Guitars, Catfish and the Rise of Regulatory Protectionism in America

Ever since the advent of the WTO, and the GATT before it, governments' ability to use tariffs, quotas and other straightforward forms of trade protectionism has been limited and, in many cases, subject to retaliation by other WTO Members.  Indeed, such limitations on trade protectionism were the goal of the WTO's "channel and bind" strategy - "channel" all trade barriers into easily quantifiable tariffs, and "bind" them at agreed maximum levels.  However, as I've mentioned here before, these basic WTO disciplines also are subject to broad "exceptions" (under GATT Article XX and XXI) for things like national security, public health, safety and the environment.  Thus, regulatory measures can often (but not always) pass WTO muster, even though they restrict international trade.  These exceptions are widely recognized as necessary to protect WTO Members' sovereignty, and I think that they do serve that important purpose in most cases.  On the other hand, these exceptions also create an extremely ripe opportunity for WTO Members to use health, safety, environmental regulations as a backdoor means of protectionism.

The most high-profile example of the problems created by regulatory protectionism is probably the recent attempts by some US and EU government officials to impose carbon tariffs on imports from countries that haven't adopted sufficient economy-killing climate change mitigation measures.  Carbon tariffs, much like global warming itself, appear to be dormant right now, but that hasn't stopped the United States from pursuing other climate change-related regulatory measures and imposing many other kinds of regulatory protectionism over the last few years.

The most recent and publicized instance of this troubling trend came in last week's anger-inducing news that the federal government raided Gibson Guitars due to alleged violations of the Lacey Act, recent expansions of which prohibit trade in certain protected woods and create an extremely onerous "strict liability" (i.e., you're guilty even if you didn't intend to break the law) compliance standard:

Federal agents swooped in on Gibson Guitar Wednesday, raiding factories and offices in Memphis and Nashville, seizing several pallets of wood, electronic files and guitars. The Feds are keeping mum, but in a statement yesterday Gibson's chairman and CEO, Henry Juszkiewicz, defended his company's manufacturing policies, accusing the Justice Department of bullying the company. "The wood the government seized Wednesday is from a Forest Stewardship Council certified supplier," he said, suggesting the Feds are using the aggressive enforcement of overly broad laws to make the company cry uncle.

It isn't the first time that agents of the Fish and Wildlife Service have come knocking at the storied maker of such iconic instruments as the Les Paul electric guitar, the J-160E acoustic-electric John Lennon played, and essential jazz-boxes such as Charlie Christian's ES-150. In 2009 the Feds seized several guitars and pallets of wood from a Gibson factory, and both sides have been wrangling over the goods in a case with the delightful name "United States of America v. Ebony Wood in Various Forms."

The question in the first raid seemed to be whether Gibson had been buying illegally harvested hardwoods from protected forests, such as the Madagascar ebony that makes for such lovely fretboards. And if Gibson did knowingly import illegally harvested ebony from Madagascar, that wouldn't be a negligible offense. Peter Lowry, ebony and rosewood expert at the Missouri Botanical Garden, calls the Madagascar wood trade the "equivalent of Africa's blood diamonds." But with the new raid, the government seems to be questioning whether some wood sourced from India met every regulatory jot and tittle.

It isn't just Gibson that is sweating. Musicians who play vintage guitars and other instruments made of environmentally protected materials are worried the authorities may be coming for them next....

The tangled intersection of international laws is enforced through a thicket of paperwork. Recent revisions to 1900's Lacey Act require that anyone crossing the U.S. border declare every bit of flora or fauna being brought into the country. One is under "strict liability" to fill out the paperwork—and without any mistakes.

Conservatives and libertarians are rightly incensed by this kind of regulatory adventurism and its effects on US businesses, but what the article above leaves out is that, as noted in a recent Heritage Foundation study, the Lacey Act's legal requirements and strict liability standard are so severe that the law - intentionally or not - has crippled trade in both illegally-harvested and legally-harvested wood products.  And this protectionism has occurred mainly to the detriment of small importers and developing country exporters who simply can't afford to jump through all of these hoops (or risk even trying to do so).

