Opinion The urge to complicate and climatize trade policy

02:16  13 april  2021
02:16  13 april  2021 Source:   thehill.com

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How trade policy happens: The process consists of formulation, implementation and negotiation. The European Union manages its trade and investment relations with non-EU countries through its trade and investment policy . Trade outside the EU is an exclusive responsibility of the EU, rather than the national governments of member countries. This means the EU institutions make laws on trade matters, negotiate and conclude international trade agreements.

The EU's trade policy aims to ensure continued prosperity, solidarity and security in Europe and around the globe. The Directorate-General for Trade in the European Commission develops and puts into practice EU trade and investment policy along with the EU's Trade Commissioner.

As part of its emerging plan to act to address climate change, the Biden administration is considering a novel and unproven trade barrier called a carbon border adjustment. Rather than imposing a tariff based on the value of a product, a carbon border adjustment would be levied based on the amount of carbon emissions used to produce it.

a group of clouds in front of a sunset: The urge to complicate and climatize trade policy © istock The urge to complicate and climatize trade policy

Around the world policymakers sense growing urgency in the broader population to take visible action to avoid the worst costs of climate change. Yet, without a template for international coordination, action at the national level may not achieve ambitious climate goals. Bold climate action may also leave the nation exposed to economic risks. That combination is not appealing to any policymaker.

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Border carbon adjustments purport to avoid some of the domestic costs. At essence, the idea is to mirror a domestic emissions fee or standard, levying imported products based on the embodied emissions that have escaped domestic mitigation efforts. The putative goal is to avoid "leakage," or a rebound in emissions beyond the borders of a first-mover.

Consider how leakage might occur if an emissions policy raised costs for a domestic producer of, say, steel. The domestic producer would try to pass the higher costs along to the consumer. However, the consumer would consider substituting imported steel for the now higher-priced domestic variety. And where would that steel come from? More than likely, from an exporter not subject to the same emissions restrictions. While the emissions for a ton of domestic steel are avoided, they are replaced by emissions from an imported ton of steel.

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Trade Policy Trade policies determine the size of markets for the output of firms and hence strongly influence both foreign and domestic investment. The focus of this question is on the benefits of simplification of procedures which can significantly reduce costs of compliance for all businesses, while continuing to satisfy the policy objectives of these procedures. Unnecessarily complicated procedures make it harder for host countries to harness fully the efficiency gains resulting from global supply chains, potentially discouraging both domestic and foreign investment.

Lowering trade barriers is one of the most obvious means of encouraging trade . The barriers concerned include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively. Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the promise gives businesses a clearer view of their future opportunities. With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices.

It is even conceivable that the import creates more emissions than the avoided domestic production. Not only does the domestic producer lose its market, but the environmental objective is undermined as well.

This is meant to level the playing field for the domestic and foreign producers, so that they have to pay the same costs for emissions. The idea that trade policy can be used to shunt costs off onto foreigners often proves more complicated than it seems at first blush. This was a central claim of advocates for the Trump tariffs, though the evidence suggests that the world is more complicated. As it turns out, the consumer often winds up paying a greater share of the cost in the form of higher prices - and may buy less as a result.

On the policy blackboard, this climate policy sounds straightforward and logical. Adopting the carbon border adjustment will require some replumbing of the international trade machinery.

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using trade policy to punish rogue states. The trade policy argument suggests that governments should subsidize promising domestic firms in emerging industries and should also assist firms in overcoming barriers to entry created by foreign firms due to first-mover advantages. Countries finding ways to get around GATT regulations The persistent trade deficit in the United States The economic success of Japan. What organization now arbitrates trade disputes and monitors trade policies of member countries?

True or false: The benefits of free trade tends to benefit a small segment of society, which allows government to impose restrictions without much political pushback. The cost to society of relaxing trade regulations has led to a number of programs to assist those who are hurt. Such programs are called _--programs designed to compensate losers for reductions in trade restrictions. D. designed to assist workers displaced by increased foreign competition following reductions in trade restrictions.

Any changes will be controversial. International trade policy is not for the weak-kneed. Even close allies are known to fiercely contest trade issues. Changing the basis for tariffs from product value to the embodied emissions is a major shift that will surely present unanticipated challenges. The arguments about how to measure and assess emissions will be interminable. This will create an entire new arena for trade friction.

A real risk is that these new tariffs devolve into a new form of protectionism. This would be a short slide down a slippery slope for the "worker-centric" trade policy advocated by the Biden administration. It's too bad that the workers will end up picking up the bill after their shift ends and they head to the store.

Carbon border adjustments are already a central part of the climate policy debate in Europe. Europe has a carbon price thanks to its long-running cap and trade scheme, so the carbon border adjustment there is at least largely transparent. Some advocates think carbon border adjustments are also appropriate for the United States. Many of those same people are not very keen on a national carbon price.

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Carbon tariffs will surely benefit the legions of lawyers and forensic accountants and economists who will be needed to design the scheme and help firms navigate it. Protectionists will endorse the carbon border adjustment, which will be too confusing or expensive for many importers to navigate. In today's world of disrupted supply chains, a novel trade barrier is unlikely to improve the situation.

What is the alternative, given the political necessity to take some climate action? Carbon prices are unpopular. More than two decades of climate diplomacy have delivered little in the way of concrete plans or binding commitments. Fortunately, there are some options.

Emissions mitigation is not the only strategy for climate policy. Adaptation and amelioration can play a role right alongside mitigation. Digging out of the pandemic recession hole will not be any easier with new trade barrier that hasn't been tested. It will be sure to trigger retaliation, just as the infamous Smoot-Hawley tariffs did in 1930. Retaliation is not the leverage that is needed to realize an international climate accord after decades of frustration. The United States learned this the hard way in 2018 and 2019, despite assurances to the contrary. Policymakers would do well to keep this recent history in mind and resist the allure of a shiny new object that promises to solve all problems.

Timothy Fitzgerald is an associate professor in the Rawls College of Business at Texas Tech University, and author of a chapter on trade and climate policy in the recently-released "Adapt and Be Adept" from the Hoover Institution Press.

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usr: 0
This is interesting!