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NFTC Releases Analysis of Trade-Related Provisions of Draft Climate Text
Date: 6/22/2009
Written By: Jennifer Cummings, The Fratelli Group for NFTC, 202-822-9491

Washington, DC – The National Foreign Trade Council (NFTC) today released the following analysis of the draft revisions by the House Committee on Ways and Means to the American Clean Energy and Security Act of 2009. The NFTC understands that the committee is in the process of submitting draft revisions to the legislation, and based on those anticipated changes, the Council has prepared the following analysis.

As an organization focused on international trade and tax policy, the NFTC does not support a particular policy on climate change and does not endorse specific legislation, but strongly advocates that U.S. climate change policies be compliant with World Trade Organization (WTO) rules. The NFTC believes that because climate change is a global issue, success in dealing with it depends on multilateral cooperation and ensuring that the United States conforms to existing international rules and participates in multilateral efforts to further refine them.

If you have questions or for additional commentary, please contact Jake Colvin, NFTC Vice President for Global Trade Issues.

NFTC Analysis of Trade-Related Provisions of Draft Climate Text

The NFTC has prepared the following analysis of the draft revisions by the House Committee on Ways and Means to the American Clean Energy and Security Act of 2009, which were obtained by the Council:

The Ways and Means Committee appears to be sending mixed signals with draft changes to the American Clean Energy and Security Act. The Committee should be commended for taking steps to ensure that domestic efforts are anchored more firmly in the international process. At the same time, other changes are likely to cause greater friction with U.S. allies and are more likely to violate U.S. obligations under international trade rules.

1. The agreement anchors domestic legislation more firmly in the international context. NFTC applauds the Ways and Means Committee for placing domestic climate legislation more firmly in the context of ongoing international discussions. The amendments contained in draft Section 903 acknowledge the concerns that have been raised by NFTC and others in the U.S. business community that the United States should seek international consensus with respect to relying upon trade-related climate measures. The United States should seek to achieve consensus not only on an international framework agreement on climate change at the UNFCCC, but also on the use of trade- or competitiveness-related aspects of domestic climate change efforts which could violate international trade rules or encourage retaliation.

2. At the same time, the new language increases the likelihood of friction with U.S. allies and subsequent WTO challenges: In the absence of an international consensus over the use of trade-related climate measures, the new language would virtually require the President to implement a unilateral border measure against countries that have not taken comparable action, and it has made it more likely that such a measure could be challenged successfully internationally.
 
A. The new text makes the implementation of a border measure virtually mandatory. The draft that emerged from the Energy and Commerce Committee struck a better balance on Presidential discretion with respect to the continuation of trade-related measures - specifically the continued use of free emission allowances and/or the implementation of an international allocation mechanism. The Energy Committee draft permitted the President to choose between implementing a border measure and continuing the free allocation of emissions to an affected industry in the face of manufacturing output in countries, which are not taking comparable action to the United States. The Ways and Means Committee has largely removed the discretion of the President to decide against imposing a border measure by requiring the President to submit a national interest waiver that would need to be approved by a joint congressional resolution in order to preclude its imposition.

B. The new text strongly suggests that these measures are being taken to improve the competitiveness of U.S. industries rather than to deter carbon leakage. WTO rules seek to weed out disguised protectionism. The current draft text strongly suggests that trade-related measures would be taken to improve the competitiveness of U.S. industries rather than to deter carbon leakage. This concern was already present with respect to the purpose of the international reserve program (Title IV, Subpart 2, Section 766(a)(2)) in the Energy Committee’s draft, which “addresses, consistent with international agreements to which the United States is a party, the competitive imbalance in the costs of producing or manufacturing primary products in industrial sectors resulting from the difference between – ‘(A) the direct and indirect costs of complying with this title; and ‘(B) the direct and indirect costs, if any, of complying in other countries with greenhouse gas regulatory programs, requirements, export tariffs, or other measures adopted or imposed to reduce greenhouse gas emissions.”

The Ways and Means Committee draft text is even more problematic, as it directly ties the early implementation of border measures to unit cost of production increases in the United States (Sections 904 and 905). If the President determines either that emission allowance rebates have sufficiently mitigated carbon leakage and/or an international reserve allowance program is unlikely to mitigate leakage or is unfeasible, the President should have the option of ratcheting down trade-related measures.
Congress should tie the continued reliance on emission rebates and any imposition of border measures to a finding of significant carbon leakage. Doing so would bolster the credibility of the claim that these measures are aimed at reducing carbon leakage rather than protecting U.S. firms and would be less likely to be seen as disguised protectionism internationally.

C. Current language construes comparable action too narrowly and may hinder efforts to achieve a global climate agreement. Current language fails to exempt from border measures countries that are making good faith efforts to comply with commitments made under an international agreement (for example under the UNFCCC). Only a small subset of countries – such as least developing countries and those countries which have committed to binding emissions reductions at least as stringent as those for the United States – are exempted from border measures. But permitting the application of border measures to a country that has agreed to take steps (for example under the UNFCCC), which are deemed by the United States and the international community to be in line with their common but differentiated responsibilities, will harm relations with U.S. allies in the developing world. Exempting countries which commit to an international framework agreement based on their common but differentiated responsibilities would provide an incentive for those countries to be inside rather than outside of an agreement.
 
3. U.S. legislation must link innovation and trade more closely with the ability of the United States to deliver clean technologies to the developing world. NFTC believes the provisions related to technology transfer contained in Title IV, Subtitle D (Exporting Clean Technology) of the Energy Committee’s draft should be expanded to draw links between access to technology, intellectual property protection and liberalized trade in environmentally friendly goods and services. At this point it does not appear that either Committee has addressed these issues adequately.

Congress should make clear the importance of protecting intellectual property for promoting innovation and delivering clean technologies to developing countries. The Act should note the importance of protecting all intellectual property rights of green technologies as well as the importance of eliminating other non-tariff barriers to trade that weaken or impede the use of intellectual property rights. Congress should also urge the Administration to resist the range of trade-distorting or IP-weakening mechanisms that governments, including some in the developed world, have proposed. In particular, NFTC is concerned about proposals that would compel technology providers from developed countries to enter into joint ventures to share commercial know-how with developing country partners or to make new technologies available to the developing world at below-market prices.

Another important method for facilitating the export of clean technologies abroad is to lower tariffs and other trade barriers on environmentally-friendly goods and services as the United States and European Union have suggested in major international forums including the WTO, G-8 and UNFCCC COP-13 in Bali. Emphasizing the need to conclude an Environmental Goods and Services Agreement complements the messages contained in the legislation about the importance of delivering clean technologies to the developing world. Congress should instruct USTR and the Department of State to use all possible channels to pursue an agreement to reduce or eliminate trade barriers on environmental goods and services, including investigating the feasibility of an agreement at the OECD.

 
About the NFTC

Advancing Global Commerce for 95 Years - The National Foreign Trade Council (www.nftc.org) is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now serves hundreds of member companies through its offices in Washington and New York.