Unfortunately, the Lacey Act is not alone.  For example, the WSJ reported last month that a little-known provision in the Dodd-Frank financial "reform" law, which bans trade in "conflict minerals," is causing harmful unintended consequences for poor African miners engaging in legal commercial behavior:

The world is in the midst of a commodity boom, but in a mineral-rich and desperately poor corner of Africa exports of tin, tantalum and tungsten have fallen by more than 70% since last summer. These are not the effects of war or natural disaster--although the region suffers from all of that and more--but rather of what local small-time miners are calling "Obama's embargo."

The African miners are basically right about the source of their troubles, though if they want to be more specific with the blame they might also call it the McDermott embargo, after the Democratic Congressman from Washington state. Jim McDermott is one of the architects of the Dodd

The goal of Section 1502 is to cut off money to those responsible for the fighting in the Democratic Republic of Congo, and by those lights the sales collapse shows that it's working. A spokesman for Mr. McDermott tells us that if the trend persists, they hope to see a similar drop in the rate of carnage. Over the past dozen years, more than five million people have been killed and more than 200,000 women raped in the fighting between rebel groups and government forces.

Section 1502 requires companies that use these minerals--they have applications in everything from electronic gadgets to medical devices--to disclose whether they, or anyone along their supply chains, source their minerals from Congo or any of the countries at its borders. If so, their SEC reports will have to detail the steps they're taking to not "directly or indirectly finance or benefit armed groups" in the region. If companies cannot demonstrate such steps, they will have to declare on their websites that their products may be funding African atrocities.

Behind the scenes, companies are working to soften the rules. Some industry groups are also putting in place systems that will let them continue to source from central Africa while telling the SEC their supply chains are "conflict free." But the logistics of guaranteeing this on a large-scale are daunting, and many suppliers find it easier to leave central Africa entirely. A case in point is the procurement policy of the H.C. Starck group, which affirms that it rejects all raw materials from the region, "even if we are offered material with allegedly official certifications from other state authorities."

Shifting all sourcing to places such as Canada or Australia may drive up industry and consumer costs somewhat. But as Verizon points out in a letter to the SEC, "For the foreseeable future, it is going to be much easier to demonstrate that the minerals are from somewhere other than the DRC Zone, than to prove that minerals mined in the DRC Zone are responsibly sourced."

The highest price is being paid in central Africa, where millions of people, and 16% of the Congo's population, are dependent on small-time digging. By all accounts most of the money from central African mining goes to these artisanal miners. Soldiers and rebels do pocket some of the proceeds, and that's a depressing reality.

But mineral operations also provide the local population with centers of commerce, with cash to pay for supplies and workers and easily traded goods. As money from the mines becomes increasingly scarce, Congo's warlords have moved on to targeting the banana trade. Perhaps conflict-free bananas will be the next object of activist enthusiasm.

Meanwhile, the butchery continues, with recent reports of government troops raping more than 100 women and children over a three-day spree in the Congo's South Kivu region. If all the money from minerals dries up, these killers will not shy from even more atrocious means to fund their ambitions. As for Western policy makers, Section 1502 is a useful lesson in how well-meaning attempts to "do something" in Africa unintentionally harm the innocent without touching the guilty.

So to recap: a little-know provision of a national financial reform law has caused imports of African minerals to collapse.  Meanwhile, this regulatory protectionism, and the carnage in Congo that it was intended to prevent, continues.

Your tax dollars at work, folks.  Sigh.

But wait, there's more: the Journal reported in February that the USDA is considering reclassifying Vietnamese "catfish" in order to subject it to far more onerous importation and inspection requirements.  And, gee, you'll never guess what would happen if USDA's proposed rule takes effect:

The U.S. Department of Agriculture is seeking public comment on its proposal to classify the pangasius as a "catfish." A lot rides on that name. The 2008 farm bill specifies new safety inspection on imported catfish so onerous it would amount to a ban for at least several years while foreign fishermen struggle to comply. Pangasius is the target because it has a similar taste and texture to American catfish but is cheaper—the main reason American catfish farmers have tried for years to ban the imports.

The problem is that the pangasius is an entirely different species of fish. In an earlier bout of protectionism, Congress even passed a law making it illegal to call pangasius "catfish" for marketing purposes. Since that hasn't deterred American consumers from buying pangasius, Washington is willing to call the Vietnamese fish a catfish again if that makes it easier to ban.

