Tuesday, April 27, 2010

US Proposes "Early Harvest" on Environmental Goods and Services: Good News, Bad News

Bloomberg reports that the United States is seeking an "early harvest" agreement on free trade in green goods and technologies (emphasis mine):
The U.S. is talking with Canada, the European Union and Australia about eliminating tariffs on solar, wind and related energy technologies to spur their use, U.S. Trade Representative Ron Kirk said today.

Kirk said the U.S. is seeking an “early harvest” for an agreement on so-called green technologies, which means an environmental deal wouldn’t have to wait for completion of the Doha Round of World Trade Organization talks. Negotiations on environmental goods have taken place since 2008.

“We think it only makes sense to make the trade of those goods more open,” Kirk said at a Washington event on patent protections. “We think it is important enough” that it could move ahead on its own, he said.

The U.S. and EU in 2007 jointly proposed eliminating trade barriers for 43 products ranging from thermostats to universal joints for wind turbines to parts for boilers. The proposal also called for easing investment rules for environmental services and a longer-term, broader round of tariff cuts for other environmental goods.

Total trade in such products topped $600 billion in 2006, according to U.S. statistics.

Kirk didn’t say when he hopes to wrap up a deal on environmental goods. President Barack Obama has made doubling U.S. exports a top economic goal, and spurring trade in green technologies could help accomplish that, according to Kirk.
The USTR announcement provides free traders with a dash of good news - it's one of the only instances in which the Obama administration has publicly advocated further opening the US market to imports and has proposed a specific plan to quickly accomplish such import liberalization.  Indeed, the only other "true free trade" (i.e., encouraging exports and imports) action that we've seen from the United States in the last 15 months is the negotiations on the Trans-Pacific Partnership (TPP) agreement, but even those talks aren't that big a deal because (a) we have no idea what a final agreement will look like, and (b) it's going to take years to complete.  So USTR's environmental goods plan is a small step forward for a US administration that since its inception has shunned FTAs, the WTO's Doha Round negotiations and every other import liberalization endeavor, and instead has pursued an insanely mercantilist trade policy.

Unfortunately, it's precisely that mercantilism which brings us to the bad things about the US announcement: it completely perverts the original purpose of the proposals on green goods and, in the process, undermines what should be an important public lesson about the benefits of imports (and harms of protectionism) in any market economy.  As the article above indicates, the original proposals on liberalization of "green trade" were part of the 2001 WTO Doha Round mandate, which made clear that these negotiations' primary objectives were to eliminate tariff and non-tariff barriers to trade in environmental goods and services in order to lower costs of, and improve access to, these important green technologies.  Lower costs and improved access, you see, mean more use of environmental products and services, and more use is obviously good for the environment.  (Cheap windmills and solar panels for everyone!  Woo hoo!)

Indeed, former WTO Appellate Body chairman James Bacchus has an op-ed in today's Forbes hitting on this issue while explaining how the WTO can dramatically improve the environment.  He states, in part:
Global implementation of climate-friendly technologies is a key to the success of global efforts to confront climate change. Access to green technologies by developing countries is central to this task. In particular, it is vital to increase energy efficiency in developing countries, which are only one-third as energy efficient as developed countries.

Trade negotiators have been trying to address this need for some time in the prolonged Doha Round of global trade negotiations. On the WTO agenda in the trade round are efforts to reduce or eliminate tariff and nontariff barriers to trade in dozens of environmental goods and services, including everything from wind turbines to solar water heaters to the thermostats and the generators needed to operate renewable energy plants.

Eliminating the barriers to trade in green goods and services would help diffuse them worldwide at the lowest possible cost by reducing their prices. In addition, it would provide incentives and expertise needed to enable developing countries to expand their production, use and export of climate-friendly technologies.
Indeed.  Meanwhile, it would provide consumers across the world with a valuable lesson about the benefits of imports and free trade - increasing use, access and variety, while dramatically decreasing costs.  And all to help improve the environment.  In sum: a very worthwhile endeavor.

So what's my problem?

Well, beyond the obvious fact that countries should recognize these import benefits and liberalize unilaterally instead of reciprocally, take a look at the passage that I bolded in the Bloomberg article above.  As you can see, USTR's sole justification for its green goods proposal is expanding US exports as part of the National Export Initiative (very similar to this new proposal from congressional Democrats).  There's no mention the cost/access/use reasoning of the original Doha Round mandate, and there's no discussion of the benefits of this green import liberalization for consumers in the US and abroad.  Instead, it's all about that same old mercantilist obsession with exports, and once again Americans are left to think that low-cost imports of these great, green products aren't actually good and desirable things.  Nope, we only care about exports in the United States, regardless of the fact that the, you know, environment could significantly improve through expanded American access to, and thus use of, imports of green goods and services.  Thus, USTR's public statements about this great import liberalization agreement actually end up reinforcing the misguided, economically-illiterate idea that import liberalization is bad - precisely the exact opposite point of the original environmental goods/services mandate!

How messed up is that?

So while the substance of the USTR announcement is generally good news, its delivery leaves a whole lot to be desired.  Baby steps, I guess.


Colin said...

My problem is that strikes me as misguided favoritism of certain sectors over others. Let's have all the various energy types, green or otherwise, compete on an even playing field.

You can use the same logic, as Jagdish Bhagwati has, about bilateral FTAs vs. broad WTO-level negotiations, but at least bilaterals may build support for broader liberalization efforts. I doubt, however, such a sector-specific initiative as this green energy proposal would help build momentum for broader measures further down the line.

Scott Lincicome said...

Of course, I agree, Colin. Govt shouldn't be picking winners and losers, even when it's relatively benign. But the lesson from targeted unilateral liberalization, I think, remains valuable: if these are things we have deemed "important," then liberalization makes their use/consumption cheaper and thus more widespread. I think this applies not only to green goods, but also food, clothing and other basic necessities.

RickRussellTX said...

As a citizen of the nation that uses more energy per resident than almost any other, I wonder how one measures "energy efficiency in developing countries, which are only one-third as energy efficient as developed countries."

What is this "efficiency"? If it's simply useful kilowatts of work produced per kilogram of input material, I can imagine that developed nations are somewhat less efficient, although a factor of 3 seems pretty extreme.

But generally speaking, developing nations are using far less energy per capita.