China and the WTO: A Marriage Doomed to Fail?

Last week the World Trade Organization, in particular China's membership in the global trade body, came under scrutiny from the anti-trade left and, surprisingly, the (mostly) pro-trade right.  The former's response was totally expected as the logical extension of anti-traders' longstanding "strategy" of seizing on some new headline as ex post justification for their opposition to trade liberalization.  Ian Fletcher (among others) acted the part perfectly as he melodramatically bemoaned the horrible decision of the WTO's Appellate Body in the US-China AD/CVD dispute (upon which I've already commented):

The World Trade Organization has a long history of anti-American actions. They've just handed us another one, and in the process handed a big freebie to Chinese state capitalism.

Fortunately, the obvious bias and error of Fletcher's "arguments" is made evident by simply citing, you know, the actual record of WTO disputes between the US and China since the latter joined the organization about a decade ago.  First, there's the small fact that the Appellate Body actually sided with the United States in two of the four claims raised in that case.  Then, there's the broader data refuting Fletcher's silly allegations. According to the WTO, the US and China have been involved in 17 formal disputes there, with the the United States the complainant in ten of those cases.  Four of those ten are still pending, and the United States has prevailed (through a formal dispute settlement ruling or a mutually agreed solution that resulted from required consultations) in - wait for it - all six cases.  For those of you who aren't math majors, that's a 100% success rate.  So much for the WTO's obvious anti-Americanism, eh?

And let's also not forget the dramatic benefits that China's WTO Membership bestowed upon American exporters (a metric that even a mercantilist like Fletcher can support).  Cafe Hayek's Don Boudreax, citing Doug Irwin's great book, summarizes those benefits quite succinctly (emphasis mine):

While it’s true that China – like nearly every other nation on earth – has in place a plethora of growth-inhibiting mercantilist policies, the overwhelming economic story in China over the past 33 years is the liberalization of its markets – a liberalization that includes dramatic reductions in trade barriers. Here’s economist Douglas Irwin: “In December 1978 China began to end its policy of economic isolation. Under the leadership of Deng Xiaopeng, the government decollectivized agriculture, allowed private entities to trade, and permitted foreign investment…. In 1992 the weighted average tariff [in China] on manufactured goods was over 45 percent. Since China joined the WTO in 2001, the country’s average tariff will eventually fall to less than 7 percent.”

Since these data pretty much annihilate Fletcher's claims, let's move on to what struck me as the more surprising China/WTO criticism - the grumbles of discontent coming from free trade supporters on the right.  AEI's Claude Barfield explains:

At this morning’s AEI conference, Reconsidering America’s China Policy: Engaging Party and People, I had an important exchange with Heritage Foundation scholar Derek Scissors. Derek is a keen and acute observer of China’s economy and trade policy. His major theme this morning revolved around a recantation: to wit, that he had originally supported China’s entry into the World Trade Organization (WTO), but now thought this was a mistake. He stated that the problem was that neither he, nor the decision makers at the time, had foreseen the about-face Chinese leaders after 2001 would make on key trade and investment policies. He argued that China’s leaders in the 1990s had been genuinely committed to a more open economy and downsizing the state sector. However, the leadership since then has reversed course and is committed to a new form of state capitalism and inward-looking development that will inevitably bring the PRC into conflict with WTO rules—in areas such as currency, indigenous innovation, climate change, and competition policy.

Barfield, to his credit, ably refutes Scissors' primary concerns but concludes on what I think is a very odd note (again, emphasis mine):

I, in turn, argued that whatever the future problems and conflicts within the WTO, on balance the world (and the United States) was better off with China inside the WTO. In 2001, China was forced to assume obligations well beyond those demanded of any other nation, developed or developing, as the price of WTO membership. By and large, it has fulfilled those obligations. Does it cut corners and attempt to weasel out of it commitments? Yes. But all nations—particularly those with highly paid trade lawyers such as the United States and EU—continually attempt to “reinterpret” loosely-worded WTO rules (check out U.S. positions on cotton subsidies and sketchy dumping cases). Though it initially reacted with fury at WTO cases against it, China over the past several years had skillfully defended itself at the WTO. Indeed it has just won a major case on anti-dumping and subsidy rules against the United States.

The bottom line is that the issues Derek worries about in general were not, and still are not, WTO obligations. When the GATT/WTO was founded in the 1940s and 1950s, state capitalism was the norm throughout much of Europe; and trade rules for the most part did not, and do not, cover many of these misguided economic policies. During the recent crisis, state intervention increased rather substantially (viz, Government Motors), even while traditional protection barely ticked up. 

In future years, backing the state out of its new role will be a major challenge for the world trading system. And here, Derek makes a point that is worth pondering. When pressed, it was clear that what really concerned him was that China was now so large, and with such outsized influence, that if it kept to the present inward turn, it would destroy the WTO, whatever the niceties of legal obligations. Here I agree, but that is a challenge for future negotiations and does not reverse the reality (in my view) that the world trading system was better off by accepting Chinese membership. Or putting it another way, that also speaks to Derek’s fears—without China as a member could we any longer call it the World Trade Organization?

Clearly the answer to Barfield's final question is a big, fat "no" - omitting the world's largest exporter and second-largest economy from an organization dedicated to liberalizing and harmonizing global trade would instantly de-legitimize the body (although one could rightly question whether China would have ever gained this impressive status without (a) the the trade and economic liberalization brought about by its WTO accession, and (b) the protections that WTO rules have provided China's exports of goods and services).  But should we really be concerned that if China continues its nettlesome trade and economic policies "it would destroy the WTO, whatever the niceties of legal obligations"?

Color me extremely skeptical.

Granted, I wasn't at this discussion, so maybe I'm misinterpreting Scissors' and Barfield's concerns.  But I see several flaws with the idea that China's relatively-isolated fits of protectionism will eventually destroy the WTO.  First, there is the question of whether China would allow this to happen.  Clearly, China sees a lot of value in WTO membership from both a PR and legal perspective.  On the former, WTO membership and China's participation as a "responsible stakeholder" gives China a lot of global street cred - distinguishing it from "rogue" economic nations like North Korea or Russia (which is just desperate to join for, inter alia, this very reason).  On the latter, China's recent "win" at the WTO's Appellate Body, and the country's increasingly frequent resort to WTO dispute settlement (or threats of bringing a WTO case) makes it clear that China is quite pleased with the global trade body's role as an arbiter of global trade rules and potential check on importing nations' protectionism.  For two examples of this reality, consider how often the Chinese government promised an immediate WTO challenge to any US legislation targeting China's currency practices or to climate change legislation that included "carbon tariffs."  So would China really be willing to let the WTO die just to maintain something like its indigenous innovation policy?  That seems really unlikely to me.

Second, and as Barfield sorta mentions, China has actually proven to be pretty good about (i) complying with adverse WTO dispute settlement rulings by revising the illegal trade measures at issue and (ii) liberalizing its trade and investment regime pursuant to its phased-in WTO accession commitments.  Sure, the Chinese haven't been perfect and often draw the ire of their trading partners, but as Barfield and Boudreaux note above, pretty much nobody has been perfect (see, e.g., US refusal to implement adverse WTO decisions on internet gambling or zeroing or cotton subsidies).  I imagine that China's (often reluctant) compliance is due to the same reasons I already mentioned - a strong desire not to implode a global organization that they highly value.  So, when push comes to shove, China begrudgingly caves on WTO matters just like everybody else, or it pays for its non-compliance through retaliatory sanctions (again, just like everybody else).  Such (totally routine) behavior hardly seems like the actions of a rogue nation destined to implode the WTO.

Third, I'm extremely skeptical that the trade issues that Scissors and Barfield raise - such as currency, indigenous innovation, climate change and competition - are really the WTO-breakers that they (apparently) assume.  Beyond that fact that, as Barfield notes, these issues are not really covered by standard WTO disciplines (and this omission is very much intentional - just ask USTR about EU competition policy sometime), are these really the mission-critical issues that are going to destroy a global trade organization that has (in some form) been around for more than six decades?  Let's look at each quickly:

• On China's currency, I've repeatedly noted that the issue is quickly resolving itself due to domestic inflationary pressures and, well, lots of nations have meddled with their currencies over the last few years.

• On indigenous innovation, China's already revising some of the policy's more troublesome aspects, and has agreed to submit a better offer to accede to the WTO's Government Procurement Agreement (which would discipline many other aspects).  This is admittedly a long slog and should certainly be a US negotiating priority, but it is making progress (albeit at at a glacial pace).