This would be funny if it weren't so costly and probably illegal. On health-and-safety grounds, both the 2008 law and USDA's moves to enforce it make little sense. Vietnamese pangasius, like all fish imports, already is regulated by the Food and Drug Administration. There have been no reported safety problems with the Vietnamese imports. In contrast, USDA has no experience regulating fish despite its history overseeing meat, and catfish will be the only fish species under its regulatory purview....

As for the illegality, stricter regulation is unlikely to pass muster at the World Trade Organization. Trade expert James Bacchus, in an opinion commissioned by fish importers, argues that the U.S. would likely lose if Vietnam sued precisely because FDA regulation already is effective. Trade judges would conclude the only reason to change the regulation was protectionism, and they'd be right. A former Democratic Representative from Florida, Mr. Bacchus was the chief judge of the WTO's appellate panel for eight years.

USDA has yet to announce its intentions with respect to the final rule on catfish pangasius, but it's clear that the proposed rule would amount to an effective ban on a perfectly safe, fairly-traded product that Americans really want.

And so much for Obama administration efforts to encourage healthier American eating habits, eh?

Another law to watch is the Food Safety Modernization Act.  The Act also imposes  new verification and other requirements for US importers and foreign exporters of all types of foods.  The FDA has yet to promulgate the new regulations that will implement the new trade provisions, so the law's overall impact on food imports and domestic food prices remains to be seen.  However, a recent study by Texas A&M University estimates that the programs will be extremely costly:

FDA will likely pursue a strategy of passing as much costs as they can/are allowed to the domestic private sector. Importers will have incentives to pass the costs of compliance verification on to their sources of supply. Foreign governments interested in increasing their country’s exports could end up bearing the costs of developing new export-oriented programs....

The FSML will place substantial costs on the private sector. These costs will have substantial structural impacts. They will also raise food prices. These declaratory conclusions are based on economic logic/theory backed by analyses of the impacts of the implementation of virtually identical food policies and programs by FSIS/USDA, for similar programs implemented by the LGMA, and by research indicating the impacts of food safety import regulations.

So the law will inevitably lead to higher food prices for American families and higher compliance costs for developing country farmers - a classic protectionism exacta.  (Meanwhile, the law's also raising serious concerns about domestic enforcement.)

Now, although I'm clearly not a fan of intensive regulatory adventurism (particularly in this economy), I don't mean to question the trade intentions of these particular regulations - well, not all of them, at least.  But it's undeniable that they are creating real impediments to lawful trade and needlessly harming American businesses and consumers, as well as poor foreign producers and exporters.  And, of course, these onerous regulatory trade barriers appear to have increased rapidly during President Obama's time in office, so one must necessarily ask the obvious question:

Is this all one big coincidence?

I honestly have no idea, and I also don't know whether these new regulatory measures, or any others out there, meet the requirements for one of the aforementioned WTO exceptions and thus are allowed under global trade rules.  But I'm quite sure that, as regulatory protectionism proliferates in the United States, other nations are undoubtedly going to go through the WTO dispute settlement process to find out.

ObamaCare and America's Global Competitiveness, ctd.

It's been a while since I last checked in on the effects of ObamaCare (a moniker that the President supports, btw) on American companies' global competitiveness.  As you may recall, one of the administration's more, ahem, creative arguments in support of passing health care legislation was that it was absolutely essential to securing American companies' continued economic domination (no, seriously).  I, of course, provided the blatantly obvious rebuttal to this silly argument by noting (repeatedly) that it was utterly impossible that 1200 pages of new taxes, spending and regulations were going to somehow supercharge the global competitiveness of US manufacturers and service providers, and that it was far more likely that the new regulations would hurt, not help, American businesses.  Now comes a fantastic depressing new video of CKE Restaurants CEO Andy Puzder explaining just how devastating ObamaCare, and other regulatory adventurism practiced by the executive branch, have been for American businesses (i.e., the people who, you know, create jobs):



The stuff on health care starts at about 1:20, but the entire video is worth your time.  It provides a very clear an concise explanation of how bad regulations and their awful implementation by the agencies like the EPA and the NLRB hamstring America's job creators (something I've also lamented).  My favorite line:

It's very hard to model the costs [of ObamaCare] because the bill was so complex.... We have a national healthcare advisor... that we use, and the range that they gave on our health care costs increasing at CK Restaurants was between 7.3 and 35.1 million dollars.... Their [new] estimate was that it would increase our health care costs by about 18 million dollars.  We spent about 9 million dollars last year building new restaurants; that would be totally wiped out.

