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Green Protectionism Vs. Growth

April 28, 2010

"I think everyone today considers the question of an adaptation mechanism at Europe's borders to be an unavoidable and essential matter," French President Nicolas Sarkozy said in March, using the European Union euphemism for Green tariffs.

 
These ideas threaten international trade, growth and recovery.


By Caroline Boin & Alec van Gelder
 
International climate talks in Bonn, Germany, last weekend were trying to salvage December's failed Copenhagen summit. Meanwhile, some rich countries are imposing their own carbon limitations anyway and threatening to curb imports from poor countries that are not. This will cripple their own economies and harm the poor without doing much about emissions.
 
Various governments want such Green protectionism, including taxes on carbon-intensive imports, or all imports from countries that do not cut emissions, especially the main targets, China and India. US climate legislation before the Senate calls these "a border measure."
 
"I think everyone today considers the question of an adaptation mechanism at Europe's borders to be an unavoidable and essential matter," French President Nicolas Sarkozy said in March, using the European Union euphemism for Green tariffs.
 
These ideas threaten international trade, growth and recovery.
 
Industries in rich countries face punitive and expensive measures against climate change. Many fear they will be unable to compete with countries that do not have emissions restrictions and fear manufacturing and jobs will move away to them.
 
The European Union wants to cut emissions by 20% by 2020, while proposed US legislation aims for 80% by 2050. But other large emitters of greenhouse gases such as India and China are more worried about growth and tackling poverty.
 
Carbon restrictions on trade, however, will do little to reduce emissions.
 
Taxing carbon-intensive imports from China, for example, will have a negligible impact because the vast majority of its emissions-laden exports go to other developing countries.
 
Carbon barriers to trade make even less sense when one considers the nature of global production today.
 
Rich countries "import" around one-third of their CO2 emissions (meaning the amount of CO2 released in making the imported goods), often from developing countries.
 
The production of a single good often involves trading components between many different countries. Complex supply chains have brought cheaper and better goods and high-paying jobs to rich countries, and infrastructure, new jobs and higher incomes to developing countries.
 
Over a quarter of all global trade in manufacturing is now in intermediate components, not final goods. The total value of component trade has gone up from $404 billion in 2002 to $1,258 billion in 2004. Rich countries cannot restrict imports without damaging their own production and growth.
 
They would just protect their inefficient companies that are vulnerable to competition, at the expense of globally competitive companies.
 
A few months ago, for example, the EU extended tariffs on shoe imports from East Asia at the behest of its uncompetitive shoe producers. But such tariffs harm efficient shoe EU companies that have invested heavily in manufacturing in Asia: they provide EU consumers with cheap shoes and also support many high-value jobs in Europe, such as in innovation and design. A tax on cheap imports is a tax on efficient European companies and all consumers--and it creates unnecessary tension with important trading partners.
 
Barriers to trade in the name of climate control would have the same effect and push up prices everywhere.
 
Confusingly, US President Obama warned just last summer that “we have to be very careful about sending any protectionist signals out there” in the midst of a global recession.
 
Yet the USA with the EU and Japan rejected demands before Copenhagen by India, China and other developing countries including Pakistan that these rich economies would “not resort to any form of unilateral measures… against goods and services imported from developing countries on grounds of protection and stabilization of the climate.”
 
One World Bank model estimated that EU and US Green protectionism could cut Chinese and Indian exports by 20%. The US bill could affect some 25 developing countries.
 
The inter-dependent nature of global trade means that any such carbon barriers would damage growth in developed and developing countries alike. Sarkozy, the EU and the US Senate can smash trade or face up to reality.
 
Caroline Boin and Alec van Gelder are Project Directors at International Policy Network, a development think-tank based in London. This article was submitted in Pakistan by Alternate Solutions Institute Syndication Service, Lahore, and was carried by The Frontier Post and The News on various dates.




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