• On climate change, China's reluctance to sign an intensive multilateral climate change agreement and its opposition to carbon tariffs is hardly is isolated to China alone - it's something shared by almost all developing country nations (see, e.g., India's threats to bring a WTO dispute against any national climate change laws that include carbon tariffs).

• And on competition policy, again, see the United States and the many other (very sane) nations that aren't really down with global harmonization of competition (i.e., anti-trust) disciplines.

Finally, it just doesn't seem that other WTO Members harbor concerns that China's naughtiness is going to end up scuttling the WTO.  Of course, they'd never admit publicly that they had such troubling feelings, but they're still negotiating as if the WTO agreements are going to still be valuable in a few years, and they're still bringing new disputes against China and each other.  I don't know about you, but I wouldn't be wasting my government's finite resources on securing new dispute settlement rulings against China if I thought the body was going anywhere anytime soon, would you?

Now, look, I'm certainly not saying that the WTO is invincible, and as I've already noted, the body's utility as a vehicle for new trade liberalization could (could!) be coming to an end.  And who knows, maybe an issue will arise that will pit WTO Members against each other in such an entrenched and permanent way that it'll effectively destroy the global trade organization.  But in China or any other WTO Member, I've yet to see anything even remotely big enough to do it.

Wednesday Quick Hits

I'm still digging out of cardboard boxes, so here are some headlines/links to keep you occupied until I'm fully functional again:

• India still talking tough on carbon tariffs, this time at the ongoing climate talks in Bonn, Germany.

• And speaking of Bonn, things are going, ahem, not-so-smoothly. 

• EU to US: "Hey, maybe you could help the WTO's Doha Round out by, you know, actually saying what you want instead of just repeating the same empty rhetoric and doing nothing."

• Canada's international economic sanity continues to make the United States' positions look (deservedly) bad - this time on China currency and opposition to the "global bank tax."

• Canadian 1Q economic growth tops expectations, doubles-up US growth. (Gee, I wonder why?)

• Czech President Vaclav Klaus: "Let's face it, people, the Eurozone has already collapsed.  And boy were we right to avoid that boondoggle."

Ok, that's it for now.  I promise to be a better blogger soon.  But these darn boxes unfortunately don't unpack themselves.

Center for American Progress, France Blindly Push for Carbon Tariffs

The left-leaning Center for American Progress has issued a new paper calling for the implementation of a US-EU system of carbon tariffs.  The author, CAP's Jake Caldwell, summarizes his case as follows:

Carbon tariffs—which the United States and the European Union could decide to impose on greenhouse-gas-intensive products imported from countries refusing to take action on climate change—have the potential to play an important role in these [climate change] discussions moving forward. Carbon tariffs can be an effective policy tool to reduce global emissions and preventing carbon leakage, or the migration of carbon-intensive industries to countries with more lax regulations.

But we must proceed cautiously. Carbon tariffs may also present significant risks to the multilateral trading system and the Earth’s climate if they are designed and implemented poorly and do not fundamentally reduce global greenhouse gas emissions. That’s why the United States and the European Union should work together to design and implement an open and transparent approach to carbon tariffs as part of an overall effort to reduce global greenhouse gas emissions.

Caldwell goes on to explain, as pleasantly as possible, how and why carbon tariffs should be a part of the United States' and EU's future climate policy plans.  As to the latter issue, Caldwell's two primary reasons for supporting carbon tariffs are (i) to stop "carbon leakage" (i.e., the movement of emissions-intensive production to poorly regulated countries); and (ii) to ensure the competitiveness of the domestic industries being strangledregulated by new climate change schemes.  Unfortunately, Caldwell's discussion includes not a shred of evidence that carbon tariffs would actually, you know, achieve those objectives.  (Seriously, there's not a single link or footnote to anything of the sort.)  On the other hand, Caldwell could have spent two minutes on this blog and found oodles of scholarly evidence (see, e.g., here, here, here and here) showing that they would not.

As for the "how," Caldwell provides a laundry list of ideas about what his ideal system should entail: (i) apply carbon tariffs in an open and transparent manner; (ii) exempt least developed countries from tariffs; (iii) consider countries’ greenhouse gas reduction efforts; (iv) establish a joint US-EU working group to identify the relationship between trade and climate change issues; (v) invoke a joint US-EU agreement to apply a “peace clause” for an initial period of 10 years; (vi) allow national leaders to make a final decision on carbon tariffs; and (vii) consider other policy options to address carbon leakage and competitiveness.

I won't get into all of these issues, but I find (i) and (iv) to be really, really interesting (and not in a good way).  On "transparency and openness," Caldwell doesn't really explain how that would work, but I (and many scholars and developing countries) am rather skeptical that such "transparency" is possible or even helpful for developing a "fair" system.  Indeed, I wonder if he's ever seen or read a 100+-page Department of Commerce decision memorandum in a US trade remedies investigation - one that imposes supposedly "remedial" tariffs of 100% or higher on "unfairly traded" Chinese imports, and requires a Rosetta Stone to even begin to understand (hence, why I'm employed).  And that's just the public memos.  There are always hundreds more pages of proprietary calculation documents.  So knowing how our existing remedial tariffs are calculated and imposed on "unfairly-traded" imports, does Caldwell really think that similarly "remedial" tariffs on "non-green" imports would be calculated and imposed any differently or better?  Oh, and let's also keep in mind who's lobbying for, and drafting, these carbon tariff "transparency" regulations.  (Hint: it ain't developing country governments, their exporters or US consumers.)

On point (iv) (i.e., the "joint US-EU working group to identify the relationship between trade and climate change issues"), I'm just flat confused.  According to Caldwell, his working group would "consider a range of issues including the use of carbon tariffs and... guide the WTO’s approach to these issues."  Well, considering how darn controversial carbon tariffs are for developing countries and that they could literally start a trade war, shouldn't an honest and sound environmental policy first consider and determine the "relationship between trade and climate change" before strongly advocating dangerous systems that include border measures based on that relationship?  And second, does Caldwell actually think that a US-EU working group, which excludes 151 other WTO Members, would be well-received and adopted at the WTO, which relies on consensus-driven decision making?  Or does he think that the WTO's seriously independent Appellate Body would gladly be "guided" by the very developed countries whose carbon tariff measures would no doubt be challenged (by India, China or other Members) before it?  (Quick answer: Not gonna happen, dude.)

And speaking of the WTO, it's a tad, ahem, unfortunate that Caldwell glosses over the very serious legal concerns raised by India and others that carbon tariffs don't comply with WTO rules.  His only legal justification is the now-notorious joint paper by the WTO and the UNEP which, as Caldwell rather coolly admits, only "suggests border adjustment measures may be consistent with WTO rules in certain circumstances." (Waffling emphasis mine.)  Of course, all those qualifiers are totally necessary because Cato's Sallie James and the Indian Government, among others, have both provided ample legal argument that most carbon tariff schemes would not be consistent with global trade rules.

Indeed, it's James' analysis which is most interesting here because one of her paper's main points was that WTO rules necessitate that "[a]ny trade-related measures (such as tariffs on goods from noncapped countries) need to be based strictly on the goal of protecting the environment, rather than an attempt to level the playing field for domestic competitors shackled by climate change regulations. Breaking the link between the trade measure and the goal of protecting the environment is a sure invitation to WTO dispute-settlement proceedings."  Yet, as noted above, one of Caldwell's two big reasons for carbon tariffs is the need to maintain the competitiveness of US and EU manufacturers.  In other words, Caldwell in one breath brushes off WTO concerns over carbon tariffs, yet his primary reasoning for their use is precisely what will trigger a big WTO dispute.

Umm, what!? 

So to recap, Caldwell (i) provides no empirical support for, and ignores the boatloads of evidence against, his main carbon tariffs justifications; (ii) proposes a "system" that is almost certainly impractical; and (iii) ignores carbon tariffs' legal problems under WTO rules.  But other than that........

But hey, all's not lost for Caldwell, as today's other carbon tariffs news shows that he's not alone out there in his support for the controversial measures.  Euractiv reports that the French government, fresh off the collapse of its own national efforts to impose carbon tariffs, is aggressively pushing for them at the EU.  Problem is that most every other European nation (minus Italy) and the EU's Trade Commissioner Karel De Gucht (among others) oppose carbon tariffs because they'd raise prices for consumers and possibly start a trade war.