Yikes.  Although Pudzer's company operates US restaurants (and thus isn't directly facing foreign competition), the regulatory pains he discusses are similarly felt by American manufacturers and service providers who do regularly compete in, and in some cases rely upon, the global economy.  And until the US government provides a less burdensome and uncertain regulatory environment, all US companies will continue to suffer.

And so will their current - and potential - employees.

Victory (Sorta): New Senate Energy Bill Ditches Carbon Tariffs

Senate Majority Leader Harry Reid (D-NV) released today the scaled-down version of the Democrats cap-and-trade energy green jobs "oil spill response" bill, and free traders should be pleased.  The bill summary is available here, and as you can see, there's nary a mention of carbon tariffs or any other euphemism (like "border adjustment" or "offset rebate" or "International Reserve Allowance") used to hide the nasty, trade-war-inducing measures in plain sight.  The new bill also lacks provisions on combating "carbon leakage" or "ensuring domestic competitiveness," which are really just backdoor ways of saying "attacking developing country imports."  So all in all, carbon tariffs appear dead in the United States for 2010.  Hooray.

That said - and I hate to be a party-pooper - there are still plenty of reasons for concern going forward.  Here are my top two:

First, the new Senate Bill doles out more federal subsidies for "green manufacturing."  In particular--

- Section 2004 requires the Secretary of Energy to promulgate an interim final rule establishing an infrastructure deployment program and a manufacturing development program. The Secretary of Energy is required to provide:

• Grants of up to $50,000 per unit to qualified refuelers for the installation of natural gas refueling property placed in service between 2011 and 2015; and 

• Grants in amounts determined to be appropriate by the Secretary to qualified manufacturers for research, development, and demonstration projects on engines with reduced emissions, improved performance, and lower cost.

- Section 2005 requires the Secretary of Energy to promulgate an interim final rule establishing a direct loan program to provide loans to qualified manufacturers to pay not more than 80 percent of the cost of reequipping, expanding, or establishing a facility in the United States that will be used for the purpose of producing any new qualified alternative fuel motor vehicle or any eligible component. $200 million would be

As I've discussed a few times (and fiscal insanity aside), tossing around billions of dollars in cheap loans and direct grants to domestic "green manufacturers," combined with intense administration efforts to increase exports of the subsidized green products, is a surefire way to cause trade disputes and eventual remedial tariffs on those goods.  So while the Senate Bill ends one very big source of trade friction (carbon tariffs), it still contains at least two other, admittedly smaller, ones.  Blech.

Second, and as I noted last year, the demise of any near-term legislative attempts to cap domestic carbon emissions and concurrently regulate imports of carbon-intensive products doesn't mean that the Obama administration will just stop trying to impose its green utopia on an increasingly unwilling American electorate.  Instead, the battle now turns to the EPA and its newfound powers to regulate carbon emissions under the Clean Air Act.  As I said back in December after the EPA's "endangerment" ruling was released:

The EPA's endangerment ruling does not authorize, or even contemplate, the imposition of carbon tariffs. It doesn't even establish the EPA's actual regulation of most GHG emissions or production of GHG-intensive goods (although that's certainly a viable ultimate result). Indeed, Monday's EPA ruling really does only two things: (i) deem GHGs to be harmful pollution capable of being regulated by the CAA; and (ii) lay the groundwork for the EPA's regulation of GHG emissions from new motor vehicles. So why should we be "very, very concerned" about the EPA pursuing eco-protectionism and all the nasty fallout that would result from that move?

Several things, actually.

