“NFTC welcomes the effort by House leaders to place domestic legislation firmly in the context of international negotiations. Given the potential for free emission allowances and border measures to violate global trade rules, and the reality that halting climate change will require a global effort, this kind of international approach is absolutely essential.

“This legislation would commit the United States to attempt to reach an agreement to reduce global emissions and address with the international community the competitive imbalances that may result from, and trade-related measures that may be employed through, national reduction strategies.

“Effectively managing climate change while keeping markets open will require the type of international coordination among economic and environmental policymakers that this legislation seeks to encourage.

“Congress should also be commended for acknowledging the importance of intellectual property protection for promoting innovation and delivering clean technologies to developing countries. NFTC agrees with Congress that Intellectual property rights are a key driver of investment and research and development in, and the global deployment of, clean technologies.’

“At the same time, we are disappointed that, without a global deal, the legislation would all-but-require the President to impose border measures against any number of countries. The final bill departs from the flexibility that had been provided to the president in earlier drafts to determine whether or not to implement a border adjustment program.

“We are concerned that the near-mandatory imposition of border measures limits the flexibility of the President, may harm relations with U.S. trading partners, and could violate global trade rules. While the legislation improves the framing of a border adjustment mechanism as a step to reduce carbon leakage, application of the mechanism still largely rests on competitiveness criteria and is closely associated with efforts to level the playing field for U.S. producers. And while Congress has taken steps to recast the purpose of the program, application of a border measure is not linked explicitly to a finding of carbon leakage and may be seen as disguised protectionism by U.S. trading partners.

“We agree strongly with the Obama Administration that legislation must be consistent with our international obligations and an open and integrated global economic system.'”

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While the bill’s approaches to mitigating the impacts of climate change have been debated, insufficient attention has been paid to whether the provisions are compliant with international trade rules. As the organizations note in their letter, “In order to achieve a successful and lasting domestic solution for addressing climate change, U.S. legislation must abide by U.S. international trade obligations and should encourage action by other major emitting countries.”

The groups also encourage House leaders to link innovation and trade more closely with the ability of the United States to deliver clean technologies to the developing world. They note the importance of protecting intellectual property for promoting innovation and delivering clean technologies to developing countries and that lowering tariffs and other trade barriers on environmentally-friendly goods and services is “an important method for facilitating the export of clean technologies abroad.” The groups call on Congress to encourage the Administration to investigate the feasibility of an agreement to lower trade barriers at the Organization for Economic Cooperation and Development (OECD).

To read the full text of the letter, please click here.

NFTC Vice President for Global Trade Issues Jake Colvin is available to discuss the trade-related provisions of the draft legislation.

Mr. Colvin is available to discuss:

• The importance of ensuring that domestic climate change policies comply with U.S. international obligations to avoid trade retaliation and World Trade Organization challenges;

• If approved by Congress, the impact of the bill on the ability to achieve global climate agreement at the UN Climate Change Conference in Copenhagen in December; and

• The connection between trade and innovation and the delivery of clean technologies to the developing world.
 

As an organization focused on international trade and tax policy, the NFTC does not support a particular policy on climate change and or 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.

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.

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.
 

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.
 

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.