Funny how Caldwell, while mentioning France and Italy, also fails to mention that stubborn little fact, huh?

(Actually, no it's not.)

Senate Sponsors of New Climate Change Legislation Try - and Hilariously Fail - to Cover Carbon Tariffs' "Competitiveness" Tracks (UPDATED)

Tomorrow, Senators John Kerry (D-MA), Lindsay Graham (R-SC) and Joe Lieberman (I-CT) will unveil their long-awaited legislation to completely re-jigger (technical term) the American energy sector.  The Hill has done some digging and uncovered the confidential internal summaries of the legislation, and it contains pretty much everything that we've expected for a while now: emissions caps, nuclear power, handouts to domestic energy producers and, of course, carbon tariffs.

The Hill links to the bill's long summary here (PDF), and just like the House climate change legislation (aka "Waxman Markey") and the Senate's old version (aka "Boxer-Kerry"), the bill isn't so forthrightbold as to actually call the carbon tariffs, well, "carbon tariffs" (or "border measures" or "border taxes" or anything anyone's ever actually heard of or been publicly concerned about.)  No, instead the legislation follows Waxman-Markey and calls its border measures an "International Reserve Allowance Program."  In particular, the summary states:

Sections 775. International Negotiations. Finds that the purposes of this subtitle can be most effectively achieved through international agreements and states that it is the policy of the United States to work proactively under the UNFCCC and in other forums to establish binding agreements committing all major-emitting countries to contribute equitably to the reduction of global greenhouse gas emissions.

Section 776. Presidential Reports and Determinations. Requires the President to submit a report to Congress no later than January 1, 2019, and every two years thereafter, regarding the effectiveness of the distribution of emission allowance rebates under Subpart I in mitigating the risk of increased greenhouse gas emissions in foreign countries resulting from compliance costs incurred under this bill. 

Requires the President to establish an International Reserve Allowance Program if a multilateral agreement consistent with the statement of policy described in section 775 has not entered into force by January 1, 2020, unless the President determines that such program would not be in the national economic or environmental interest of the U.S.  If the President establishes an International Reserve Allowance Program, this section requires the President to make a determination as soon as possible, but no later than June 30,2023, and every two years thereafter, for each eligible industrial sector, of whether not more than 70 percent of global production with respect to that sector is produced or manufactured in countries that meet specific criteria described in this section.

Section 777.  International Reserve Allowance Program. Directs the Administrator, with the concurrence of the Commissioner of Customs, to promulgate regulations establishing an international reserve allowance program. Includes provisions in addition to the reserve allowance program to mitigate or address carbon leakage by ensuring that eligible sectors may receive additional emission allowance rebates in an amount necessary to address those impacts.

It's much less controversial when completely unintelligible, you see?  But don't be fooled: those are stealth carbon tariffs, my friends. 

However, unlike Waxman-Markey (see Sec. 768) or Boxer-Kerry, it appears that the new Senate climate change legislation has, also as expected, ditched any discussion of how the border measuresinternational reserve allowances are intended to offset any domestic competitiveness concerns, and it instead has couched the carbon tariffs provisions in wholly environmental terms.  This environment-only focus is made abundantly clear in the sections above, and, as we've discussed before, it's part of a recent trend and probably quite intentional:

[T]he Senators' rhetorical shift [from competitiveness to environmental reasoning] is - shocking, I know - a rather ham-handed attempt to keep their cherished carbon tariffs consistent with WTO rules.  As Cato's Sallie James explains:

[T]he almost convincing attempt by these senators to cloak their protectionism in green-speak about the need to ensure that climate legislation is environmentally effective. They will have to keep that up, too, if they are to stay on the right side of WTO law, which says there must be a clear link between a trade measure and an environmental purpose if the measure is to be at least prima facie legitimate.  Imposing border measures to address adverse competitiveness effects of domestic environmental regulations, in other words, probably won’t cut it.

The bill's short summary (available here) also follows this new "green" road-map (and it's also a little more obvious about the bill's inclusion of border measures):

In order to protect the environmental goals of the bill, we phase in a WTO-consistent border adjustment mechanism. In the event that no global agreement on climate change is reached, the bill requires imports from countries that have not taken action to limit emissions to pay a comparable amount at the border to avoid carbon leakage and ensure we are able to achieve our environmental objectives. (Emphasis mine.)

You couldn't shoehorn more "environmental" references into this summary if you tried.  Only one small problem: this strictly "environmental" summary falls clearly under the main heading "Expanding America's Manufacturing Base," and the long summary of Sections 775-777 above comes under the main heading "Subtitle A - Protecting American Manufacturing Jobs and Preventing Carbon Leakage."  So did the Senate drafters really just take all that time purging all of the scary "competitiveness" language from their new bill's carbon tariffs provisions, only to keep them under a legislative subtitle that expressly denotes provisions dealing with domestic industrial competitiveness?

Well, the text of the bill isn't out yet, so we don't really know for sure.  But if so, this has gotta be one of the dumber drafting moves that I've seen since, well, ObamaCare.

Although I'm sure the Indian Government is just psyched.

UPDATE: Sallie James weighs in on the Kerry-Lieberman bill and finds even more proof of  really bad drafting.  Also, the legislation has been released and the headings, etc. are the same as the summaries.  Nice.

Monday Quick Hits

A few noteworthy things on this busy Monday:

• Apparently, the United States' position in the TPP negotiations is lactose intolerant.  In a new Washington Times op-ed, Cato's Sallie James notes some rather distressing statements from USTR Ron Kirk indicating that the US could support significant restrictions on dairy imports as part of the new Trans-Pacific Partnership Agreement.  If USTR does indeed pursue such negotiated protectionism, it's further proof that free traders just shouldn't get too excited about the TPP negotiations.

• China's trade balance continues to thwart American currency hawks' simplistic talking points about the RMB's undervaluation.  In March, China reported its first trade deficit in years.  Today we find that China shifted back to a trade surplus in April, but it was a whopping 87% smaller than April 2009, and the Jan-April 2010 surplus was 79 percent smaller than January-April 2009.  As the linked Bloomberg article correctly states, these data "may ease pressure for gains in the yuan and support Premier Wen Jiabao’s argument that the currency isn’t undervalued."  Bloomberg also hits on something that AEI's Phil Levy said last week:  "The sovereign-debt crisis in Europe that today prompted a loan package of almost $1 trillion to help nations under attack from speculators may also encourage Chinese officials to delay ending the yuan’s peg to the dollar."  Somehow I doubt, however, that the currency hawks care about such facts or will be revising their statements accordingly.

• United States' new man in Geneva: "For those of you hoping for the quick completion of a Doha Round Agreement, just stop."  The new US ambassador to the WTO, Michael Punke, told reporters today that there can be no "quick fix" to end the deadlock in the World Trade Organization's long-running Doha Round talks.  Of course, we all knew that already because such resolution requires American political will that's been missing since 2008, but it's good to know that Punke's not getting any crazy ideas about, you know, actually completing an ambitious, economically-beneficial multilateral agreement anytime soon.  Whew!

• Bi-partisan Senate support for KORUS FTA is nice, but....  The AFP reports that Sens. John Kerry (D-MA) and Richard Lugar (R-IN) sent a letter to President Obama calling om him "to submit a long-delayed free trade agreement with South Korea to Congress for approval."  The letter "urged Obama to work with lawmakers to end feuds over beef and automobiles that have held up the pact.  'Submission of the agreement to Congress also would be considered a significant show of solidarity with a close and reliable ally,'  they said in a letter dated Friday, calling for action 'as soon as possible.'"  Kerry is the chair of the Senate Foreign Relations Committee and Lugar its ranking member.  Their letter is available here.  Hey, do you think that North Korea might just have something to do with the Senators' KORUS letter?  (Obvious answer: Yes.)  Do you think that it'll change KORUS' near-term outlook in Congress?  (Obvious answer: No.)

• Ways & Means GOP to Dems: "Hey, do you guys remember the bi-partisan deal we all signed way back in 2006 that was supposed to pave the way for congressional passage of pending FTAs?  No?  Well, we do."  The Ways & Means Republicans celebrated the third anniversary of the 2006 "bi-partisan trade deal" by releasing a report "showing the harm suffered by American agriculture due to a failure to move forward on pending trade agreements."  The report is available here.  No word on whether the GOP press release and report were accompanied by a sugary cake and three candles.  (But I'm guessing that they were not.)