First, EPA documents and rulings clearly indicate that the agency both looking into, and laying the groundwork for, some form of import regulation related to its new endangerment ruling. For example, in the EPA's July 2008 Advanced Notice of Proposed Rulemaking (a necessary precursor to the final endangerment rule), the EPA frequently questioned whether its GHG regulations would cause "emissions leakage" - i.e., the outsourcing of GHG-emissions-intensive industries and jobs to countries that lack GHG regulations. A primary way to combat such leakage, of course, is carbon tariffs. Indeed, in the same document, the Department of Commerce voiced strong opposition to the unilateral imposition of carbon tariffs - another clear indication that the EPA was mulling the idea. (And, of course, that was a much different DOC (and EPA) than we have today.)

The EPA's final endangerment rule includes no discussion of leakage or border measures, but has several pages (see, in particular, pages 142-151 of the document linked above) on how global GHG emissions can affect human health and safety. One of many telling quotes: "The impacts of the air over the United States cannot be assessed separately from the impacts from the global pool, as they occur together and work together to affect the climate." As with the preliminary notice, it's clear that the EPA is well-aware of, and fully contemplating, the global effects of GHG emissions and its potential regulation of their (allegedly) harmful effects in the United States.

Another EPA ruling related to the endangerment finding also is cause for concern about future eco-protectionism stemming from the EPA's GHG regulations. On October 30 of this year, the EPA announced a final rule for GHG emissions under Section 307(d) of the CAA which "require[s] reporting of greenhouse gas emissions from all sectors of the economy." The final rule doesn't regulate GHGs emissions - just reporting, and applies to fossil fuel suppliers and industrial gas suppliers, direct GHGs emitters and manufacturers of heavy-duty and off-road vehicles and engines. Such "suppliers" include importers and exporters of fossil fuels and certain downstream petrochemicals. Again, it's clear from these regulations that the EPA is very much aware of, and concerned about, the international trade implications of its GHG regulations. Moreover, this reporting system could quite easily be expanded to include other products or, more importantly, provide much-needed evidence (a "rational basis," in legalese) to justify the EPA's imposition of border measures on products/processes controlled by any new GHG regulations.

Second, if Congress refuses to act on Cap-and-Trade (quite likely considering how devastating the issue is politically these days), the EPA's endangerment ruling could be used as a surrogate means of controlling US GHG emissions. Indeed, the White House brazenly threatened as much today (so much for Democrat wailing over abuse of executive power, huh?). Well, as I've discussed repeatedly, a primary component of both the House "Waxman-Markey" bill and the Senate "Boxer-Kerry" bill is, you guessed it, carbon tariffs. Thus, if the EPA's emissions regulations are truly meant to be a surrogate of current US climate change legislation, it's certainly plausible that those regulations will contain some form of similar border measure. (It's also plausible that they won't, but that leads us to the next point.)

Third, if the EPA's endangerment ruling indeed leads to the imposition of serious GHG regulations on US businesses, domestic industry groups will very likely spend a fortune lobbying for the imposition of some form of anti-leakage measure. For example, the above-linked WSJ article cited concerns about "huge costs" imposed on US industries from, among others, the US Chamber of Commerce and the National Association of Manufacturers, US electricity providers, and oil refiners - costs likely not borne by their (lucky!) foreign competitors. Indeed, the Iron and Steel Institute said that any regulation -- whether through the EPA or Congress -- must "reduce emissions without altering the competitiveness of American steelmakers." Of course, the steelmakers - and the many lawmakers who do their bidding - have demanded carbon tariffs in the Cap-and-Trade legislation to ensure a "level playing field" for their products versus imports, so similar efforts are very, very likely for any surrogate EPA regulation.

In sum, the EPA's controversial endangerment ruling does not explicitly contemplate or authorize eco-protectionism under the CAA, nor will it definitely lead to such nastiness. On the other hand, there is plenty of reason for concern. The EPA is clearly concerned about emissions leakage and believes that emissions regulation extends beyond America's borders. Moreover, the agency has not only contemplated border measures as part of any GHG regulation regime under the CAA, but also established a framework - and potential justification - for the imposition such measures down the road. The case isn't a slam-dunk, but it's certainly something to watch for.

