Reuters recently reported that the EU and U.S. are in an advanced stage of background discussions and talks with China could begin before the global climate change meeting in Copenhagen, Denmark in early December. The agreement would also involve all 30 members of the Organization for Economic Cooperation and Development (OECD), the developed countries plus Mexico, South Korea and Turkey. The EU member countries are expected to approve the talks later this month. President Obama plans to be in China in mid-November and talk of some kind of climate change agreement has been around for a couple of months. The EU and the U.S. had previously proposed in 2007 an “Environmental Goods and Services Agreement” covering 43 goods and services as part of the Doha talks.
The President of the National Foreign Trade Council, a U.S. business organization advocating an open, rules-based global trading system, said recently, “U.S. businesses and workers would benefit from the removal of barriers that U.S. exporters face on green goods and services in what is a large and rapidly growing market…We believe the Obama administration should elevate the priority of these negotiations and pursue an agreement on green trade without waiting on the rest of the Doha Round.”
China plays a unique role in the world. It is now has the world’s second largest economy on a purchasing power parity basis and is the largest emitter of greenhouse gases. China must add to its electricity generation capacity without ignoring concerns about the role it plays in greenhouse gas emissions. It is a major market for green goods and also a major producer and exporter of wind turbines and solar panels. As a large producer, exporter and importer of clean energy technology China must be part of any agreement.
Trade agreements as “coalitions of the willing” are permitted under the WTO and are already operating. During the Uruguay Round of negotiations, the U.S., EU, Japan and other trading partners agreed to reciprocal tariff elimination for pharmaceutical products and chemical intermediates, a "zero-for-zero initiative," that took effect on January 1, 1995. Updates to the products covered occurred in 1996, 1998, 2006 and 2007, and the agreement now covers roughly 90 percent of world trade in those products.
The Ministerial Declaration on Trade in Information Technology Products was concluded in December 1996 with 29 participating countries or customs areas accounting for 83 percent of trade. The ITA was to become effective on April 1, 1997 if countries accounting for 90 percent of trade in the products had signed the agreement. Twelve other countries joined by April 1, 1997 and the first tariff reductions occurred on July 1, 1997. The agreement only covers tariffs.
An agreement on green goods would be under the WTO agreement and other members could join as desired under the same rules as for existing members. Any trade would also be covered by the intellectual property rights rules of the WTO. Research for further breakthroughs in green goods will not occur unless the resulting technology is protected. This is particularly critical in some developing countries where intellectual property rights are difficult to enforce.
India and Brazil have been approached by the U.S. and EU to join, but have not displayed much interest. India is an exporter of wind turbines and would benefit, but it would not have the flexibility to protect domestic industries. India has been generally wary of sector agreements for specific industries without a general WTO agreement. While India is producing more greenhouse gases, they have not faced as much criticism as China and are moving toward more nuclear power. Brazil could be more interested if ethanol was covered by the agreement. The U.S. has a 2.5 percent of value tariff and a $0.54 per gallon secondary tariff on imported ethanol and there are no prospects for that being removed in the near future.
U.S. production and trade in solar panels is an example of how integrated some green goods have become. The U.S. imports almost half the solar panels used in the country and in the first seven months of 2009 exports were $555 million while imports were $605 million. According to the Wall Street Journal, a new 2.5 percent tariff on U.S. imports has caused problems for the industry at a time when it is burdened with excess supplies and unable to pass along cost increases.
Part of the negotiations will be on what constitutes green goods. Wind turbines and solar panels are the easy ones. As noted earlier, Brazil has pushed for ethanol to be part of mix. Technologies that help make traditional products greener are much harder to define. The Reuters article noted that hybrid cars would likely not be included. If entire cars are not included, would parts like batteries and electric motors make the list? Defining the list and updating it like the pharmaceuticals agreement does is key to making the agreement viable long term.
The green goods talks give hope for other industries where trade talks have been on hold while the Doha Round has labored on for eight years. The agreements already in place on pharmaceuticals and information technology are for newer industry undergoing rapid change, but the same approach could be applied to older industries like agriculture that are going through change. One or two big producing or consuming nations that chose to not become part of an agreement could sink it before it begins, but the reverse is also true. If major countries could agree, small dissenters would not derail an effort. The major crops and livestock commodities are not likely to move first, but some narrower commodities may have opportunities.