Non-parallel tracks: the divergence of trade remedies from climate control

January 2015 | SPOTLIGHT | GLOBAL TRADE

Financier Worldwide Magazine

The US is a leading proponent of the Environmental Goods Agreement (EGA) whose negotiation has begun under the auspices of the WTO. Fourteen countries, representing 86 percent of global trade in what the participants have identified as ‘environmental goods’, began meeting in Geneva in July. In a rare display of bipartisanship, US Trade Representative (USTR) Michael Froman, Senate Finance Committee chairman Ron Wyden, and House Ways & Means Committee chairman Dave Camp, joined with the Coalition for Green Trade in September to promote a deal.

The EGA’s objective is to reduce or eliminate tariffs on environmental goods and technologies so that trade in them will expand and accelerate. The US is presenting its support of the EGA as a ‘core component’ of the President’s ‘Climate Action Plan’. Conspicuously, however, USTR Froman is promoting the EGA for “driving demand for made-in-America exports, allowing more American workers and businesses to make environmental goods here and sell them everywhere”. Ambassador Froman is not emphasising free trade in environmental goods to combat climate change. Instead, he wants to open foreign markets for American goods.

This distinction would not be with a difference were it not for the American view of trade and tariffs. The US generally does not consider the application of tariffs based on trade remedies as tariffs at all. Instead, they are regarded as ‘duties’ necessary to ‘level the playing field’, restoring free trade because subsidies or dumping were determined to be producing unfair trade.

The American view of free trade is not entirely reciprocal, notwithstanding the most favoured nation provisions of international trade agreements. The Office of the USTR was created to open foreign markets to American goods, but its mission has never been to open the US market to foreign goods. No American agency is devoted to that mission.

The US Department of Commerce seeks to protect American industry from foreign competition, and while the US International Trade Commission does open its forum to hear from consumers, the Commission typically is inclined to find imports injuring or threatening injury to US production and tries to exclude them from the US market. Congress is notoriously protectionist, reverting to ‘buy America’ provisions in statutes and appropriations whenever it seems possible to suggest a national security interest. The International Trade Commission is an agency of Congress.

On one track, the US is promoting the liberalisation of trade in order to get more environmental goods into global circulation. On a second track, however, stretching at the same time but on a divergent path, the US is deploying trade remedy laws to curtail the development of the two most feasible and promising alternatives to the burning of fossil fuels: solar and wind power.

The Office of the USTR is emphasising, in the initial list of 54 environmental goods for negotiation, “wind turbines, water treatment filters, and solar water heaters”. Yet, earlier in 2014, the US imposed duties on

wind towers from China and Vietnam and is vigorously defending those duties against legal appeals. Wind turbines sit on top of wind towers. There is not a single manufacturer of wind towers in the US capable of producing large quantities of the tallest towers in demand. Without those towers, turbines cannot sit at altitudes necessary for efficient and profitable operation. On the one hand, the US is calling for significant growth in the use of wind turbines, but, on the other hand, it is preventing that same growth by blocking imports of wind towers.

Arguably the situation is even more contradictory for solar water heaters or, more generally, solar power. The US is celebrating an emergent energy independence fuelled by shale, which means a growing reliance on hydrocarbons. Most of the environmental goods identified for the EGA negotiations presume the continuing wide use of fossil fuels. The EGA is promoting scrubbers and other goods that may relieve some of the consequences of fossil fuels without replacing them. The greatest hope for replacing fossil fuels, which means the greatest hope for arresting climate change through environmental sensitivity, is in solar goods.

The US has been imposing duties on solar cells exported from China and Taiwan since 2011. These duties have slowed the development of solar power. The lead petitioner in the US, SolarWorld, is a German-owned company whose parent has led a similar effort against high volume imports in the EU. In October 2014, the US Department of Commerce significantly expanded the scope of solar products subject to import duties, retarding even more dramatically the development of solar alternatives to burning fossil fuels.

Although the disputing parties are still briefing and arguing the Commerce Department’s scope proposal, it is virtually certain now that Commerce will block imports of most solar panels and solar cells from China and Taiwan through an unprecedented interpretation of scope. Imported goods must have a single country of origin. SolarWorld complained that solar panels assembled in China with Taiwanese solar cells were escaping orders against Chinese solar panels because their origin was determined by the origin of the solar cells, which was Taiwan. Now, under a second order against Taiwanese solar cells, the panels assembled in China may be treated as Taiwanese, while under an order against Chinese solar panels the entire assembly, including the Taiwanese solar cells, will be treated as Chinese. SolarWorld calls the problem a loophole that Commerce is closing by assigning two different countries of origin to the same goods.

China has moved ahead of the US in solar technology, and is producing solar cells on a massive scale consistent with a huge domestic market as well as an international market. Because the manufacture of solar cells is largely robotic, jobs are to be found mostly in installation and maintenance. Consequently, the American barriers to Chinese solar cells do not support job growth, do not promote American exports, and seriously impede the battle against climate change. There is nothing in the American trade policy and actions regarding solar cells from China and Taiwan that serves either of the declared American purposes for the EGA.

Adding to the contradictions was the surprising agreement reached between China and the United States in Beijing on 12 November 2014. For the first time, China has agreed to cap emissions. Notwithstanding considerable partisan carping in Washington, the agreement involves mutual commitments that could finally bend the curve on climate change.

As long as the US pursues one track in the EGA negotiations and another track in the implementation of trade remedy law, however – which, in the US, has no public interest clause or provision – the tracks of trade and the reversal of climate change will continue to diverge. China has committed to a massive expansion in the installation of solar power, for which it already leads the world, and of wind power. The mutual goals of 14 November cannot be achieved, however, unless the US opens its market more to foreign production. No train will run on divergent tracks, and no destinations will be reached. The EGA, without a rationalisation of American trade remedy law and policy to welcome opportunities to expand the use of environmentally friendly goods, wherever they may be made, will only disappoint environmentalists who see, especially in wind and solar power, a green future.

Elliot J. Feldman is a senior partner and head of international trade at BakerHostetler LLP. He can be contacted on +1 (202) 861 1679 or by email: efeldman@bakerlaw.com.

Elliot J. Feldman

BakerHostetler LLP