• A nice (long) summary of European climate change and carbon tariff developments and next steps.  Feel the excitement!

That's all for tonight, folks.

Surprising (Almost) No One, Obama Reverses Stance and Announces Support for Carbon Tariffs

National Review's Jim Geraghty has a long-running joke that all promises issued by President Obama come with an implicit expiration date.  Geraghty's well-documented thesis gets another footnote today, as the New York Times reports that the Obama Administration has officially reversed course and now supports the inclusion of carbon tariffs in the soon-to-be-released Senate cap-and-trade energy green jobs legislation:

A top White House adviser confirmed today that President Obama is open to helping energy-intensive industries cope with the costs of climate legislation, including use of controversial border tariffs he had previously warned could spark a global trade war.

Energy and climate adviser Carol Browner said the administration recognizes Congress' interest in using trade language as it works on climate legislation that addresses concerns from some of the country's industries that are most vulnerable to cheap foreign imports, including steel, cement, glass, pulp and paper.

"There's going to have to be mechanisms that recognize they compete in a global market," Browner said during an event hosted by National Journal. "I think it's fair to say a final bill will be very mindful of the needs of these particular sectors of the economy."

Obama prompted an outcry from moderate Senate Democrats last summer after he questioned a section of the House-passed climate bill H.R. 2454 that punishes developing countries with trade sanctions if they don't do enough to curb their greenhouse gas emissions.

"At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there," the president told reporters the day after the House's 218-212 vote.

The Senate climate bill's lead authors have sent signals that they will address the concerns of senators from states with trade-sensitive industries, though details on what John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) will say in their legislation remains unclear. The trio are planning to release their bill Monday.

Ten Senate Democrats, led by Sherrod Brown of Ohio and Debbie Stabenow of Michigan, called last week for a border adjustment that is automatically slapped on imports from countries that do not have greenhouse gas requirements comparable to the U.S. law (E&ENews PM, April 15).

"A border adjustment measure is critical to ensuring that climate change legislation will be trade neutral and environmentally effective," the senators wrote to Kerry, Graham and Lieberman.

But Graham said last week he didn't agree with an automatic trigger for trade sanctions. Instead, he said he supported a provision setting a roughly four-year deadline for conclusion of an international climate agreement; otherwise, Congress would need to revisit the issue.

"We don't need to create a trade war," Graham said. "We need to be WTO-compliant. But let me just say this, on behalf of manufacturing, if we don't have an international agreement covering these countries that can put us at a competitive disadvantage, then we'll have to revisit this thing. My approach has always been that you start off with business-friendly language when it comes to border adjustments that's clearly WTO-compliant, but you'd have a provision in there: If not an international agreement by a certain point in time, Congress has to revisit this."

Senate Finance Committee Chairman Max Baucus (D-Mont.) has also indicated he will weigh in on the trade issue as part of a broader plan spelled out by Majority Leader Harry Reid (D-Nev.) before any climate bill comes to the floor....

Sigh.  I have consistently maintained that the chances of any American cap-and-whatever legislation becoming law in 2010 are tiny, and I continue to believe that's the case (especially after Ways & Means Chair Sandy Levin just yesterday said that "this will probably not be the year" for the bill).  However, today's news of Obama's shift on carbon tariffs is still noteworthy for several reasons:

• First, Obama's change of heart is not as drastic as the NYT would have you believe and, quite frankly, was all-but inevitable given the partisan makeup in the Senate and the resolute support for carbon tariffs from a large gaggle of protectionist senators.  Indeed, anyone paying attention saw this change-of-heart coming months ago when the White House first started waffling on the issue.  So maybe this is "big news" for the White House's cheerleaders at the NYT, but it really shouldn't be for the rest of us.

• Second, it appears that the Obama administration and Senator Graham did not get the super-secret memo from Sen. Sherrod Brown that, for WTO-consistency reasons, US politicians and officials had to couch all discussions of carbon tariffs in terms of environmental effects (e.g., preventing "carbon leakage"), as opposed to more obvious concerns over the loss of domestic manufacturing "competitiveness."  As I noted a couple days ago, justifying border measures on competitiveness grounds appears to be a surefire way to violate WTO rules (despite what Paul Krugman would have you believe), so US politicians have uniformly modified their talking points to discuss carbon tariffs solely in terms of saving Mother Gaia.  Thus, the "competitiveness" comments of Czarina Browner and Senator Graham appear to be a major snafu and, like, so 2009.  (You know, with all the advances in modern communications technology, you'd think that America's protectionists would be able to keep their fake-messaging straight.  I'd be willing to bet that China's protectionists don't have this archaic problem.  Alas.) 

• Finally, Obama's change of tune on carbon tariffs is still troubling, despite point #1, because its further proof that he'll sacrifice free trade and the health of the multilateral trading system for whatever domestic priority is next on his plate.  Last year, the White House's concerns over passing health care caused FTAs and WTO negotiations to stall, and numerous US violations of global trade rules to go unresolved.  Now, Obama's openly disregarding ample legal analysis on carbon tariffs' WTO problems - as well as the strong public concerns/threats from India, China and other countries - because he needs to buy Senate votes for his new priority: cap-and-trade.  Indeed, as the NYT notes above, it was these very concerns that caused "2009 Obama" to explicitly oppose carbon tariffs or any other "protectionist signals."  But that was 2009, baby.  "2010 Obama" is now totally open to carbon tariffs because he needs 60 Senate votes for his last-ditch effort to control the American energy sector.  So damn-the-international-obligation-torpedoes!  And speaking of those obligations, how many more times will this President ignore them before his supporters finally drop the whole "new embrace of multilateralism and respect for other nations" nonsense?  I'd say it's about time, wouldn't you?

And with that diatribe complete, it's time to once again update the ol' carbon tariffs scorecard:

Pro carbon tariffs - President Barack Obama, Sen. Max Baucus (D-MT); Sen. Ben Cardin (D-MD), Sens. Lindsay Graham (R-SC) and John Kerry (D-MA); Sens. Amy Klobuchar (D-MN), Arlen Specter (D-PA), Carl Levin (D-MI), Claire McCaskill (D-MO), Debbie Stabenow (D-MI), Kay Hagan (D-NC), Mark Begich (D-AK), Sherrod Brown (D-OH), Tim Johnson (D-SD), Al Franken (D-MN), Evan Bayh (D-IN), John Rockefeller (D-WV), Robert Byrd (D-WV), Robert Casey (D-PA) and Russ Feingold (D-WI); Sen. Mark Warner (D-VA); the US House of Representatives (in Waxman-Markey); France; Italy and Paul Krugman.

Voting present - the White House.

Anti carbon tariffs - the rest of the world.

Piling on Krugman, and for Very Good Reason

Last night, I discussed the disingenuousness of Paul Krugman's repeated assertions that nations' use of carbon tariffs under domestic climate change regulations was legal under global trade rules and even sanctioned by the WTO.  Today, National Review's Jim Manzi piles on by focusing not on Krugman's false legal analysis, but instead his false logic:

[I]sn’t it obvious that the targeted countries might consider other reactions [to carbon tariffs] beyond either just joining the carbon-pricing regime or choosing to pay the tariff? What if they reacted with counter-tariffs, or set up an outside-the-tariff trading bloc with various resource-rich African and Asian countries, or reduced purchases of U.S Treasuries, or any of a thousand other ideas? Krugman has this to say:

To the objection that such a policy would be protectionist, a violation of the principles of free trade, one reply is, So? Keeping world markets open is important, but avoiding planetary catastrophe is a lot more important.

But if for the next century “planetary catastrophe” = an expected cost of 2 percent of economic output 100 years from now (and if avoiding this will likely cost more than this amount, even if such a program works), then maybe running the risk of inciting a global trade war isn’t such a great bet.

He goes on to describe the legality, but not the effectiveness, of such tariffs. Why do we think they will work, and not be met by aggressive counter-action? Here is the argument in its entirety:

Needless to say, the actual business of getting cooperative, worldwide action on climate change would be much more complicated and tendentious than this discussion suggests. Yet the problem is not as intractable as you often hear. If the United States and Europe decide to move on climate policy, they almost certainly would be able to cajole and chivvy the rest of the world into joining the effort. We can do this.

Maybe a direct, aggressive confrontation with countries representing several billion people and a good chunk of world economic output would work, and maybe it wouldn’t; but this is exhortation and wishful thinking in the place of analysis.

