By C. Fred Bergsten and Lori Wallach
Friday, November 13, 2009
There is a real danger that a collision between climate policy and
trade agreements could derail two critical goals: controlling climate
change and expanding trade.
But this danger is avoidable.
We are an unusual pair of advocates for this message. For a long time,
we and our organizations have been on opposite ends of the debate over
trade agreements, disagreeing about their effects on economies,
livelihoods and domestic regulations.
But we agree on a surprising number of aspects of the climate-change
debate and on the related need to overhaul global trade negotiations,
which are stalled by disagreements and the worldwide financial crisis.
We agree that it is politically unrealistic -- and unwise -- to try to
enact a cap-and-trade system that puts manufacturers in the United
States at a competitive disadvantage with those operating overseas
that do not produce under comparable requirements. It makes no sense
to impose a cost on those producing steel, autos and other goods, only
to have them shift jobs and pollution to China or India -- which are
wary of binding international obligations on emission reductions.
While the academic debates about the economics of this issue continue,
the politics are clear. The two means of "leveling the carbon playing
field" in bills before Congress -- imposing additional "border
charges" on carbon-intensive imports and subsidizing domestic
producers -- are being criticized by many U.S. trading partners as
potential World Trade Organization violations. These criticisms could
lead to WTO challenges that might undermine climate and trade
agreements, or to retaliation that could escalate to trade wars,
choking the global economy. Yet without some kind of border adjustment
mechanisms, even if imposed after a fixed period, U.S. climate
legislation is unlikely to pass.
Meanwhile, many poor countries have signaled that they want more
financial support for the "green technology" transfers that would
enable them to participate in a global climate accord, as well as
greater access to these technologies. Implementing a treaty on global
warming could require new trade rules in intellectual property,
services, government procurement and product standards.
Luckily, these problems present an opportunity.
President Obama campaigned on a promise to redefine the U.S. trade
agenda, but he has yet to do so. One path would be to launch an "Obama
Round" of talks that would include, as a centerpiece, addressing these
potential commercial and climate trade-offs and updating the
negotiating agenda. Earlier this year, the Peterson Institute
recommended a new code of "best practices" on greenhouse gas emission
controls, including establishment of "policy space" for countries to
limit emissions without sacrificing the competitive position of their
industries. The institute also recommended that countries adopt a
time-limited "peace clause" in which pursuit of new trade barriers
would be suspended while the negotiations proceeded, and that a global
climate accord be linked to a new global trade accord.
Public Citizen issued a report last year that described the WTO trade
pact provisions that needed to be renegotiated to help then-candidate
Obama deliver on his campaign proposals regarding climate.
Both warned that allowing the WTO adjudication process to handle trade
disputes over climate matters is a recipe for discord and impasse.
The climate legislation approved by the House incorporated provisions
to apply border adjustments (starting in 2020), exemptions and
rebates, or "free allocation of allowances." The leading draft bill in
the Senate seems headed in that direction.
Might these measures spell trouble? As WTO Director-General Pascal
Lamy has noted, the WTO allows members certain flexibilities to adopt
border adjustment policies to equalize costs related to carbon
controls, as long as they do not distort or disrupt trade. The
parameters of that policy space are extremely murky. Yet these
problems can be addressed if the United States leads along the lines
suggested above.
We do not mean that the president should stop there when it comes to
trade. Here, we do not see everything the same way.
One of us, Fred Bergsten, believes that the Doha round of talks has
yielded modest results and needs to achieve much greater openness to
trade -- particularly by developing countries such as China, Brazil
and India -- in farm products, industrial goods and especially
services. There must also be a way to address the threat of "new
mercantilism," or a round of competitive currency devaluations that
could undermine the system, preferably through the International
Monetary Fund but with links to the trading system.
The other of us, Lori Wallach, warns that the problem with the Doha
round is not meager results but a wrongheaded agenda designed to
expand the WTO's "corporate globalization" regime. For instance,
policymakers should fix existing WTO financial deregulation
requirements rather than proceed with the Doha-round agenda of even
more deregulation.
There is little doubt that current WTO negotiations do not fully
address the real problems confronting the world and the trading system
itself. The threat of global climate change and the catastrophic
consequences for the natural environment -- and for the world's
poorest citizens -- ought to focus the minds of our leaders. The only
way to solve our problems is to treat them together, before the
challenges pile on each other and produce paralysis instead of action.
C. Fred Bergsten is director of the Peterson Institute for
International Economics. Lori Wallach is director of the Global Trade
Watch division at Public Citizen.