Replace "Boxer-Kerry" with "Kerry-Lieberman" and all of this still applies today.  Indeed, Republican efforts to block the EPA's authority to regulate greenhouse gases failed back in June, so the agency's newfound powers definitely remain alive and well.  Moreover, the next UN Climate Change Conference in Mexico City - the much-awaited follow-up to last year's debacle in Copenhagen - is only a few months away, and do you really think that the Obama administration is going to show up totally empty-handed to the world's next big climate change party?  Highly unlikely.

So rejoice for a moment, folks, but remember: this is only round one.  We've got a long, long way to go.

Could the EPA's "Endangerment" Decision Result in Eco-Protectionism?

On Monday, US EPA issued its much-anticipated final ruling that greenhouse gas emissions (GHGs) could be regulated under Section 202(a) of the Clean Air Act because they "endanger public health or welfare." The WSJ reports on the massive implications of the decision:

The so-called "endangerment finding" announced Monday by EPA Administrator Lisa Jackson is necessary to move ahead on new emission standards for cars, while potentially opening up large emitters such as power plants, crude-oil refineries and chemical plants to limits on their output of carbon dioxide and other gases.

"These long overdue findings cement 2009's place in history as the year when the U.S. government began addressing the challenge of greenhouse-gas pollution and seizing the opportunity of clean-energy reform," Ms. Jackson said in a statement....

The EPA action gives President Barack Obama something to show leaders from other nations when he attends the Copenhagen conference on Dec. 18 and tries to persuade them that the U.S. is serious about cutting its contribution to global greenhouse-gas emissions....

An endangerment finding allows the EPA to use the federal Clean Air Act to regulate carbon-dioxide emissions, which are produced whenever fossil fuel is burned. Under that law, the EPA could require emitters of as little as 250 tons of carbon dioxide per year to install new technology to curb their emissions starting as soon as 2012.

The EPA has said it will only require permits from big emitters -- facilities that put out 25,000 tons of carbon dioxide a year. But that effort to tailor the regulations to avoid slamming small businesses with new costs is expected to be challenged in court.

The EPA's final rule is here.  Unsurprisingly, the blogosphere - both liberal and conservative - has erupted over the controversial EPA decision.  Each side views the EPA's decision as a backdoor to regulating CO2 emissions without congressional passage of the currently-comatose Cap-and-Trade legislation, or a way to force Congress to pass that very same legislation (or else!).  These valid concerns are, in my humble (ha!) opinion, quite worthy of the barrels of virtual ink being spilled over them.

However, one thing that I've yet to see in any of the e-chatter is an analysis of whether the EPA's endangerment ruling will empower the agency to impose eco-protectionist measures against imports of fossil fuels or GHG-intensive products (like cement, steel or fertilizer).  Such protectionism would likely come in the form of carbon taxes, tariffs or other "border measures" imposed on imports of targeted products from countries that have not implemented similar emissions limitations in order to offset the competitive disadvantages caused by the EPA's domestic regulations.  As I've discussed previously, carbon tariffs are themselves highly controversial and are opposed by most of the developing world and an increasing share of the developed world for myriad reasons (including the possibility of starting a trade war).  All of this discussion, however, has come via analysis of the US Cap-and-Trade Legislation (which contemplates carbon tariffs) or a multilateral agreement on climate change concluded as part of the UN's Copenhagen Conference.  Never have I contemplated whether a federal agency - the EPA - would impose similar eco-protectionism without Congressional approval.

The short answer: it's still unclear, but we all should be very, very concerned. (Cue ominous music...)

The EPA's endangerment ruling does not authorize, or even contemplate, the imposition of carbon tariffs.  It doesn't even establish the EPA's actual regulation of most GHG emissions or production of GHG-intensive goods (although that's certainly a viable ultimate result). Indeed, Monday's EPA ruling really does only two things: (i) deem GHGs to be harmful pollution capable of being regulated by the CAA; and (ii) lay the groundwork for the EPA's regulation of GHG emissions from new motor vehicles.  So why should we be "very, very concerned" about the EPA pursuing eco-protectionism and all the nasty fallout that would result from that move?

Several things, actually.