Manzi's statements are part 2 of his review of Krugman's NYT Magazine tome on climate change; that "2 percent" figure comes from part 1, which I highly recommend.  On the actual effectiveness of carbon tariffs, I mentioned last night that it's far from certain that carbon tariffs would eliminate "carbon leakage" (what little there would be) by inducing developing countries to join the climate change regulation gang.  So maybe that's why Krugman substitutes conclusory statements like those above for real, honest analysis on carbon tariffs' efficacy.

At this point, I think its safe to say that Manzi's economic and logical criticisms, combined with my legal and academic ones, leave Krugman with nary a leg to stand on.  Of course, something tells me that none of this will stop him from remorselessly continuing his current climate change obfuscation campaign.

Senate Fans of Carbon Tariffs May Have Changed Their Tune, but the Song Still Stinks

Given the current partisan makeup of the US Senate, any small group of Senators wields enormous influence over the legislative process.  With this fact in mind comes news that a group of ten Senators, led by Sen. Sherrod Brown (D-OH), have sent a letter to Sens. John Kerry (D-MA), Joe Lieberman (I-CT) and Lindsay Graham (R-SC), setting out their demands for the new Senate climate change energy green jobs legislation, which is set to be unveiled in the next week or so.  And unsurprisingly, one of the Senators' demands is for carbon tariffs:

Apply Border Measures To Prevent Carbon Leakage. An automatically triggered border measure is necessary to promote comparable action from other countries and prevent carbon leakage. To avoid undermining the environmental objective of the climate legislation, a WTO-consistent border adjustment measure, which the WTO has recognized as a usable tool in combating climate change, should apply to imports from countries that do not have in place comparable greenhouse gas emissions reduction requirements to those adopted by the United States. A border adjustment measure is critical to ensuring that climate change legislation will be trade neutral and environmentally effective.

It's already quite certain that the new Senate bill will include some form of "border adjustment measures" (aka carbon tariffs), so this letter isn't really changing anything in that regard.  But its substance is still worth exploring.  As you may recall, this is not the first such letter sent by Sen. Brown and his merry band of protectionists.  An almost identical list of Senators sent a similar letter last August demanding carbon tariffs provisions in the 2009 version of the Senate's cap-and-trade bill.  Last time, however, their sole justification for the measures was to ensure a "level playing field" for American manufacturers who would face significantly higher costs under the energy tax scheme.

Yet now, these rust-belt Senators have dropped their heartfelt concerns about protecting constituent industries and instead want carbon tariffs only to ensure that the law is "environmentally effective" by preventing "carbon leakage" (i.e., the offshoring of dirty, carbon-intensive manufacturing).  How eco-friendly of them.  Now, leaving aside for a moment that there is an increasingly large body of scholarship demonstrating that (a) carbon leakage isn't a significant threat, and (b) border measures actually won't prevent what little carbon leakage will occur, let's focus for a moment on the Senators' abrupt change in reasoning.  What on earth could have caused this conspicuous about-face?

Well, it appears that the Senators' rhetorical shift is - shocking, I know - a rather ham-handed attempt to keep their cherished carbon tariffs consistent with WTO rules.  As Cato's Sallie James explains:

[T]he almost convincing attempt by these senators to cloak their protectionism in green-speak about the need to ensure that climate legislation is environmentally effective. They will have to keep that up, too, if they are to stay on the right side of WTO law, which says there must be a clear link between a trade measure and an environmental purpose if the measure is to be at least prima facie legitimate.  Imposing border measures to address adverse competitiveness effects of domestic environmental regulations, in other words, probably won’t cut it. ([Sallie's paper] “A Harsh Climate” has more on why unilateral border actions may in and of themselves be inconsistent with WTO obligations.)

So last year, Senator Brown and his buddies from Ohio, Michigan, Pennsylvania, West Virginia and elsewhere were focused laser-like on maintaining their heavy-industry constituents' domestic competitiveness through carbon tariffs, but now they're only concerned with carbon leakage and the environment.

How convenient.

Pardon me if I'm not buying this green-change-of-heart from this gaggle of brown-state Senators.  But hey, you gotta give them a little credit: they're sure trying like the dickens to wish away the problems that carbon tariffs have under WTO rules.  Indeed, they've even gone so far as to pretend that the WTO has expressly sanctioned the measures' use.  Of course, as James explains, this is nonsense:

[R]elated to the issue of WTO legitimacy,  is the reference to the WTO “recogniz[ing]” border adjustment measures as “a useable tool in combating climate change.” This is disengenuous and possibly misleading rhetoric from the senators, because the WTO has done no such thing. There has been no formal ruling on this issue from any WTO judicial body, because no such cases have come before it. The WTO members as a group have not issued a proclamation on it, either. I suspect the senators are referring to a joint WTO/United Nations Environment Programme report that came out last year, but as I said in my paper, that report “merely summarizes the relevant provisions, precedents and existing literature on the question on WTO consistency–without reaching any prescriptive conclusion at all.” And the demand that this tool be “automatically triggered” may put it at odds with jurisprudence that says that certain administrative procedures–including the right for a WTO member to review and appeal any decisions made–must be followed (reference for the trade wonks reading this: I am referring to Shrimp-Turtle).

Looks like a serious tsk-tsk is in order here.  But hey, maybe the Senators' weren't being intentionally misleading about that WTO "recognition."  Instead, they may have just been parroting the undoubtedly-intentional fabrications of Paul Krugman, who has repeatedly cited the WTO-UNEP report as somehow providing the trade body's express approval of carbon tariffs.  Krugman has repeated this fiction several times on his blog (see, e.g., here and here) and did it again just two weeks ago in the Sunday New York Times Magazine.  As Sallie points out above, of course, Krugman's statements are both totally wrong and highly misleading, and her great paper on the subject calls carbon tariffs' WTO-legality into serious question.  And as I've noted recently, the Indian government's own analysis has also raised serious WTO concerns about carbon tariffs, and the Indians have openly threatened to challenge any law that includes the controversial measures.

Krugman, of course, fails to mention any of this.  But hey, it's not like he's really all that concerned about veracity these days, so maybe we shouldn't be too surprised by his misleading statements and glaring omissions.

That doesn't mean, however, that we can't update the ol' carbon tariffs scorecard because the new Senate letter included one new protectionist: Sen. Mark Warner (D-VA).  His inclusion here is really a shame.  I thought he had more sense than that.  Alas.

Also, there's news out of Europe that France and Italy are demanding carbon tariffs (in what exactly isn't really clear).  Their demands aren't likely to go anywhere, but back on the big list goes France, and Italy joins the protectionist party for the first time.  Bellissima!

Pro carbon tariffs - Sen. Max Baucus (D-MT); Sen. Ben Cardin (D-MD), Sens. Lindsay Graham (R-SC) and John Kerry (D-MA); Sens. Amy Klobuchar (D-MN), Arlen Specter (D-PA), Carl Levin (D-MI), Claire McCaskill (D-MO), Debbie Stabenow (D-MI), Kay Hagan (D-NC), Mark Begich (D-AK), Sherrod Brown (D-OH), Tim Johnson (D-SD), Al Franken (D-MN), Evan Bayh (D-IN), John Rockefeller (D-WV), Robert Byrd (D-WV), Robert Casey (D-PA) and Russ Feingold (D-WI); Sen. Mark Warner (D-VA); the US House of Representatives (in Waxman-Markey); France; Italy and Paul Krugman.

Voting present - the White House.

Anti carbon tariffs - the rest of the world.

Carbon Tariffs Update: What Gaia Giveth, Gaia Taketh Away

After a long hiatus, carbon tariffs - you remember, those pesky unilateral border taxes on imports from countries that have "insufficient" climate change systems - are back in the news.  First up is the good news, and boy is it good: after originally being declared unconstitutional, the French Carbon Tax is raide morte.  Here's the FT with the big news:

The French government on Wednesday said it would abandon its plan to introduce a carbon tax on domestic energy and road fuels unless there was agreement for a European Union-wide levy.

The U-turn on the controversial environmental tax come two days after the governing UMP party of President Nicolas Sarkozy suffered a heavy defeat in regional elections. Senior UMP politicians have blamed the defeat in part on the proposed tax, which was due to come into effect on July.

François Fillon, prime minister, told a meeting of centre-right parliamentarians that France would not penalise its industry by introducing the tax unilaterally.

