Global Trends by Martin Khor

Monday 25 August 2008

Climate to be used for trade protection?

Some developed countries seem to be laying the foundation for using trade measures on products that have a higher carbon content – which would hit developing countries hardest.

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Will developed countries make use of trade protection measures to push the cost of dealing with climate change onto developing countries?

This is a worrisome concern at the negotiations on climate change, the latest round of which is being held in Accra on 21-27 August.

The most frank statement of intention had been made by French President Nicolas Sarkozy last October. He indicated that when France takes over the presidency of the European Union (it did so in July), he would advocate the use of higher duties on imports that contain a higher carbon content.

This can be taken to mean that if the amount of carbon dioxide emissions exceed a certain level in producing one unit of a product, then extra duties may be placed on that product, thus raising its cost and discouraging imports.

Developing countries consider this as unfair.  Firstly, the developed countries have historically been responsible for much of the carbon dioxide that has built up in the atmosphere, giving rise to global warming.  There were then no punitive measures against their high-emission-products.

Secondly, they have superior technology, and can thus produce goods with lower carbon content than developing countries.  Thirdly, they have so far refused to transfer these climate-friendly technologies to developing countries at affordable prices.

The use of trade measures are thus unfair to developing countries.  They are also against the spirit and principles of the UN Framework Convention on Climate Change (UNFCCC), which mandate that the developed countries must finance the costs of actions dealing with climate change in developing countries, and that discriminatory trade measures should not be taken.

At the climate summit in Bali last December, Japan tried to introduce “a level playing field in international competitiveness” as a new topic in the UNFCCC, but this was shot down by developing countries, which correctly saw this as a way of justifying trade measures.

Japan was implicitly arguing that if a country spent money to make its industry less polluting, then it should be allowed to maintain its “competitiveness” by putting extra taxes on imports from countries that have not taken anti-emission actions to the same degree.

In subsequent climate talks in March and June, Japan used a new term, “sectoral approach”, to make the same case.  It wants countries to agree to some kind of standards or benchmarks on energy efficiency and carbon content in many key sectors such as steel, coal-fired power plants, cement and automobiles.

According to Japan, this would be the basis for its transferring technology.  But developing countries are suspicious that this lays the foundation for developed countries to introduce trade measures.

If agreed emission standards are set for each sector, then it can be later argued that products that do not meet the standards can be banned from being imported, like fruits or vegetables that do not meet pesticides standards.

Or else an extra duty could be put on the imports, on environmental grounds.  Or if this is too obviously against the rules of the World Trade Organisation, an indirect measure may be taken -- firms that import the products have to purchase carbon permits, thus raising their costs in the importing countries.

At a discussion on the “sectoral approach” in Accra last week, Japan again proposed that for several sectors the emissions or energy per unit of production could be evaluated, and compared between countries.

Its paper also called for sectoral benchmarks in major developing countries as a method to measure their actions to mitigate against climate change.

Many developing countries spoke against the attempt to use “sectoral approaches” to set standards or benchmarks, which could be used unfairly against developing countries.

They distinguished between “sectoral efforts” to combat climate change at the national level (which is legitimate) from international “sectoral agreements” involving targets, standards and comparisons between countries (which could become the basis for trade protection).    

“Discussions of sectors should not be used to justify trade measures, standards, or other measures against developing countries, which undermine the founding principles of the UNFCCC,” said Bernaditas Muller on behalf of the G77 and China.

India said it was not appropriate to prescribe specific standards for sectors as different firms have different levels of efficiency, and it is not possible to set a standard for each facility.

Brazil said having a uniform target in sectors for all countries. When evaluating competitiveness, current competitive advantages lie with developed countries in part as a result of the infrastructure developed during the past, with the result of significant historical emissions.

This is one reason why developed countries should not focus on competitiveness issues, which also provides the conditions for protectionism, added Brazil.

While the developing countries are countering the Japanese challenge, the pressures from developed countries, including the European Union and the United States, are sure to increase in future, whether through unilateral measures, or through fora such as the UNFCCC and the WTO.