One of the brightest, boldest ideas in President Barack Obama’s climate plan is to use free trade to halt climate change. In the coming year, Mr. Obama will seek a deal in the World Trade Organization (WTO) to remove trade barriers on green goods, making access to clean energy technologies easier and cheaper.
Talks in the WTO on environmental goods have been stalled for years, fixated on verbal gymnastics such as debating abstract definitions of what is a “green” product. Mr. Obama’s initiative seizes the window of opportunity that opened last year, when Asia-Pacific Economic Co-operation (APEC), the 21-country economic and trade group that includes Canada and the United States, bypassed such conceptual quagmires and set down a concrete list of products, committing to reduce tariffs on them by a fixed deadline – a pragmatic way to move forward.
Mr. Obama wants the APEC list to be the starting point for a reset on this issue at the WTO, inviting non-APEC as well as APEC countries to sign up to a new deal, and go beyond the APEC list where possible. Aware of how hard it is to achieve consensus in WTO negotiations among more than 150 countries, Mr. Obama sensibly proposes that a deal on green goods would be a coalition of the willing. This is exactly how the WTO made progress in liberalizing trade in information technologies – an agreement widely seen as a success and now being expanded.
Mr. Obama’s ambition is to persuade countries that represent 90 per cent of the world’s trade in environmental goods to sign the deal (estimated at roughly $481-billion U.S. annually).
The President’s goal isn’t unrealistic, given that many of the states concerned are already participating in APEC’s initiative. Because so many of the key global players would be inside a WTO deal, offering the same concessions to everyone else on a Most-Favoured Nation basis wouldn’t pose a large issue of “free riding.” The information technology pact already operates like that.
But U.S. trade officials will still have to face down jaded negotiators and nay-saying WTO bureaucrats in Geneva, who have spent years making up excuses for why talks on green goods can’t succeed.
One such canard is so-called “dual use” – the possibility that a single good might be used for green purposes or non-green purposes. As Petrus van Bork and I argued in a study for the International Centre for Trade and Sustainable Development (ICTSD) several years ago, this can be handled through the well-established method of duty drawbacks, so that customs duties are only forgone once it is clear that the imports have been directed toward green uses.
Another obstacle sometimes mentioned is that environmental impacts aren’t reflected in standard customs classifications used to collect tariffs. With information technology, this issue was solved at the WTO by coming up with a set of specific descriptions of the goods, which could be used in lieu of pre-existing classifications (with eventual harmonization of the two).
Yet there are bigger challenges than customs duties. Industry experts often point out that some of the most costly barriers to trade in green technologies are un-harmonized national or local standards and regulations. An ambitious approach to free trade in green goods would entail guidelines on the creation and use of international standards for specific technologies or products, such as P/V cells or wind turbines.
Still, free green trade will only go so far in achieving Mr. Obama’s climate goals, unless dirty trade is discouraged. Countries that join a green trade deal at the WTO should also commit to limit exports and imports of those goods that have the worst carbon footprints (again defined by an agreed list), and not to subsidize those products. Mr. Obama is setting a good example by declaring that tax breaks for fossil fuels should be removed from next fiscal year’s federal budget.
In the end, though, what is the worth of such efforts if WTO members can continue to frustrate trade in green goods by unilaterally imposing retaliatory duties, as is happening now in the case of solar panels? It may be too much to expect the U.S. Congress or the European Commission, for that matter, to give up that right. But a WTO pact on environmental trade could require a prior period of negotiations, or that all alternatives be exhausted, before states resort to punitive unilateralism.
Robert Howse is a professor of international trade law at New York University and a member of the Chatham House/ICTSD Expert Group on Clean Energy and the Trading System.