging dumping to undertake an investigation in order to determine whether dumping is occurring.

The EU reportedly contends that Argentine and Indonesian biofuels benefit from governmental export policies that apply a higher export tax to the feedstock – soybean or soybean oil in Argentina and refined or unrefined palm oil in Indonesia – than the export tax applied to the finished biodiesel fuel.

If the imports are found to be dumped, both countries could then face punitive tariffs of between 30 and 50 percent, applied retroactively. This is intended to support the EU’s domestic industry which produces rapeseed that competes with other vegetable oils as a food source and feedstock.

The EU investigation will be concluded in the next few months. A decision will be taken by the end of May. The Commission is simultaneously considering an action against Indonesia and Argentina for unfair subsidisation of biodiesel under WTO rules, but that will not be decided until August.

US exports of bioethanol to the EU may also face punitive tariffs with the European Commission proposing to apply anti-dumping duties of 9.5 percent from February. An anti subsidy investigation concluded in 2012 that action was not warranted as many US subsidy and credit schemes were being phased out.

While these actions may be taken pursuant to WTO rules, they are indicative of a broader and consistent inclination of the EU to protect its own domestic industry by restricting trade in more competitive biofuels from developing countries.

India may raise palm oil duties again, seeks self sufficiency?

India may again raise import duties on edible oils such as palm oil and soy oil to help protect domestic farmers, just one month after duties on crude oils were increased. The policy is apparently driven by a desire to help praise the falling price of India’s domestic oilseed crop.

The industry has reportedly requested an import duty of 10 percent on unrefined oils and 17.5 percent on refined oils by the end of February. Further tax hikes could follow in August when significant imports of sunflower oil from Russia and the Ukraine are expected to hit the Indian market.

The policy coincides with a push by WWF and its endorsed palm oil certification scheme – the Roundtable on Sustainable Palm oil (RSPO) – to restrict imports of palm oil into India which do not meet WWF’s sustainability standards. WWF recently published a report alleging South-East Asian palm oil imports have detrimental environmental impacts in their countries of origin. Domestic oilseed producers appear to support the campaign. A former president of WWF-India – who also appears to have significant domestic oilseed interests – contributed to the report.

Last month India increased the import tax on crude oils (from zero to 2.5 percent) and lifted a six year freeze on the taxable value of cargoes, the benchmark used to calculate import taxes of edible oils. (See related story “Vietnam, India consider raising tariffs on palm oil imports”).

India imports about half of the 16-17 million tonnes of edible oils it consumes each year, mainly palm oil from Malaysia and Indonesia. Minimum prices are guaranteed to farmers to spur production and trim its import bill.

The government is reportedly working to promote self sufficiency in edible oil supply to reduce its reliance on imports. However, analysts point out that the impact of the duty hike on local prices will be minimal. Palm oil is likely to continue to dominate the country’s cooking oil basket despite the move to make overseas purchases more costly.

While WTO rules do permit import duties to be imposed to counter surges of cheap imports that hurt the domestic industry, they must be imposed only to level the playing field, and for a limited time period, and not simply to protect farmers from more competitive imports.

US mounts WTO challenge to Indian solar policy, Canada appeals WTO ruling on renewable energy

In the wake of a WTO ruling against Canada’s local content rules for green energy, the US has mounted a challenge to alleged Indian subsidies granted as part of it national solar program. Consultations, the first step in the WTO dispute process, were requested by the US on February 6.

The US alleges domestic content requirements in India’s national solar program “discriminate against US solar equipment by requiring solar energy producers to use Indian manufactured solar cells and modules and by offering subsidies to those developers for using domestic equipment instead of imports.”  It contends that “Indian solar power developers, to their successors in contract, receive certain benefits and advantages, including subsidies through guaranteed, long term tariffs for electricity, contingent on their purchase and use of solar cells and solar modules of Indian origin.”

