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The Financial Express

Is US trade policy going green?

Environment takes centre stage at USTR



-Reuters file photo -Reuters file photo

With little more than two months on the job, US Trade Representative (USTR) Katherine Tai has already staked out the most ambitious pro-environmental trade policy in the United States (US) history. For decades, the prevailing view had been that trade and the environment were only tangentially related. The primary role of trade policy was to expand trade flows, which in turn would create wealth. As countries climbed the economic development ladder thanks to trade, it was believed that higher environmental standards would inevitably follow.

Tai has challenged this conventional wisdom head-on, asserting that "the existing rules of globalization incentivize downward pressure on environmental protection." How to address this? Tai told the Senate Finance Committee in the second week of May that "trade tools" (a term of art that frequently means tariffs) could be used to "incentivize a race to the top" in environmental practices, rather than the "race to the bottom" that we've seen in the past.

Her critique of the environmental shortcomings of traditional trade policy takes aim at both the World Trade Organization (WTO) and regional trade agreements. Tai has pointed out that the WTO lacks any rules to advance environmental stewardship. Worse yet, measures taken by members to protect the environment are frequently challenged successfully within the WTO. According to the trade representative, the WTO "has no solutions" on environmental concerns and is "part of the problem".

Regional free trade agreements have fared little better in her judgment. Even the most comprehensive trade accords, such as the US-Mexico-Canada Agreement, fail to make reference to climate change, which she has characterised as a "grave omission". Expect to see that omission rectified in any trade agreements negotiated under Tai's direction. Trade agreements could also be used as leverage to pressure countries on their commitments under the Paris Climate Accord.

A BROADER SHIFT IN TRADE: Tai's determination to proactively address environmental issues through trade policy is emblematic of a much broader shift. Trade policy is no longer just about trade. It is now being melded with a set of broader concerns that will require trade negotiators to wade into areas that were previously far beyond their remit.

Tai clearly grasps this new reality. In her first speech as US Trade Representative, she said that her agency "sits at the intersection" of US foreign policy, national security, and economic policy. She could have easily added several additional cross streets to the busy intersection occupied by USTR: public health policy, social policy, technology policy, and labour policy, to name a few.

The increasingly complicated world that trade officials now need to navigate stands in marked contrast to the far more simplistic trade landscape that existed for most of the post-World War II era. Trade negotiations, especially in the early years, were primarily focused on methodical and mostly non-controversial tariff reductions which rarely overlapped with other policy spheres.

That world now seems like ancient history. Trade policy has become infused with intense geopolitical, social, and environmental overtones. As a result, we have moved towards a series of hyphenated policy approaches, including worker-centric-trade policy, environmental-trade policy, techno-trade policy, and geostrategic-trade policy. While this represents a more realistic understanding of the far-reaching impact of trade, it does raise a new set of challenges that will complicate trade relations.

While Tai's pro-environmental stance will hearten environmentalists, there is a danger that it could deepen divisions between the developed and developing world and discourage rather than encourage trade.

Many developing countries subscribe to the conventional wisdom on trade and the environment that Tai has so vigorously rejected. They have expressed their view: first, help us to prosper through trade, and then we can raise environmental standards. Many in the developing world would view these types of policies as "green protectionism" - a cynical ploy by rich countries to block products from less developed countries under the guise of environmental stewardship.

A significant developing world backlash could be awaiting the US as it attempts to use trade policy to advance US environmental objectives. Many of these countries have shown a deep commitment in developmental fora to improve environmental stewardship. However, they do not wish to be subject to trade sanctions for any shortcomings.

Given these challenges, what is the best path forward? Three ideas are worth considering.

Use trade agreements to support, rather than drive, environmental commitments. Trade officials should avoid getting too far out over their skies when it comes to environmental obligations in trade agreements. Trade negotiations are not the proper forum to argue over climate change or to press trade partners for environmental commitments they were unwilling or unable to undertake in other venues. Opt instead to consolidate and reinforce what has been agreed elsewhere. The additional codification of existing environmental commitments in trade agreements (subject to the relevant enforcement mechanisms) would be an entirely constructive accomplishment. It would also be more realistic.

Where possible, let business lead. A steadily increasing number of businesses now recognise that environmentally unsustainable practices do not make good business sense. In many instances, private companies are far ahead of governments or international treaties in terms of the sustainability practices to which they adhere. The goal should be to facilitate the ability of business to take on even greater leadership. Ultimately, marketplace considerations and standardized business practices will do more to engrain environmental stewardship than a few paragraphs in a trade agreement.

One size does not fit all. While there is little scientific debate over the urgency of addressing climate change, avoid draconian across the board requirements. Less developed countries face unique developmental challenges which entail immensely painful trade-offs devoid of good options. A ban on negotiating trade agreements with countries that subsidise fossil fuels, for instance, might seem environmentally satisfying on the surface. However, it would simply force many less developed governments to choose between which form of suffering to inflict on their citizens. The goal behind such requirements is laudable, but they need to be approached with pragmatism, flexibility, and respect.

The piece is excerpted from The Hinrich Foundation

www.hinrichfoundation.com

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