“All decisions taken on the issue of sustainable development must be analysed in the light of our competitiveness,” Mr Fillon told the deputies. “We want the decisions to be taken in common with other European countries otherwise we are going to see a growing shortfall in our competitiveness.”

The decision to ditch the tax divided the government. Chantal Jouanno, the junior minister for the environment, lashed out at the decision saying she “despaired of this retreat”.

Since an EU-wide carbon tax is unlikely to gain approval in months ahead, if at all – the Swedish government pushed the idea with little success during its EU presidency last year – the French levy has, in effect, been shelved.

France would have been the largest economy to impose a levy on energy use linked to a notional price of carbon. France has one of the lowest “carbon footprints” in Europe largely because of 88 per cent of its electricity comes from nuclear plants.

But the government adopted a carbon tax – originally intended to raise €3.5bn a year – to further reduce French emissions by targeting those from households, road transport, and industrial consumption of gas and oil.

Mr Sarkozy had also hoped that carbon tax would pay political dividends by helping to woo green voters to his centre-right party in Sunday’s elections, a calculation the evidently failed to pay off.

As you'll recall, the French, in particular Mr. Sarkozy, were easily the loudest demandeurs for EU-wide carbon tariffs, due in large part to the fact that, if they were going to screw their economies with a carbon tax, they wanted everyone to make sure that everybody's economies were screwed along with them.  Now, with the EU's number one carbon tax/tariff cheerleader silenced, and (as the FT notes) with the whole carbon tax issue dead in the EU, it's pretty safe to say that carbon tariffs are shelved in Europe for the rest 2010. 

And all I can say is, très fantastique!  (Ok, I promise, that's the last abuse of the French language.  For now.)

Now for the bad news.  Now we all know that Mother Gaia is a huge fan of balance, so it shouldn't come as any surprise that, as the carbon tariffs door slammed shut in the EU, it instantly cracked open across the pond:

Details are beginning to leak out about the climate bill, after weeks of closed-door negotiations among key Senate lawmakers and staff.

Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) spent the past week presenting an eight-page outline of the bill to key business groups, including the U.S. Chamber of Commerce and the American Petroleum Institute.

But the bill provides a weaker cap on greenhouse gas emissions than many environmentalists had hoped. And it’s chock-full of sweeteners for coal, oil, offshore drilling and nuclear power — energy sources viewed with some skepticism in the environmental community but seen as key to picking up the votes of a handful of moderate Republicans....

[The sponsors] hope to send a draft of their proposal to the Environmental Protection Agency by the end of this week. The agency needs six to eight weeks to do an economic analysis of the bill, according to administration officials.

Graham told POLITICO that the proposal mirrors the Markey-Waxman legislation that passed the House last June by putting an economywide cap on greenhouse gas emissions starting in 2012 — with the goal of reducing pollution 17 percent by 2020 and 80 percent by 2050.

But unlike the House bill, the Senate proposal puts different kinds of limits on different industries.

Separate caps are put on utilities and manufacturers that will have to buy and trade pollution allowances from the government, according to people briefed on the bill. A “hard collar” is put on the price of the allowances to prevent them from dropping below $10 per ton. If the price exceeds more than $30 per ton, the government will flood the market from a strategic reserve of 4 billion credits. The price is indexed to inflation and increases at a set rate.

Manufacturers will be phased into the cap by 2016 to give fossil-fuel-intensive industries such as paper, aluminum and steel time to adjust to the new system. In a letter he sent to Kerry earlier this month, Sen. Carl Levin (D-Mich.) asked that the cap be delayed at least 10 years for manufacturers.

The legislation also tries to protect those industries from foreign competition by levying a “carbon tariff” on imports of goods from countries, such as China and India, that do not regulate emissions. The proposal was drafted by manufacturing-state Democrats, who refused to support the legislation unless it protected trade-sensitive industries from foreign competition.

Sigh.  Here we go again.  Now, granted, getting this boondoggle through Congress this year is about as likely as my winning the AFL-CIO's Protectionist of the Year Award (ed. note: not a real award).  But still, it looks like it's time to pull out the ol' carbon tariffs scorecard (as of Dec. 5 2009):

Pro carbon tariffs - Sen. Max Baucus (D-MT); Sen. Ben Cardin (D-MD), Sens. Lindsay Graham (R-SC) and John Kerry (D-MA); Sens. Amy Klobuchar (D-MN), Arlen Specter (D-PA), Carl Levin (D-MI), Claire McCaskill (D-MO), Debbie Stabenow (D-MI), Kay Hagan (D-NC), Mark Begich (D-AK), Sherrod Brown (D-OH), Tim Johnson (D-SD), Al Franken (D-MN), Evan Bayh (D-IN), John Rockefeller (D-WV), Robert Byrd (D-WV), Robert Casey (D-PA) and Russ Feingold (D-WI); the US House of Representatives (in Waxman-Markey), France, and Paul Krugman.

Voting present - the White House.

Anti carbon tariffs - the rest of the world.

India Talking Tough on Carbon Tariffs, But Why Now?

Interesting news out of New Delhi today on carbon tariffs:

The [Indian] commerce department has begun mobilising opinion on the proposed carbon tax that developed countries, especially the European Union, are looking to impose on imports from advanced developing countries like India and China.

The Centre for WTO studies, a research body under the department, has come up with a report on WTO compatibility of border trade measures for environmental protection that also delves into the possible effects of such a tax on India’s exports.

The idea is to be prepared to fight the issue once the need arises, commerce secretary Rahul Khullar said.

The products that could be immediately hit by a carbon tax include iron & steel, aluminium, pulp & paper products, cement, glass and chemicals, the report said.

While the EU justifies the proposed tax as a measure to create a level playing field between polluting developing countries and countries that have agreed to cut emissions under the Kyoto protocol, the feeling in India is that it may be yet another step to render exports from certain countries uncompetitive.

“It is not possible to pretend any longer that this (imposition of carbon taxes and related measures) is not going to happen,” Mr Khullar said, adding that in two-three years time this would be a reality and it made sense to prepare for it. The commerce secretary, however, stressed that India was not in favour of including environment in the trade liberalisation negotiations taking place at the WTO. “There are other forums for framing global environmental laws,” he said, releasing the report on Thursday.

The report, which describes the various forms under which environmental taxes can be levied and the various methods under which they could be challenged at the WTO, is a first in a series of other such reports. “The idea is to make everybody understand what the issues are in simple terms and generate a debate,” Khullar added.

With environmental issues capturing global imagination, especially after the Copenhagen Climate Conference last December, India feels that there is not much time to waste as developed countries could impose a slew of related restrictions on its imports....

The full text of the new Indian report is here (PDF), and (while admittedly only skimming so far) it appears to be a serious work of scholarship.  It contains sections, each drafted in a handy Q&A format on:  (i) Trade and the Environment; (ii) Carbon Taxation Systems; (iii) so-called "Carbon Leakage"; (iv) Border Trade Measures (aka "Carbon Tariffs") and their WTO Compatibility; (v) Border Trade Measures, the UNFCCC and the Kyoto Protocol; and (vi) the subtly titled "Impending Trade War."  The sixth section provides the conclusions and, as the title suggests, they're quite serious:

[U]nilateral trade measures, taken in a protectionist manner, are likely to be held incompatible with the WTO rules. Unilateral trade-restrictive measures are also prohibited by the UNFCCC and the Kyoto Protocol. Some of the implications of bringing such measures into force would be as under.

(i) Such measures imposing restrictions on imports on the grounds of providing a “level playing field”, or maintaining the “competitiveness” of the domestic industry, etc are likely to be viewed as mere protectionist measures by the developed world to block the exports of the poorer nations. This is because, there is little empirical evidence that companies relocate to take advantage of lax pollution controls.

(ii) Efforts to address climate change through unilateral trade measures will lead to tit-for-tat trade restrictions. This will spark trade war and will lead to massive, justified, WTO-legal retaliation by the affected countries. In turn, this will generate a plethora of trade disputes. It is doubtful whether the current Dispute Settlement Mechanism of WTO can handle this load. Such actions do not auger well for free and fair trade which the entire international community, as a matter of conscious choice, has strived to promote all along.

(iii) Use of WTO-incompatible trade measures diminishes the prospects for development of the developing countries. Trade generates wealth and offers the possibility to developing countries of investing this wealth in renewable energy and energy conservation measures. This will not happen if they are made poorer by the unilateral trade restrictive measures of developed countries.  Thus such measures may prove to be counter-productive.