At issue is India’s Jawaharlal Nehru Solar Mission programme (NSM) under which developers of solar photovoltaic (PV) projects employing crystalline silicon technology must use solar modules, and crystalline silicon solar cells, that are manufactured in India. India is also reported to be considering expanding the scope of these requirements to include solar thin film technologies, which comprise the majority of US solar exports.

India recently purchased solar equipment for 350 megawatts of capacity, is currently building 1,000 megawatts of solar power plants and is in the process of tendering for 2,000 megawatts of capacity.

This dispute follows a ruling by a WTO disputes Panel in December last year, which held that domestic content requirements in Ontario’s Feed in Tariff Program, which favoured domestic producers of renewable energy equipment, contravened WTO rules (See related storyWTO to rule against “green” local content requirements”). The Panel split on whether the measures were illegal subsidies under WTO rules. As expected, Canada has announced it will appeal the ruling.

Disputes in the WTO over national energy policies have become more frequent in the last three years. Since 2010 there have been at least 6 initiated over solar panels, wind power equipment and biofuels. There will be more this year (See related story above “EU proposes duties on biodiesel imports”).

This is to be expected as more countries seek to build cleaner energy sectors to meet climate change commitments, and trade in renewable products grows.

It is hoped more WTO adjudication will bring greater clarity to the rules for ‘green subsidies’ to encourage the development of open and competitive energy industries, rather than costly policies that restrict trade.

Environmentalist apologises – GM technology supports sustainability

Prominent environmentalist and author Mark Lynas has changed his mind about GM technology, stating publicly that the anti-GM movement is wrong to deny farmers the right to use their resources to farm sustainably and feed the world’s poor.

In a speech to the Oxford Faming Conference in January, Lynas admitted that he had completely changed his mind about GM technology, apologising that he had “helped to start the anti GM movement back in the mid 1990s” and “assisted in demonising an important technological option that can be used to benefit the environment.”

What happened? Lynas says he “discovered science” and the ‘rock solid’ international consensus, supported by science academics, that GM technology is safe and capable of both benefiting the environment and combating poverty. He pointed out that “the need to feed nine billion people by 2050 on the same land area as today with less resources and a changing climate means agriculture desperately needs to take on GM technologies.”

He hit out at NGOs for masking the GM debate to the detriment of the environment and the world’s poor. Greenpeace and the Soil Association have for years been ignoring the scientific consensus on GM technology, running scaremongering campaigns about the safety of GM foods.

And some governments are following. Encouraged by NGOs, many African countries have rejected GM technology. Developed countries such as the EU, Australia and Japan, now mandate labelling of GM products. Scotland and Wales are officially GM free. As Lynas notes: “desperately needed agricultural innovation is being strangled by a suffocating avalanche of regulations that are not based on any rational scientific assessment of risk. The risk today is that not anyone will be harmed by GM food, but that millions will be harmed by not having enough food, because a vocal minority of people in rich countries want their meals to be what they consider ‘natural’.”

Notably a Bill providing for the development and general release of GMOs in Uganda was tabled in the Ugandan Parliament this week. Recent efforts by some US states to require mandatory GM labeling of products have not been successful.

Rational approaches to sustainably managing the environment and food production are welcome in a debate that has been dominated by ideology at the expense of growth, development and innovation.

European Commission “concerned” about French ‘nutella tax’ on Free Trade agenda

The European Commission has expressed its concerns to the French authorities”, following failed attempts in France to raise taxes on palm oil imports for edible consumption. The failed tax proposal was widely known as the ‘nutella tax’, named after the popular chocolate spread that relies on palm oil as a key ingredient.

In a statement made on behalf of the Commission, the Commissioner for Trade refered to the “wider impacts that such domestic taxation measures on palm oil may have on the EU’s Free Trade Agreement agenda…” Free trade agreements are intended to open markets, not restrict trade.

The Commission claims to have followed “very closely” the French proposal to increase the consumption tax on palm oil. The proposed tax was eventually rejected by French parliamentarians in December 2012, but the Commission has vowed to “continue to monitor the issue closely”.

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