Environmental Free Trade

August 26, 2013

In late June 2013, in a major speech on climate change, President Obama announced a plan "to launch negotiations toward global free trade in environmental goods and services," including clean energy technology. In this regard, the president's "Climate Action Plan" states that the United States will work with trading partners to launch negotiations at the World Trade Organization toward global free trade in environmental goods, including clean energy technologies such as solar, wind, hydro and geothermal, say Simon Lester and K. William Watson, trade policy analysts at the Cato Institute.

The United States will build on the consensus it recently forged among the 21 Asia-Pacific Economic Cooperation (APEC) economies in this area.

  • In 2011, APEC economies agreed to reduce tariffs to 5 percent or less by 2015 on a negotiated list of 54 environmental goods.
  • The APEC list will serve as a foundation for a global agreement in the World Trade Organization, with participating countries expanding the scope by adding products of interest.

Removing or lowering tariffs on goods such as solar panels and wind turbines would lead to lower prices and greater availability of those products. However, there is one major hurdle to progress in this area: While normal tariffs are covered by the APEC declaration, special tariffs imposed through the so-called "trade remedies" (antidumping (AD) duties, countervailing duties (CVD), and safeguards) are not.

  • Unfortunately, CVDs imposed to offset foreign subsidies and AD duties ostensibly targeting price discrimination are being used with increasing frequency to impede trade in environmental goods.
  • Domestic industries seeking protection from foreign competition petition to have these remedies imposed, and the agencies that conduct these investigations usually find in their favor.
  • These trade remedies always result in higher prices for consumers, and thus the continued use of trade remedies on green products is directly at odds with President Obama's goal of global free trade in environmental goods.

In recent years, governments have talked a lot about supporting the environment and about promoting free trade. If they are serious about these goals, a proposal to eliminate all tariffs, including trade remedy tariffs, on a wide range of environmental goods would be a good way to accomplish both.

Source: Simon Lester and K. William Watson, "Free Trade in Environmental Goods: The Trade Remedy Problem," Cato Institute, August 19, 2013.

 

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