(iv) Unilateral trade actions may simply lead to a change in trading patterns with no significant reduction in emissions.

Like I said, subtle.  That said, the Report's main conclusions are hardly surprising.  Most obviously, the Indian Government has long opposed carbon tariffs and thus wouldn't loudly trumpet a new report showing their benign legality under global trade rules and the Kyoto Protocol.  Second, and as readers of this blog already know, there is now plenty of good, solid scholarship out there - despite what Paul Krugman might have you believe - which supports the Report's main findings, including the likelihood of WTO problems and threat of major trade conflicts caused by countries unilateral imposition of border measures (all available here).

What is surprising, however, is the timing of India's big news.  The carbon tariff debate has died down quite a bit since last fall, when the US Cap-and-Trade legislation (which included carbon tariffs) still had a pulse, the Europeans were seriously contemplating carbon tariffs as part of their revised Emissions Trading Scheme (ETS), and lots of nations were fiercely debating unilateral trade measures in the run-up to December's big climate change summit in Copenhagen.  Since that time, the US climate change legislation has been put on ice, the Europeans - minus France (of course) - have cooled to the idea, and past momentum for dramatic climate change action has been frozen by Copenhagen's inaction, as well as the recent Climategate scandal and its offspring.  (Please hold your groans to the end.)

So why is India flexing now?  I have two guesses: (1) Bad timing - India's report just happened to be completed in the midst of this recent climate change pullback; or (2) Serious concern about rogue EU action - the Indian Government thinks that the global pullback might cause true believers in the EU to just say damn the torpedoes and do something rash.  Sarkozy's certainly pushing the idea; the post-Copenhagen angst among some EU officals was palpable; and some analysts do think that carbon tariffs are inevitable in the EU, given that it has already enacted (and plans to increase) stringent, industry-killing climate regulations.  Even the head of the European Commission, Jose Manuel Barroso, is calling for a "rethink" on European climate policy in the wake of the Copenhagen debacle.

Personally, I'm inclined to side with the former reason (bad timing) - beyond some tough talk from a few random officials and committed enviros, momentum for dramatic action on climate change seems unlikely - even in the EU.  But you can't really blame the Indians if they're choosing the latter, considering Barroso's rather, umm, committed words today: "[T]his is not the time for the EU to start doubting its commitments.... We need to show that we have not given up on our ambitions, even if many of our partners found it easier to limit themselves to the lowest common denominator. Our core goal must be to bring all partners closer to our own ambitions and to our commitment to a multilateral agreement..."

Hmm.  Then again, maybe India should be worried.

Paging Al Gore... Al Gore to the Green Courtesy Phone (UPDATE)

Quite the Sunday morning for global warming skepticism in the foreign press:

• Climategate U-turn as scientist at centre of row admits: There has been no global warming since 1995.  The UK's Daily Mail informs us that "Professor [Phil] Jones also conceded the possibility that the world was warmer in medieval times than now – suggesting global warming may not be a man-made phenomenon. And he said that for the past 15 years there has been no ‘statistically significant’ warming."  Ok, but that's only one guy, right?

• World may not be warming, say scientists.  The London Times Online finds a few other scientists, formerly big believers in anthropogenic global warming (AGW) sounding the alarm: "[N]ew research, including work by British scientists, is casting doubt on such [AGW] claims. Some even suggest the world may not be warming much at all. “The temperature records cannot be relied on as indicators of global change,” said John Christy, professor of atmospheric science at the University of Alabama in Huntsville, a former lead author on the IPCC. The doubts of Christy and a number of other researchers focus on the thousands of weather stations around the world, which have been used to collect temperature data over the past 150 years. These stations, they believe, have been seriously compromised by factors such as urbanisation, changes in land use and, in many cases, being moved from site to site." Well, ok, but that's only temperatures. We still have rising sea levels and melting glaciers, right?

• U.N. climate panel admits Dutch sea level flaw. Reuters: "A background note by the Intergovernmental Panel on Climate Change (IPCC) said a 2007 report wrongly stated that 55 percent of the country was below sea level since the figure included areas above sea level, prone to flooding along rivers.... The Netherlands Environmental Assessment Agency, the original source of the incorrect data, said on February 5 that just 26 percent of the country is below sea level and 29 percent susceptible to river flooding.... The panel expressed regret last month after admitting that the 2007 report exaggerated the pace of melt of the Himalayan glaciers, which feed rivers from China to India in dry seasons, in a sentence that said they could all vanish by 2035. The 2035 figure did not come from a scientific journal." 

Oh, come on!

By the way, there's not a peep about any of this stuff in the blissfully ignorant American press today - unless, of course, you count a Washington Post op-ed convincing us that the mid-Atlantic blizzards are obviously a sign of serious global warming.

UPDATE: It looks like the IPCC Report's hysteria about African crop yields is also total BS.  Shocking, I know.

Carbon Tariffs Update: EU Meetings Produce Nothing; UN Deadline "Softens"

The latest EU meeting of climate ministers produced no new mandates and demonstrated a logjam over emissions reductions targets and border measures. This turn of events should come as little surprise to those of us used to watching the glacial pace of EU policymaking, but it's still worth noting because the last time we checked in with EU ministers, they were loudly and angrily squawking about the collapse of the UN Climate Conference in Copenhagen. Well, they're still squawking, but so far the ministers' frustrations have not resulted in a new push for carbon tariffs (aka "border adjustment measures") on imports from countries that have less severe climate change mitigation policies. Here's The Economic Times with the "news":

The European Union failed to arrive at a consensus on the quantum of its emission reduction commitment. At the meeting of EU ministers in Spain, there was disagreement over whether the 27-member bloc should commit to cutting its emissions by 30% by 2020 from its 1990 levels.

While Britain, France and Germany have called for scaling up the bloc’s commitment to 30%, the move was opposed by Poland, Hungary and Italy. Ambassadors from EU members will continue discussions on emission target in Brussels on Wednesday.

The reduction of greenhouse gas emissions by 30% is conditional on “comparable” offers made by other rich nations and “economically more advanced developing countries contribute adequately according to their responsibilities and respective capabilities”.

Sidelined at the Copenhagen climate conference held in December, the EU is attempting to regain its influence in the global climate debate. The bloc, which has been the most pro-active, seeks to pressure other nations to increase the level of ambitions by setting a higher target for itself. Those supporting a higher target like the UK have argued that the offer is conditional on other developed countries follow suit. In doing so, the EU hopes to reassert its influence in the climate debate.

There has been some heartburn within the EU over the way the US, which has been rather unambitious in its climate efforts, and the world’s target emitter China took over the Copenhagen summit. Germany, another proponent of a higher conditional commitment, argued that a 20% reduction was no longer ambitious, and that the European economies could afford to take on a 30% reduction. However, in Seville, Poland, Italy and Hungary wanted to omit any reference to the 30% target.

Going by the offers made by developed countries in Copenhagen, the reduction in emissions would be about 13% on average in 2020 from 1990 levels. Given this, it is being argued that a commitment to a deeper cut by the EU cannot be justified. The 20% reduction goal is underpinned by recent legislation that tightens carbon dioxide caps on energy and manufacturing companies in Europe’s emissions-trading system and that requires each EU nation to limit discharges from industries outside the programme. A move towards a deeper cut in emissions would mean a tightening of curbs in the emissions trading programme.

France, which is also pushing for a higher commitment, would like the EU to consider tariffs on imports of manufactured goods from countries with weaker climate-protection rules as a way to protect European industry from unfair competition. France has suggested that the 30% reduction target could require a carbon inclusion mechanism, to protect the European industry.

The northern member states are sceptical about a trade mechanism that included the price of carbon dioxide. However, the failure by other developed countries to match a 30% reduction in emissions by the European Union could once again open the door to considering protecting European industry with measures such as taxes on products imported from nations that block adoption of binding reduction targets.

The EU deadlock continued today, highlighting a growing rift between EU members about what to do on climate change, particularly where it looks increasingly likely that the US won't pass any sort of climate change bill in 2010.

Meanwhile, the UN announced today that the January 31 deadline established in Copenhagen for countries to announce their carbon emissions targets is no longer, well, a real deadline:

The UN has dropped the 31 January deadline by which time all countries were expected to officially state their emission reduction targets or list the actions they planned to take to counter climate change.

