Is US trade policy going green?

Environment in the spotlight at USTR

With just over two months of work, US Trade Representative (USTR) Katherine Tai has already crafted the most ambitious pro-environmental trade policy in US history. For decades, the dominant view was that trade and the environment were only tangentially linked. The main role of trade policy was to expand trade flows, which in turn would create wealth. As countries moved up the economic development ladder through trade, it was believed that higher environmental standards would inevitably follow.

Tai challenged this conventional wisdom head-on, arguing that “the existing rules of globalization encourage downward pressure on environmental protection.” How to cure it? Tai told the Senate Finance Committee in the second week of May that “business tools” (an art term that often means tariffs) could be used to “encourage a race to the top” in environmental practices, rather than the “race to the bottom” that we have seen in the past.

His critique of the environmental shortcomings of traditional trade policy targets both the World Trade Organization (WTO) and regional trade agreements. Tai stressed that the WTO does not have any rules to advance environmental stewardship. Worse yet, measures taken by members to protect the environment are frequently successfully challenged in the WTO. According to the trade representative, the WTO “has no solutions” to environmental problems and is “part of the problem”.

Regional free trade agreements have not worked much better, she says. Even the most comprehensive trade agreements, like the US-Mexico-Canada Agreement, make no reference to climate change, which she called a “serious omission.” Expect to see this omission rectified in any trade deal negotiated under Tai’s leadership. Trade agreements could also be used as leverage to put pressure on countries on their commitments under the Paris Climate Agreement.

BROADER CHANGE IN TRADE: Tai’s determination to proactively address environmental issues through trade policy is emblematic of a much broader change. Trade policy is no longer just about trade. It is now merged with a broader set of concerns that will force trade negotiators to enter areas that were previously well beyond their remit.

Tai clearly captures this new reality. In her first speech as a United States Trade Representative, she said her agency “stands at the intersection” of US foreign policy, national security, and economic policy. She could easily have added several more cross streets to the busy intersection occupied by USTR: public health policy, social policy, technology policy, and labor policy, to name a few.

The increasingly complicated world in which trade officials must now navigate stands in stark contrast to the much more simplistic business landscape that has existed for much of the postwar period. Trade negotiations, especially in the early years, focused primarily on methodical and mostly uncontroversial tariff cuts, which rarely overlapped with other political spheres.

This world now looks like an old story. Trade policy has become imbued with intense geopolitical, social and environmental connotations. As a result, we have moved on to a series of hyphenated policy approaches, including worker-centered trade policy, environmental trade policy, technical-trade policy, and geostrategic trade policy. While this represents a more realistic understanding of the tremendous impact of trade, it raises a new set of challenges that will complicate trade relations.

While Tai’s pro-environmental stance will encourage environmentalists, there is a risk that it will 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 strongly rejected. They expressed their point of view: first, help us prosper through trade, and then we can raise environmental standards. Many developing countries 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 major reaction from developing countries could await the United States as it attempts to use trade policy to advance United States environmental goals. Many of these countries have shown a deep commitment in development forums to improve environmental stewardship. However, they do not wish to be subject to trade sanctions for possible loopholes.

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

Use trade agreements to support, rather than stimulate, environmental commitments. Trade officials should avoid going too far in their skies when it comes to environmental obligations in trade agreements. Trade negotiations are not the appropriate forum for arguing about climate change or for pressuring trading partners for environmental commitments they were unwilling or unable to make in other places. Instead, opt to consolidate and strengthen what has been agreed elsewhere. Further codification of existing environmental commitments in trade agreements (subject to relevant enforcement mechanisms) would be an entirely constructive achievement. It would also be more realistic.

Whenever possible, let the business run. An ever-growing number of companies now recognize that environmentally unsustainable practices do not make good business sense. In many cases, private companies are well ahead of governments or international treaties in terms of the sustainability practices they adhere to. The aim should be to facilitate the ability of companies to assume even greater leadership. Ultimately, market considerations and standard business practices will do more to anchor environmental stewardship than a few paragraphs in a trade agreement.

One size does not fit all. While there is little scientific debate on the urgency of tackling climate change, avoid draconian demands at all levels. Less developed countries face unique development challenges that involve extremely painful trade-offs with no good options. A ban on negotiating trade deals with countries that subsidize fossil fuels, for example, may appear environmentally sound at first glance. However, this would simply force many less developed governments to choose between what form of suffering to inflict on their citizens. The objective behind such demands is laudable, but they must be approached with pragmatism, flexibility and respect.

The piece is taken from the Hinrich Foundation

About Terry Simmons

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