Free Trade: Obstacle to Emissions Regimes?

10 Dec

As Copenhagen kicks off to muted expectations and a pervasive pessimism over its likelihood to achieve a binding treaty, the United States finds itself in a paradoxical situation. For over two decades successive U.S. presidents and policymakers have steadily expanded the concept and application of free trade with allies near and far. Free trade agreements in force or awaiting ratification cover much of the Western hemisphere and countries throughout the Middle East, Asia and Australia.  Whether their rationale was American competitiveness or foreign development, these agreements now pose a significant obstacle to U.S. climate change efforts.

The core of free trade states that U.S. trade authorities must treat identical goods equally, without favor or import tariff. As such, a widget made at a carbon-neutral plant in Boise, Idaho is not differentiated from one made at a carbon-spewing factory in Cuidad Juarez, Mexico. Since many of the proposed climate bills employ just this sort of prioritization—including the Waxman-Markey legislation making its way through Congress—many analysts now foresee clashes with the World Trade Organization if such a bill were to pass.

Several speakers at a recent event on climate change and trade at the Washington International Trade Association raised just these concerns. By providing so-called “allocations” to U.S. businesses to limit end-use CO2 output, the U.S. risks legal action at the WTO. Although, as some point out, the WTO has exemptions for actions that are “necessary to protect human, animal or plant life or health,” or “relating to the conservation of exhaustible natural resources,” it’s unclear that a de facto tariff system against high-carbon imports would satisfy these requirements.

Ultimately, there may be a showdown between climate legislators and free trade advocates. Although some workarounds have been proposed, such as a “Code of Good WTO Practice” that addresses emissions, would-be climate regulators once again find themselves battling entrenched interests. Unless a compromise can be reached, one of them is going to have to yield.

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