Yvo de Boer, UN climate change chief, today changed the original date set at last month's fractious Copenhagen climate summit, saying that it was now a "soft" deadline, which countries could sign up to when they chose. "I do not expect everyone to meet the deadline. Countries are not being asked if they want to adhere… but to indicate if they want to be associated [with the Copenhagen accord].

So far, only 20 of 192 countries have announced their climate change plans. That's not good, and it's far from certain whether 2010 will produce anything tangible on the multilateral front, or whether everything will get punted to Mexico City at the end of the year.

Regardless, I'll certainly be here keeping an eye out for sneaky (likely French) protectionists dressed in pretty green clothing.

A Good Day in the Fight against Green Protectionism

Several positive developments today in our quest against protectionism masquerading in green clothing:

(1) The EU's new trade chief sounds great.  Not only does Karel de Gucht oppose carbon tariffs out of practical and trade war concerns, but he also advocates a multilateral agreement to eliminate barriers to trade in environmental goods.  Of course, de Gucht doesn't really have a say on these issues, but it's still good to hear these things from a high-ranking EU official - particularly when some European leaders (*cough*Sarkozy*cough) are clamoring for green protectionism.

(2) American farmers are unanimously opposed to Cap and Trade and the EPA's regulation of greenhouse gases.  At the American Farm Bureau's annual meeting, delegates voted unanimously to "strongly oppose 'cap and trade proposals before Congress' and strongly support 'any legislative action that would suspend (the Environmental Protection Agency's) authority to regulate greenhouse gases under the Clean Air Act."  As you'll recall, both the House and Senate versions of Cap and Trade include carbon tariffs (aka "border adjustment measures"), and the EPA's new GHG authority hinted at import regulations, so opposition from a powerful group like the AFB is good news.  And for good measure, the AFB announcement even throws in a reference to ClimateGate.  Bravo, farmers. Bravo.

(3) The ITC struck down a ruling that Japanese wind turbines violated GE patents and thus should be banned from the US market.  Normally, I wouldn't get into the nitty-gritty of a case like this, but, as Law360 notes below, it involved billions of dollars in "green" products, a politically-connected plaintiff (GE), and had become highly politicized.  (Even Chuck Schumer makes an appearance!)   Thus, the case ended up smelling a lot more like potential eco-protectionism than your basic trade/IP litigation:

In a reversal of an administrative law judge's ruling, the U.S. International Trade Commission has terminated a Section 337 complaint filed by General Electric Co. against Mitsubishi Heavy Industries Ltd., finding no violation of GE patents by Mitsubishi wind turbine components.

The decision, handed down Friday, puts an end to an ITC dispute over designs for wind turbine technology, in which GE accused Tokyo-based Mitsubishi and subsidiaries Mitsubishi Power Systems Inc. and Mitsubishi Heavy Industries America Inc. of importing turbine parts that infringed three patents....

The ITC opened its investigation in March 2008, based on a complaint filed by GE alleging that Mitsubishi was importing and selling certain variable-speed wind turbines and components that infringed the '039 and '085 patents, as well as a third, U.S. Patent Number 7,321,221.

In August, the ITC ALJ issued a final initial determination affirming two 337 violations on the '039 and '985 patents and recommending limited exclusions barring the allegedly infringing products from entering the U.S.

However, an investigative attorney from the ITC Office of Unfair Import Investigations disputed the ALJ decision, questioning particular infringement findings on patent-specific claims, as well as general concerns about GE's fulfillment of the technical prong of the domestic industry requirements with respect to the U.S. wind turbine market.

Based on the conflicting reports, the full commission announced in October that it would review the ALJ's initial determination...

With a number of green energy stimulus projects under way, Congress has taken a keen interest in the dispute, with lawmakers weighing in heavily for both sides in recent weeks.

Sens. Charles Schumer, D-N.Y., and Kirsten Gillibrand, D-N.Y., along with U.S. Rep. Paul D. Tonko, D-N.Y., sent the ITC commissioners a letter dated Jan. 6 urging them to “consider the importance of the domestic industries and ensure that intellectual property rights are upheld” in the GE-Mitsubishi case.

New York is home to the global headquarters for GE's wind energy business, according to the lawmakers.

Sens. Blanche Lincoln, D-Ark., and Ron Wyden, D-Ore., wrote the ITC in October saying the ALJ decision deserved a second look in light of an expected spike in demand for renewable energy technology.

At least one of Mitsubishi's 2.4-megawatt variable speed turbines has been installed in Wyden's home state, the senator said.

Congress' interest prompted Georgia Republican Sens. Saxby Chambliss and Johnny Isakson to warn commissioners in a Dec. 23 letter that the case “may have become politicized.”

Since entering the wind energy market in 2002, GE has become one of the largest U.S. suppliers of wind turbines, accounting for 43 percent of the market in 2008, according to the ITC.

Good for the ITC to resist the political posturing of Schumer and his colleagues.  Of course, GE is also a very strong supporter and ally of the President, whose administration recently issued a sketchy ruling raising tariffs on solar panels (which GE also makes).  But I'm sure that there's no connection to any of this.

Totally.

Sacre Bleu! French Carbon Tax is Unconstitutional

Interesting news out of France today:

France's Constitutional Council, the nation's highest constitutional authority, struck down a new tax on carbon emissions, dealing a blow to President Nicolas Sarkozy, who has made fighting climate change a key part of his tenure.

France's Constitutional Council ruled the proposed tax, due to become effective on Friday, allowed for too many exemptions even though it, in theory, introduced a 17 euro tax per every ton of carbon emitted. The court said the tax would not have applied to 93% of industrial emissions.

All the exemptions, the court ruled late Tuesday, created "a breach of the principle of tax equality," according to a copy of the ruling posted on the council's website.

Sarkozy had pledged tougher environmental legislation in his 2007 election campaign and had made climate change a key part of his victory speech after the election.

Sarkozy had strongly championed the tax, which would have been the first tax of such heft introduced in France in the past 20 years and which was forecast to generate a total of 4.1 billion euros for the government....

In introducing the 17 euro tax, the law passed by the French parliament exonerated a range of high-emitting commercial users, including power stations, oil refineries and cement works.
The government had introduced the incentives because it was worried that a carbon tax might hurt French industry by raising its costs.

The law also lightened the tax imposed on groups such as truck drivers and fishermen, who have in the past blockaded ports and roads to protest government measures.

To limit the impact of the French carbon tax on domestic industry, Sarkozy had been hoping to extend a version of it to the whole of the European Union. That would have given the EU the option of taxing imports from countries with looser emission controls so as not to hurt the bloc's industry.

The French tax would have fallen mainly on consumers' use of gasoline and heating fuel, and would have entailed an increase in the price of car fuel of about 4 euro cents per liter in 2010.

Farmers and fishermen were scheduled to pay the tax at a quarter of the full rate, while the state planned to reimburse 35% of the amount paid by truck drivers.

The ruling provides a rare boost for the opposition Socialist Party, or PS, which lodged the appeal that led to the council's ruling....

The government is scheduled to present a revised version of the bill to parliament by Jan. 20. Hamon said the PS would push for all forms of energy consumption to be taxed.

Without the carbon tax, a source of government revenue had been removed at a time when tax receipts are being dented by the economic downturn. The country's budget deficit is forecast to reach 8.2% of gross domestic product this year and 8.6% in 2010.

Well, I don't know about you, but I for one am just shocked (shocked!) that a massive government regulation was tainted by strong lobbying from, and huge carve-outs for, domestic interest groups. Whoever would have though that climate change regulations were so susceptible to such a dastardly thing? Ummmm...

But seriously, as you'll recall, France has been one of the loudest proponents of carbon tariffs - border measures on imports of carbon-intensive products from countries (mostly developing ones) that don't employ sufficiently strict climate change regulations. And as the article makes clear, the unconstitutional French law contemplated such tariffs and was hoped by Sarkozy and others to be a model for an EU-wide carbon tax/tariff system. So this is certainly a big blow to the eco-protectionists out there.

That said, I wouldn't count on the bad guys to just give up in 2010. Indeed, I'm rather convinced that the failure of Copenhagen will result in even louder calls for eco-protectionism in the US, the EU and elsewhere.  Only next time - which looks to be only a few weeks away on January 20, 2010 - they'll probably ensure that it's "constitutional."

(At least by the standards of the Socialist Party.)