Trade and Climate


The New York Times
July 18, 2009

When leaders of the world’s richest nations and the big developing countries agreed at the Group of 8 summit this month to restart global trade negotiations, they sent a powerful signal about the need for concerted action to deal with the world’s economic emergency.

It was disturbing, however, that they could not agree on a common strategy for reducing the greenhouse emissions causing global warming. Trade and climate policy have become increasingly entangled. A failure to agree on how to address global warming could undermine half a century of opening world trade.

The House of Representatives proved the point last month when it passed a climate bill that would impose trade penalties on countries that do not accept limits on carbon emissions. Last year, the European Commission approved the idea of an “equalizationlevy on imports from countries that have not agreed to cut emissions.

President Obama rightly opposed the penalties in the House bill. Unilateral sanctions are unlikely to work and more than likely to provoke a dangerous protectionist tit-for-tat trade war. Yet if the world’s biggest emitters of CO2including the United States, China and Indiafail to reach an agreement at a meeting in Copenhagen in December, the temptation for countries that accept limits on emissions to impose unilateral sanctions on countries that do not could well become irresistible.

The main reason trade and climate change are linked is that the damage inflicted by carbon dioxide and other greenhouse gases is not mainly local or regional. If big emitters do not cut back, atmospheric concentrations of greenhouse gases will continue to rise dangerously no matter what the rest of the world does.

Moreover, without a worldwide agreement on emissions, strict limits in signatory countries would very likely lead to a fall in energy prices in countries that did not agree to cutsencouraging even more energy consumption in those places and undermining the goal of stopping climate change.

Congress is concerned that domestic limits on carbon emissions would put American companies at a competitive disadvantage with rivals in countries with no such caps. But that is not the only problem. In the absence of a system of import duties related to carbon, industries with high emissions might relocate to nonsignatory countries to save money. Or they might fail, unable to compete with dirtier and cheaper foreign rivals.

There are precedents for using trade measures for environmental goals. The Montreal Agreement to curb the use of ozone-depleting gases included trade controls on such substances. And the World Trade Organization has suggested that levying taxes at the border on the carbon content of imports would be acceptable if they are devised properlyin the same sort of way as some consumption taxes are levied on imports, ensuring equal treatment with domestic products.

Such tariffs must be part of an international agreement on climate change. Unilateral penalties against fast-growing polluters like China and India would be seen as illegitimate and could easily backfire, scuttling chances of an agreement on climate issues. Congress must refrain from putting sanctions in its climate bill.

An international accord that includes trade-related enforcement measures must also include commitments on emission reductions all around, as well as financial aid for poorer countries, like India and China, to meet the caps without sacrificing economic growth.

Further, any deal must set clear guidelines on how to identify and quantify transgressions and establish appropriate countermeasures. It also must not open a backdoor for protectionism. Without such a deal, trade is going to have problems. Failing to conclude the current negotiations will be the least of them.

Leave a Reply