First, EPA documents and rulings clearly indicate that the agency both looking into, and laying the groundwork for, some form of import regulation related to its new endangerment ruling. For example, in the EPA's July 2008 Advanced Notice of Proposed Rulemaking (a necessary precursor to the final endangerment rule), the EPA frequently questioned whether its GHG regulations would cause "emissions leakage" - i.e., the outsourcing of GHG-emissions-intensive industries and jobs to countries that lack GHG regulations. A primary way to combat such leakage, of course, is carbon tariffs. Indeed, in the same document, the Department of Commerce voiced strong opposition to the unilateral imposition of carbon tariffs - another clear indication that the EPA was mulling the idea. (And, of course, that was a much different DOC (and EPA) than we have today.)

The EPA's final endangerment rule includes no discussion of leakage or border measures, but has several pages (see, in particular, pages 142-151 of the document linked above) on how global GHG emissions can affect human health and safety. One of many telling quotes: "The impacts of the air over the United States cannot be assessed separately from the impacts from the global pool, as they occur together and work together to affect the climate."  As with the preliminary notice, it's clear that the EPA is well-aware of, and fully contemplating, the global effects of GHG emissions and its potential regulation of their (allegedly) harmful effects in the United States.

Another EPA ruling related to the endangerment finding also is cause for concern about future eco-protectionism stemming from the EPA's GHG regulations.  On October 30 of this year, the EPA announced a final rule for GHG emissions under Section 307(d) of the CAA which "require[s] reporting of greenhouse gas emissions from all sectors of the economy."  The final rule doesn't regulate GHGs emissions - just reporting, and applies to fossil fuel suppliers and industrial gas suppliers, direct GHGs emitters and manufacturers of heavy-duty and off-road vehicles and engines.  Such "suppliers" include importers and exporters of fossil fuels and certain downstream petrochemicals.  Again, it's clear from these regulations that the EPA is very much aware of, and concerned about, the international trade implications of its GHG regulations.  Moreover, this reporting system could quite easily be expanded to include other products or, more importantly, provide much-needed evidence (a "rational basis," in legalese) to justify the EPA's imposition of border measures on products/processes controlled by any new GHG regulations. 

Second, if Congress refuses to act on Cap-and-Trade (quite likely considering how devastating the issue is politically these days), the EPA's endangerment ruling could be used as a surrogate means of controlling US GHG emissions.  Indeed, the White House brazenly threatened as much today (so much for Democrat wailing over abuse of executive power, huh?).  Well, as I've discussed repeatedly, a primary component of both the House "Waxman-Markey" bill and the Senate "Boxer-Kerry" bill is, you guessed it, carbon tariffs.  Thus, if the EPA's emissions regulations are truly meant to be a surrogate of current US climate change legislation, it's certainly plausible that those regulations will contain some form of similar border measure. (It's also plausible that they won't, but that leads us to the next point.)

Third, if the EPA's endangerment ruling indeed leads to the imposition of serious GHG regulations on US businesses, domestic industry groups will very likely spend a fortune lobbying for the imposition of some form of anti-leakage measure.  For example, the above-linked WSJ article cited concerns about "huge costs" imposed on US industries from, among others, the US Chamber of Commerce and the National Association of Manufacturers, US electricity providers, and oil refiners - costs likely not borne by their (lucky!) foreign competitors.  Indeed, the Iron and Steel Institute said that any regulation -- whether through the EPA or Congress -- must "reduce emissions without altering the competitiveness of American steelmakers."  Of course, the steelmakers - and the many lawmakers who do their bidding - have demanded carbon tariffs in the Cap-and-Trade legislation to ensure a "level playing field" for their products versus imports, so similar efforts are very, very likely for any surrogate EPA regulation.

In sum, the EPA's controversial endangerment ruling does not explicitly contemplate or authorize eco-protectionism under the CAA, nor will it definitely lead to such nastiness.  On the other hand, there is plenty of reason for concern.  The EPA is clearly concerned about emissions leakage and believes that emissions regulation extends beyond America's borders.  Moreover, the agency has not only contemplated border measures as part of any GHG regulation regime under the CAA, but also established a framework - and potential justification - for the imposition such measures down the road.  The case isn't a slam-dunk, but it's certainly something to watch for.

So stay tuned....