China Faces Tariff Threat

China may face import tariffs over failure to impose greenhouse gas curbs.
By Michael Lelyveld
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BOSTON—Trade interests are watching anxiously as U.S. lawmakers consider imposing environmental tariffs on Chinese goods.

The worry stems from a provision added to environmental legislation that narrowly passed the U.S. House in June, calling for the United States to cut greenhouse gas emissions 17 percent by 2020 and 83 percent by 2050.

Supporters say the bill, known as the American Clean Energy and Security (ACES) Act, is a key to the global fight against climate change. The legislation would establish a "cap-and-trade" system that would put a value on emissions permits, giving industries an incentive to cut pollution.

But the tariff provision has stirred controversy and drawn concern from President Barack Obama.

"At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there," the president told reporters on June 28.

"I think we're going to have to do a careful analysis to determine whether the prospects of tariffs are necessary."

‘Protectionist’ measures?

The provision in question would require the U.S. Environmental Protection Agency to calculate "appropriate amounts" of emissions "allowances" for cheaper imports from countries that do not impose greenhouse gas limits.

Effectively, the result would be a tariff on Chinese goods if the country continues to resist mandatory caps on emissions. Chinese officials have been dead set against the idea.

"I oppose using climate change as an excuse to practice protectionism on trade," said Xie Zhenhua, China's top environmental negotiator, during a visit to Washington in March.

But it is unclear whether any version of ACES can win final approval without such a "border adjustment" provision to guard U.S. manufacturers against competition from countries that avoid climate change costs.

On Aug. 6, a group of 10 Democratic senators wrote to President Obama, saying they "would find it extremely difficult to support a final measure that does not effectively deal with these important issues."

The votes of the group led by Senator Sherrod Brown of Ohio are seen as vital to enactment of the climate change bill.

Unequal regulation

Scott Paul, executive director of the Alliance for American Manufacturing, a Washington-based advocacy group representing U.S. steel producers and union members, argued that an adjustment is needed to equalize cost burdens if China will not accept caps on emissions.

"The cost for producing a given product would certainly be cheaper if you did not have to either develop new processes or pay for carbon emission," Paul told Radio Free Asia. "It would certainly put American producers at a disadvantage."

Paul said the provision would prevent "carbon leakage," or shifting emissions from one country to another due to unequal regulation in China.

Paul noted that the tariffs would go into effect only in 2020 and only if China does not become a party to an international agreement on limiting carbon emissions.

"This is not something that will happen tomorrow, or something that would even happen in five years," said Paul, adding that the measure could encourage China to join in a climate change pact.
"People describe this approach as being a kind of carrot and stick. You need to have an incentive, but you need to have consequences if an agreement is not reached."

Seeking common ground

But Elliot Diringer, vice president for international strategies at the Pew Center on Global Climate Change in Arlington, Virginia, said there are a lot of problems with the tariff approach.

The threat of tariffs has created discord at a time when negotiators are seeking common ground for a new global warming treaty in time for a December conference in Copenhagen, he said.

"We think it sends a very unhelpful message to the international community that actually could make it more difficult to get to the kinds of international agreements we need," Diringer told RFA.

"It's effectively saying that unless you agree to the negotiating terms being dictated by this legislation, we're going to slap you with border tariffs," he said. "That's not being well-received."

Diringer said that tariffs are unlikely to give China an economic incentive to clean up emissions from its steel industry because only a very small portion of its production is exported to the United States.

"What it's more likely to do is encourage them to come back with retaliatory trade measures, and basically we'd be heading ourselves down the path of a trade war instead of finding a way to cooperate around these issues," he said.

Unresolved problems

Diringer also sees little benefit in requiring tariffs to be imposed in 2020.

"It's the message that's being sent today at a time when we're trying to negotiate a global deal," he said. "I don't think we should decide now what we're going to be doing in 2020 on the basis of conditions written into law."

The tariff issue is one of the key unresolved problems that has overshadowed U.S.-China negotiations as the December deadline approaches for a new treaty to replace the Kyoto Protocol, which expires in 2012.

On Aug. 14, delegates from 180 countries ended five days of meetings in Bonn, Germany, with little progress on the treaty.

"If we continue at this rate, we're not going to make it," warned Yvo de Boer, head of the U.N. Climate Change Secretariat, the Associated Press reported.


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