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Communism for capitalists: WTO limits on global warming policy

There is little doubt that government will play THE leading role in stopping further global warming - no other institution in society has the police power or administrative economies of scale to make it happen, regardless of the specific combination of mechanisms to be used. All of the Democratic candidates (see here, here, and here) crib some portion of their climate change / green jobs proposals from the ambitious Apollo Alliance project, which sees a primary role for government, even it its more voluntary aspects. Portions of this agenda are also in a bill co-sponsored by all current senators of both parties running for president.

Well, as this stunningly candid report from the pro-corporate National Foreign Trade Council attests in explicit detail, virtually every component of a response to global warming is WTO-illegal. NFTC recounts the history of environmental policy at the WTO (and GATT), including the past successful challenges to our Clean Air Act and corporate average fuel economy (CAFE) standards. They go on to explore how every global warming bill in Congress - elements of which are reflected in the candidates' plans as well - violates WTO rules.

Among the possible WTO violations: energy efficiency regulations and standards, government-administered eco-labeling (even voluntary labeling, as Andrew Green has argued and which is cited in the NFTC paper), public procurement of climate-friendly goods and services, and possibly even emissions trading or auctioning - long seen as one of the most market-friendly way of addressing global climate change. This is mostly because of the challenge in finding a way to require domestic manufacturers to comply with costly reforms while importers importing from less-regulated countries don't have to comply.

As a response, most proposals - including in Europe and the Lieberman-Warner bill in the Senate - require some sort of provision that importers also buy into the carbon allowances. How could this provision, which seems just common sense, unravel the whole governmental response to global warming? As NFTC argues in its section on Lieberman-Warner:

Among the stated purposes of the International Reserve Allowance Program is “to promote a strong global effort to reduce greenhouse gas emissions” through “measures… that comply with applicable international agreements.” However, several features of the Program may place it in violation of fundamental WTO principles. The Program may restrict the import of covered foreign goods into the United States by raising U.S. importers’ transaction costs and placing quantitative restrictions (a “cap”) on the total amount of covered goods that can be imported into the United States. This may contradict GATT 1994 Article III because it imposes “internal regulations affecting the offering for sale, purchase, or distribution” of imported products that may be “in excess of those applied to like domestic products.” Although the Program relates “to the conservation of exhaustible natural resources” – clean air – and is done “in conjunction with restrictions on domestic production or consumption,” such a cap on imports may not pass the Chapeau of GATT 1994 Article XX on General Exceptions because it may be seen as “arbitrary or unjustifiable discrimination” or a “disguised restriction on international trade.” In determining this, a WTO Appellate Body might resort to a “necessity test” and a “proportionality test:” the contribution of the Program to the success of the U.S. cap-and-trade system would be weighed against the degree of impact that the Program has on imports of covered goods. If the Program’s incremental contribution to the overall success of emissions trading in the United States, by U.S. entities, is seen to be insignificant, then it may not qualify as a “least trade-restrictive measure” and may not qualify for an Article XX restriction, even as part of a comprehensive climate change-abatement system.

The International Reserve Allowance Program also specifies “covered goods” in a WTO-incompatible way. It may violate GATT 1994 Article III by “capping” imports of goods whose manufacture releases large amounts of emissions in foreign countries. In WTO language, this suggests discrimination among products based on non-product related processes and production methods (PPMs). In general, WTO law prohibits the use of non-product related PPMs to distinguish among products that are commercial substitutes83. The Program also defines “covered goods” based on their “close relation” to domestic goods whose production costs rise due to emissions trading in the United States Under WTO scrutiny, such a measure is likely to be in violation of GATT 1994 Article III, Paragraph I, because it applies internal regulations to imported products “so as to afford protection to domestic production.” [emphasis added]

As scary as the report is, and it's well worth a close read, we think there are even other WTO reforms that are needed to carve out room for policy space on global warming, including in the area of services related to mining and other environmental processes that the Clinton administration happily committed to WTO GATS coverage. (You can find a fuller list at our online searchable GATS database.) We'll be talking about these on the blog and in an upcoming report.

How did our priorities get so utterly confused? As our buddy Victor Menotti has argued,

At a time when governments urgently need to intervene in markets by sending clear signals that shift the decisions of energy investors and consumers, the idea of reducing the rights of government through binding trade disciplines is, at best, unhelpful, and, at worst, antithetical to the new directions we need to explore. Even proponents of more trade liberalization, such as the U.S. Trade Representative and the World Bank, in their reports on trade and climate admit that the most important factor for shifting energy investment, production, and technology transfer toward a new carbonless economy is government action to internalize carbon costs.

While NFTC and the WTO are laying out WTO-compliant ways of addressing climate change (mainly by reducing the marginal tariffs on environmental goods, which of course countries can do without the WTO), Victor shows how any policy that privileges increased trade flows actually takes us FURTHER from the solution, and that any proposals to increase WTO commitments in energy services (a giveaway to the likes of Halliburton) might actually cancel out any benefit from trade in "green goods."

All of these trade pacts make us prove that humanity's responses to its collective problems continue to facilitate trade flows and that they're NECESSARY. When do we get to vote on whether we think corporations are NECESSARY? I guess that would get in the way of communism for corporations.

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