EU, US eye WTO free trade pact for climate-friendly goods


As world leaders meet in Bali to outline a new global climate regime, the EU and the US have launched a joint push for an international deal on eliminating tariffs on green technologies in the hope of opening up new market opportunities for business.

On 30 November, the EU and the US announced what they termed “a ground-breaking proposal” for a WTO-wide deal on the full elimination of tariffs on 43 products identified by the World Bank as environmentally-friendly. The deal would come under the current “Doha” negotiations on trade liberalisation

Such a pact, which would cover items such as solar panels and wind turbines, has been strongly advocated by EU Trade Commissioner Peter Mandelson, who claims it will foster the development of green products by making them more easily available to all nations and create opportunities for European industries, which lead the market in alternative energy technologies. 

The joint move underscores the determination of many EU and US leaders to pursue an offensive business and climate agenda, rather than a more defensive tack, backed by a series of high-level politicians and based on increased tariffs and taxes for high-carbon imports to offset competitive disadvantages caused by EU climate policies. 

  • Preferential market access for “green technologies”?  

Although the Doha Round already includes a mandate for freeing up trade in environmental goods and services (EGS), progress so far has been hindered due to a disagreement over which products should be covered

One concern is that countries could usurp the concept of EGS to protect their markets from imports of alternative technologies or, on the contrary, to import, at a lower cost, products that have multiple uses, such as pipes that can serve non-environmental purposes. 

From a legal point of view, it also remains questionable whether having different rules for “green” goods would fit with the WTO prohibition of discrimination – be it in the form of customs duties, charges, taxes or regulations – between “like products” or close substitutes. Nevertheless, WTO law also states that countries may deviate from these rules if it is for the protection of animal, plant or human health or for the conservation of natural resources. 

Another major problem with differentiation, however, lies in how to deal with the relativity of environmentally friendly products, especially in the context of changing technology – the so-called “clean vs. cleaner” debate. Indeed, what may seem environmentally-friendly now may not be perceived in the same way in five years’ time, and the concern is that if tariffs are fully eliminated on relatively green products such as natural gas, even cleaner technologies that are already available (or become so in the future) will lose the possibility of enjoying any special trade advantages. 

  • Subsidies for renewables and green technologies?  

Governments are increasingly introducing support schemes for green technologies such as biofuels, despite the fact that the WTO Agreement on Subsidies and Countervailing Measures prohibits subsidies directed at specific industries or sectors. 

In a resolution adopted on 29 November, the European Parliament called on the Commission to press its trade partners for a review of WTO rules on subsidies and anti-dumping so that environmental subsidies would no longer be actionable, while, on the other hand, failure to comply with global, social and environmental agreements would be considered as forms of dumping or undue subsidies.

  • Border tax adjustments?  

The imposition of a ‘carbon tax’ on imports from countries that are not part of the Kyoto Protocol has been advocated by a number of policymakers as an effective means of cancelling out the competitive disadvantage suffered by European companies compared to foreign ones, which do not have to implement costly emission-reduction schemes. 

An alternative measure would be to require importers to purchase emission allowances under the EU ETS before their products can enter the EU market. 

However, a unilateral move by the EU appears doubtful, both in terms of legality and economic wisdom – as it could lead to trade wars with some of the EU’s biggest trading partners. 

Furthermore, in virtue of the principle of state sovereignty, the WTO is generally reluctant to allow countries to impose trade sanctions as a means of forcing other nations to follow their policies, in particular if the problem is self-inflicted, as are Europe’s climate policies. 

However, as attitudes vis-à-vis climate change evolve in the United States, with a number of climate protection proposals currently under consideration, American policymakers are likely to start paying more attention to the problem of free riders and competitiveness erosion – thereby legitimising any action from the EU. 

  • Product and labelling standards?  

The European Parliament’s report on trade and climate change also highlights the need “to raise public awareness of consumer products’ total environmental costs” and calls for legislation that would make it mandatory for products placed on sale within the EU to have “carbon footprint product labels displaying the level of CO2 emissions caused by the production, transport and eventual disposal of a product”. Such a measure would also have to be examined according to WTO rules against imposing non-tariff barriers to trade. 

"Emissions trading can drive up the cost of emitting greenhouse gases and thus restrain them. Maximising exchange and trade in green technology is what will ultimately drive emissions down altogether," said EU Trade Commissioner Peter Mandelson. He ruled out border tax adjustments as "highly problematic under current WTO rules and almost impossible to implement in practice". 

French Green MEP Alain Lipietz, who drafted a Parliament report on climate change and trade, said: "There is an urgent need to address the role of international trade in causing climate change." He recommends shortening supply routes, the use of less-polluting forms of transport (like rail and shipping), and a greater attempt to take into account the ecological footprint of what Europe consumes. He also endorses suggestions to "introduce border taxes against countries that have not ratified the Kyoto protocol to prevent products from these countries gaining an unfair competitive advantage by failing to account for the full environmental cost of their production". 

BusinessEurope, the European employers' lobby, says proposals to impose unilateral trade sanctions, such as border tax adjustments, in order to offset the competitive disadvantages created by EU climate change policies are "seriously misguided". It warned that such measures could lead to "an escalation of retaliatory measures and, in a worst case scenario, possibly even a global trade war and the collapse of the multilateral trading system". 

European businesses also warn EU leaders that moves to liberalise trade in green technologies could in fact "lead to unjustified discrimination between products", given the lack of an agreed definition of "environmental goods" and "inevitable classification problems" related to evolving technologies. 

"In the worst case scenario a WTO Agreement on Environment would lead to new trade complications requiring exporters to produce environmental certificates with their exports [...] In the best case scenario, a WTO Agreement will contain a pragmatic list of agreed "environmental goods" whose contribution to the environment will be limited but which BusinessEurope can support as a trade liberalising measure," it stated. 

NGOs also have their doubts about the push for a green free trade pact. According to Green NGO Friends of the Earth, tariff cuts on green technologies will serve only to secure energy markets in developing countries for European business, while reducing poor countries' ability to build their own supply of environmental products. 

The group calls for a revision of WTO rules on intellectual property that would exclude green technologies from patentability, as the high cost of patents currently prevents many developing countries from following the low-carbon pathway. 

A recent World Bank study further states that Western concerns about competitiveness and fears that carbon-intensive industries will relocate to non-implementing countries are exaggerated. According to the report, existing offsetting measures, such as tax relief, applied by implementing countries to support domestic industries, already more than compensate for the disadvantages of carbon reduction measures. 

In March 2007, EU leaders committed to addressing the challenge of climate change through a unilateral 20% cut in CO2 emissions by 2020, adding they would up this target to 30% if other developed nations joined them. 

However, countries such as the United States and Australia are opposed to binding targets, for fear that they could harm the global competitiveness of their energy-intensive industries, including chemical and steel production, by causing them either to delocalise to countries with less stringent environmental norms or face significant losses in market share. 

While these questions remain hypothetical for most countries, they are already a reality for EU member states, which have been subject to carbon caps ever since the EU's Emissions Trading Scheme came into force in 2005. 

Calls for the EU to better leverage its trade policies in order to convince other large economies to commit to reducing their climate impact and protect EU nations' industrial bases have since been growing. 

However, policymakers will first have to scrutinise World Trade Organisation legislation, as it remains far from clear whether some of the measures under consideration would be compatible with international trade rules. 

  • 8-9 Dec. 2007: Trade ministers from around the world to participate in Bali conference on climate change.

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