What considerations should legislators be making to international trade laws as they shape the U.S.'s future climate policy? During today's OnPoint, Matthew Nicely, a partner at Thompson Hine and an international trade law expert, discusses the important relationship between international trade laws and climate policy and analyzes the Lieberman Warner climate bill for consistencies with international trade obligations. Nicely also explains why he believes the ethanol import tariff and ethanol subsidies are problematic and why allowing for easier access to Brazilian ethanol imports would be beneficial to the environment and help lower food costs.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Matt Nicely, partner at Thompson Hine and an international trade law expert. Matt, thanks for coming on the show.
Matthew Nicely: Sure, thank you for having me.
Monica Trauzzi: Matt, you've written about the relationship between climate change policy and international trade law. And there are a couple of different tracks that the U.S. could take at this point and some might negatively impact international relationships. What are some of the main risks that policymakers should be looking out for when it comes to climate change policy and its impact on trade?
Matthew Nicely: Well, for the most part, they need to simply make sure that they're not discriminating against trading partners and treating domestic industries more favorably than their trading partners. The issue that's arising in the context of legislation that's being considered on climate change is how to treat imports from countries that don't have emissions regulations. And the concern, at least at the WTO, would be to ensure that those policies are not discriminating against imports. The idea of imposing these kinds of regulations, imposing some sort of border measure on imports that don't have emissions, it's obviously pro-environment and the WTO welcomes these kinds of provisions actually. The question ultimately is in the details and how, in fact, they're imposed.
Monica Trauzzi: And this is unfair to those countries then?
Matthew Nicely: Well, it's unfair actually to domestic industries here if they are having to abide by emissions regulations, whether it's a carbon trading system, etc., and their competitors from overseas are not having to abide by those types of restrictions. And so the notion of some sort of border measure to equalize that makes sense, the only question, again, is in the details and how, in fact, is it going to be imposed.
Monica Trauzzi: Because there's a risk that the jobs end up going over there.
Matthew Nicely: Right, exactly, because if China or India don't have adequate emissions regulations, then yes, obviously it's going to be much cheaper to produce the products there.
Monica Trauzzi: But there is a way to make the WTO happy and also create a climate policy that's going to reduce emissions to the levels that we need?
Matthew Nicely: I think so, yes, and the Warner-Lieberman bill, just as an example, is a bill that's being considered now that has provisions in it that were written by folks who had the WTO mind, that were seeking to make sure that all the conditions that were considered in the important shrimp/turtle case that is pretty well known by now are being adhered to. There are still some issues that need to be thought through to make sure that we don't get caught at the WTO later on. But I think, ultimately, the way in which the exceptions are drafted, the way in which they're being interpreted, we should be able to avoid a problem. And, in turn, encourage other countries to abide by the same standards that we are seeking to abide by Even though we are a little bit late coming to the table in not having signed the Kyoto accord. Ideally, we would be in a situation where we along with the folks who signed the Kyoto accord would be encouraging other countries to take similar action.
Monica Trauzzi: Do you think that the trade penalties could get in the way of the passage of a climate agreement?
Matthew Nicely: Well, I guess, of course it could, but I don't see that happening. The way in which, for instance, the Warner-Lieberman bill has been written is such that we wouldn't impose these requirements and wouldn't impose these import restrictions until, I think, 2019. The carbon trading system, in fact, domestically wouldn't be imposed until 2015. So we'd have, I think, a four year period of time during which you'd be able to see the effect of the domestic plan and you would try to tailor what you're doing to imports to make sure that the two kind of equalize, so that you really are getting a balance as opposed to seeking a protectionist measure effectively against imports. So the way they've structured it is such that there's enough time to allow for negotiations, to allow for the correct fit between the two policies, so I'm ...
Monica Trauzzi: What about on the international level though, as the UNFCCC tries to create this post-2012 agreement and they're trying to engage the developing nations ...
Matthew Nicely: Right.
Monica Trauzzi: Could something like that get in the way or make talks more difficult?
Matthew Nicely: As long as the countries that are considering these types of import restrictions are careful, I don't think it will get in the way. You know, the United States, thus far, looks to be trying to do it the right way. The European Union has been considering and has just recently tabled the notion of imposing border measures of any sort. They are still considering both a border tax adjustment, an actual tariff, as opposed to allowances, which the Warner-Lieberman bill is considering. I think tariffs, in and of themselves, are maybe a little bit more difficult to make sure you've got the balance that you need so that it doesn't come across as being discriminatory. But I think as we're going along, we're being very carefully to abide by the WTO rules. There's a way of being both pro-trade and pro-environment here.
Monica Trauzzi: I want to talk about ethanol.
Matthew Nicely: Sure.
Monica Trauzzi: Because you did write about that in a paper that you recently wrote and you say that U.S. trade policy for imported ethanol arguably discourages renewable fuel consumption. Aren't we protecting U.S. industry and farmers by having these tariffs? I mean is that ...
Matthew Nicely: Yes.
Monica Trauzzi: That's the idea behind this?
Matthew Nicely: But is that pro-environment? And I would say it's supposedly pro-environment, but, in fact, given what we know, which is that sugarcane-based ethanol is friendlier to the environment, it's cheaper than corn-based ethanol, the fact that we are restricting the import of sugarcane-based ethanol is not pro-environment. Our corn-based ethanol policies, both the tariffs combined with the subsidy, is aimed at pleasing folks in Iowa and other parts of United States, but it's not particularly aimed at pleasing the environment. There are other ways. There are better ways of going about this. There are better ways of protecting the environment and in this instance it's a classic example of where a more free trade approach would be more pro-environment.
Monica Trauzzi: And would lifting this tariff help solve some of the E issues we're seeing with food costs right now?
Matthew Nicely: Yes, in my view, because it would lower costs. I mean what's happened with the subsidy, the policies overall toward corn-based ethanol has been to increase corn prices for food purposes, which in turn, and everyone's read about it, has had an impact on poor folks in Mexico, etc. We don't have to do that. Our environmental policies, if you can call this even an environmental policy as opposed to a U.S. farmer subsidy, don't need to have that kind of impact given what's out there, given that we know that sugarcane-based ethanol is a more environmentally friendly and cheaper alternative.
Monica Trauzzi: And there have been talks about removing the tariff at the end of this year.
Matthew Nicely: Yes.
Monica Trauzzi: The ethanol industry, however, would argue that they need the tariff, that the industry cannot stand on its own two feet at this point.
Matthew Nicely: OK and I understand where they're coming from, although I think part of the problem is that there isn't enough thought given to how industries, both here and in Brazil for instance, could get together and start working together. They don't need a subsidy to survive. There are ways in which to globalize and join the efforts of folks in Brazil to actually make this a true alternative, as it is becoming in Brazil already. It's not becoming that way here yet because we have these restrictions.
Monica Trauzzi: So, is there a way to lift that tariff, but still keep the farmers in Iowa, as you were talking about, happy?
Matthew Nicely: I think so, because I think there are ways to blend these products together. There are ways to… maybe there's a compromise position here, you know? The product could come in and, by the way, getting corn-based ethanol from the middle of the country to the coasts has proven to be ... it's not impossible, but it's costly. It's less costly to move the product on the water from Brazil. The point being that there are ways in which you could end up having it both ways. You can have product come into this country and be cheaper, be more available to more of the country and the corn-based folks would still be able to do what they're doing and still sell corn for food purposes that would remain affordable.
Monica Trauzzi: OK. We're going to end it right there on that note.
Matthew Nicely: All right.
Monica Trauzzi: Thanks for coming on the show.
Matthew Nicely: Thank you.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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