Monday, December 14, 2009

Green Hypocrisy at the White House?

Is the Obama Administration publicly pushing for free trade in "environmental goods," while quietly raising tariffs on a key "green" product to protect domestic businesses from losing market share?

Quick answer: it sure looks like it.

According to Reuters last week, the United States is interested in early action on a multilateral agreement for free trade in "environmental goods":
The United States supports taking "early action" to liberalize trade in products that reduce greenhouse gas emissions and believes that could spur progress in broader world trade talks on environmental goods and services, a U.S. trade official said on Wednesday.

"We would be interested in early action on climate-friendly technologies. We are discussing this possibility with other countries," Carol Guthrie, a spokeswoman for the U.S. Trade Representative's office, told Reuters....

Washington believes reducing tariffs and other trade barriers on technologies that help countries reduce carbon dioxide emissions could be an important component of international action to address climate change....

In the eight-year-old Doha round of world trade talks, the United States and the European Union have proposed eliminating barriers on a long list of environmental goods and services, including climate-friendly technologies such as wind turbines and "smart meters" for more efficient electricity grids.

But progress on that initiative has been held hostage to the overall Doha negotiation, which is stuck on a number of difficult agricultural and manufacturing trade issues.

The National Foreign Trade Council, a business group that represents major U.S exporters, has urged President Barack Obama to make negotiation of a green trade agreement a top priority, even if that means working outside of the World Trade Organization's normal process in the Doha round....

Guthrie did not address that point directly, but said U.S. Trade Representative Ron Kirk told WTO members in Geneva the United States was interested in early action to free up trade in climate-friendly technologies and believes such an initiative could "spur some momentum in ongoing Doha negotiations on environmental goods and services."
Renewed US efforts to develop free trade alternatives to eco-protectionist measures like carbon tariffs are a welcome development.  As the Reuters' article mentions, such an agreement is a key pillar of the current Doha Round of multilateral trade negotiations at the WTO (although I should note that environmental negotiations have been stalled by not only the Round's problems in other negotiating areas, but also the failure of WTO Members to actually define what "environmental goods" would be subject to any liberalization agreement).  On the other hand, that the United States is pushing for an early harvest of an environmental goods agreement outside of the Doha Round is further evidence that the US simply sees no near-term prospects for finishing Doha.  Nevertheless, when the United States - particularly this administration - advances free market alternatives to draconian, anti-market climate change policies, it's usually cause for cheers.

I say "usually" because a news story from Law360 unfortunately appears to undermine the Obama administration's free trade motives re: environmental goods.  According to the report, the US Customs Department's sketchy decision to reclassify imports of solar panels has increased tariffs on those products from zero to 2.5%, potentially costing millions:
A recent decision by U.S. Customs and Border Protection to bump up duty rates on solar panels and modules imported by U.S. solar technology companies could put domestic producers on the line for millions of dollars in unpaid penalties, leaving some experts crying foul.

Customs ruled in January that because the solar modules contain bypass diodes, they must be treated as electric motors and generators, which are subject to a 2.5 percent import duty. But the development remained largely unknown to the solar energy industry until recent weeks, when the Solar Energy Industries Association announced that it was preparing a challenge to the tariff classification ruling on the Trinasolar TSM-175D solar module, imported by GES USA Inc. from China.

Because U.S. solar energy companies have been importing solar panels and modules under a duty-free rate for over two decades, the ruling came as a shock to industry experts, who fear the decision could be enforced retroactively and result in duties and penalties of up to $70 million for already-imported products.  Some lawyers have shown concern over the conflict the decision has raised within Customs over the classification, noting that the agency's latest stance marks a turnaround from its historical take on the issue. Solar panels contain and have always contained bypass diodes or other similar elements, Sloane Pearson, an associate at Hagen O’Connell LLP, pointed out.  Additionally, back in 1993, Customs issued a letter ruling that classified solar modules –- which, incidentally, contained bypass diodes –- under the industry classification, Pearson said.  The 1993 ruling was not addressed in this year’s ruling, she said.

In order to make a finding of an established and uniform practice, or EUP, it must be determined that Customs consistently classified a specific type of merchandise under a particular category of the tariff schedules prior to some distinct point in time, and that the agency altered this practice without providing reasonable notice, Pearson added. “There is no question that an EUP has existed in the solar industry for some time now,” she said. “Given the long-term practice, solar companies have held the expectation that duties would not increase without notice.”...

Mark Ludwikowski, a partner at Thompson Hine LLP, said the ruling could restrict foreign competitors, particularly smaller players who may not be able to absorb the cost or shift some assembly to the United States. ...

In addition, Ludwikowski said, the more pronounced short-term impact for domestic producers is likely to be caused by market disruption for importers resulting from the ruling. “It can have a chilling effect on imports of panels and also on the shifting of panel production from the U.S. to China,” he said.

Experts also said the solar panel tariff issue was especially significant given that the U.S. and the European Union have recently been pushing for a deal to abolish duties on environmental goods.  According to Ludwikowski, the Customs ruling seems to contradict U.S. support for the elimination of tariff and nontariff barriers on environmental goods and services in the long-stalled Doha Development Round talks, which are set to resume in the coming weeks. But on closer inspection, he said, it appears that the list of environmental goods resubmitted by the U.S. and others under Doha in October does not include the new classification for advanced solar panels, most likely because this classification is for electric motors and generators. However, it does include the earlier classification for solar panels, Ludwikowski said. “In other words, the latest Doha list excludes an obvious environmental good as newly classified by U.S. Customs,” he said
To summarize: after 20 years of classifying solar panels under a duty-free category, the US Customs Department has reclassified these products into a category facing a 2.5% tariff.  At the same time, the new US list of "environmental goods" submitted to the WTO includes the old solar panel category but excludes the new category (which is "an obvious environmental good").


Now, alone this news might be a bad coincidence and little more.  But another recent article from Law360 notes that, when visiting Capitol Hill for a hearing on US exports, American solar panel manufacturers complained about losing market share in the solar market:
Despite whirlwind efforts by the Obama administration to jump-start cleantech exports, the percentage of the world's solar technology production coming from the U.S. actually has decreased in recent years, from 45 percent in 1995 to less than 10 percent today, Bob Beisner, vice president of Oregon-based SolarWorld Industries America, told subcommittee members.
Double-hmmm.  So not only do we have a very suspicious Customs ruling that increases tariffs on solar products and a US WTO offer excluding the new classification from duty-free treatment, but we also have indications of strong domestic lobbying from the US solar industry.

That's an awful lot of coincidences, huh?

Well, maybe.  Or it's firm (albeit circumstantial) proof that the United States isn't actually interested in truly free trade in environmental goods and instead is quietly pursuing green protectionism to assist domestic manufacturers of a strategic product - protectionism that actually discourages the use of alternative energy by increasing US prices for finished solar panels.  So did bad politics really just trump good policy once again? 

Like I said, it sure looks like it.


RickRussellTX said...

Sir, your command of these news sources is... brutal. If every journalist could tell such a compelling and well-supported story, there would be a lot more citizens aware of policy. As it is, my local newspaper seems to be headlining and article about the guy who makes Guess jeans.

Scott said...

Thanks much for the kind words. And frankly if it were only the local news that failed to report on these issues, I'd be fine. But sadly, even CNN, Fox and the major dailies (other than the WSJ) rarely report on trade matters. And when they do, they often get it very, very wrong. So please spread the word!