Chilling Policy While the World Burns

Team Obama made some news recently when they went out of their way to criticize a (relatively modest) border adjustment tax measure included in the Waxman-Markey climate legislation as part of last-minute negotiations with Ways and Means trade subcommittee chair Sander Levin (D-Mich.).

For the uninitiated, a border adjustment tax in the climate context is a charge placed on imports from countries that do not have comparable carbon emission reduction schemes. It's intended to ensure that U.S. industries do not lose competitiveness as a result of a domestic cap-and-trade scheme, and that the carbon reduction in the U.S. is not canceled out by an increase in emissions in say China as a result of increased, cap/trade-induced offshoring to that country.

It's political commonsense that a strong border adjustment tax is about the only way you're going to get Midwestern (and many others besides) senators to vote for a climate bill. At a time of high unemployment and manufacturing job loss, it's pretty difficult to ask members to vote for a bill that (without adequate green industrial policy and trade measures) will make matters worse.

That is why it is so surprising that Obama would choose to criticize this measure on the basis of WTO compatibility, as Lori explained here.

What was even more surprising was that the WTO put out a report just days before, appearing to give the WTO seal of approval to border adjustment taxes, something that had Paul Krugman giddy (but which others warned against getting too giddy about). It's odd to say the least that Obama would position himself to the right of the commerce-uber-alles WTO.

But a closer examination of the WTO report confirms much of what we've said for over a year now: Obama must push for WTO reform as a part of his climate initiative, rather than allowing WTO rules to chill our ambition on climate solutions.

For instance,

• On the one hand, the report asserts that WTO “rules permit, under certain conditions, the use of [border tax adjustments] on imported and exported products” and that “WTO case law has confirmed that WTO rules do not trump environmental requirements.”  On the other hand, the report lays out dozens of WTO provisions in at least eight WTO agreements that limit domestic climate policies, and makes no less than 22 assertions about criteria that environmental policies “may,” “may not,” “must” or “must not” meet to be WTO-legal. 
• The report acknowledges that WTO members have a right to challenge each others’ climate policies at the WTO,  that climate policies that are found to be WTO-inconsistent would have to meet a battery of onerous requirements to qualify for an exception (including necessity tests, “related to” tests, and the chapeau), that the WTO has not yet heard a case related to climate policy, and that past WTO rulings that are interpreted as environment-friendly do not represent binding precedent and instead that tribunals will make their determinations on a case-by-case basis.  
• At least nine times, the report cites various authors as “arguing” that future WTO panels would rule in a pro-environment manner.  Notably, the report never confirms as accurate the views of these authors. Indeed, in some cases where completely opposed views are presented – namely, whether climate inaction could present a subsidy to carbon-intensive industries, and whether this would be actionable under the Subsidies and Countervailing Measures agreement (SCM )or not (Joseph Stiglitz says yes to both, Jagdish Bhagwati says no to both) – the report simply presents both sides and does not state which view is correct. 
• It admits that measures to promote diffusion of green and other technology must take place “within the policy space defined by the TRIPS Agreement.”  This is notable, because the report emphasizes that, while increased trade tends to promote higher carbon emissions (the so-called “scale” effect), that trade should be considered emission-reducing as well because it can promote diffusion of green technology (the so-called “technique” effect).  It notes that pacts like the WTO have promoted the increase in trade volumes (which would be relevant to the scale effect). But because the WTO’s TRIPS Agreement is designed to limit diffusion of patented technology (which would be relevant to the technique effect), it would seem that the WTO’s net impact would be to increase carbon emissions. These lines are not connected for the reader (although several studies noting that NAFTA and the U.S.-Australia FTA were projected to lead to increase in greenhouse gas emissions are referenced). 
• While the report actually goes out of its way to withhold judgment on the environmental value of various climate measures, it loses this objectivity on the notion of “food miles,” shedding doubt on “the validity of food miles as an accurate indication of the energy use and greenhouse gas emissions associated with agricultural products.”

There are several notable omissions.

• It does not mention that there was a wider “green carveout” operative from 1995 to 2000 in the SCM, and it does not call for its reinstatement.
• It does not lay out the option of renegotiating or amending the WTO to allow for more green policy space, whether through a WTO plurilateral code or otherwise. The report raises the issue of WTO compatibility with multilateral environmental agreements, but it does not raise the issue of a savings clause that would privilege the MEAs. 
• While the WTO-UNEP report discusses how most cap-and-trade proposals allow emissions allowances to be traded, banked, and borrowed, it does not acknowledge that this amounts to a financial service that would be covered by commitments under the WTO-GATS’ Financial Services Agreement (FSA). The United States has taken very few precautions in its FSA commitments to regulate in the financial services sector without being subject to WTO trade suits.
• It cites studies by economist Glen Peters that conclude “that 21.5 per cent of global CO2 emissions are a result of international trade,” but then constructs (and tears down) a straw man that these studies “do not imply that halting international trade would eliminate” these emissions.  The report mentions a study by economists Bin Shui and Robert Harriss on U.S.-China trade, it fails to note that this latter study concludes that U.S.-China trade has worsened global carbon emissions.

Other notable parts of the report:

• It concedes that “Trade may increase the vulnerability to climate change of some countries because it leads them to specialize in the production of products in which they have a comparative advantage, while relying on imports to meet their requirements for other goods and services. Th ese countries may become vulnerable if climate change leads to an interruption in their supply of imported goods and services.”

So, while it's important to note the contrast between the tenor of Lamy and Obama's interventions, it is also important to note that Lamy and the WTO have not backed off the principle that the WTO trumps climate measures... and that the global-justice movement needs to pressure U.S. decision- and opinion-makers to push for the primacy of climate solutions.

Comments

[Don Juan of Austria]

To get elected, Obama and Hillary had to compete in the Midwest to see who could be stronger against NAFTA... and now Obama is nervous about just making sure corporations don't just offshore even more jobs to global warming cheaters?

The Republicans won't be down forever. If you don't give people a reason to vote for you on economics- like standing up to our corrupt elites and their globaloney- then people will find some awful Sarah Palin clone and put her in office in 2012.

[Captain America]

Cap And Trade is NOT a winning policy for Democrats to pursue. The Republicans are going to hang this around their necks as a jobs killer and a big tax on energy bills. Think about it....is cap and trade actually required to clean up pollution and take care of our natural habitat?? No, of course it isn't!!! What good is the EPA if it isn't working to keep the water and air as clean as possible?? President Obama and his team would be wise to bury cap and trade and instead go after fixing health care,trade policy,labor laws and passage of the employee free choice act in a very robust way. These are the kinds of meat n' potatoes issues that really matter to working people across America. I really think if President Obama,Speaker Pelosi and Majority Leader Reid insist on cap and trade then they're setting themselves up for a debacle come next year. Then the Democrats will have nobody except themselves to blame for putting the anti-worker anti-middle class GOP back in charge of Congress.