Greed is (an Environmental) Good

In March, the U.S. Trade Representative announced its intent to negotiate a WTO agreement “aimed at eliminating tariffs on a wide range of environmental goods.”  How wide a range of products falls under USTR’s aim? That depends on what you consider to be an “environmental good.”  USTR requested public comment on WTO negotiating objectives, including products.  The public responded, with many companies scrambling to get their products into USTR’s sights, and a few scrambling to get theirs out.

Gary Larson Bear
Is a ceiling fan an environmental good?  Yes, according to the Hunter Fan Company.

 

“Ceiling fans are able to work so efficiently because they cool people, not air. Using very little energy, fans produce an airflow that generates a wind chill, providing a cooling effect on those in the room. Because a person must be present to feel these effects, ceiling fans can and should be powered off when a room is empty, saving even more energy. On the contrary, air conditioners are often run continuously in an empty room to maintain a comfortable temperature for when people re-enter.”

Of course, fans are less environmentally friendly than, say, sweating.  As WTO negotiations proceed, except this to be a major sticking point.  Is a product an “environmental good” just because it is better for the environment than an alternative?  Is a blanket an environmental good if it helps you use less heat?  How about clothing in general?

Coca-Cola wants to include the plant-based plastics used in its PlantBottles.  These PET plastic bottles are made from 30% plant material (sugarcane ethanol).  That’s better then, well, the bottles Coke was using before.  When a company improves its own environmentally unfriendly product, does that make the improved product an environmental good?  What if another company invents a 50% plant-based bottle?  Should Coke’s 30% bottle be delisted?  How often must we make updates as the products on the list fall behind emerging technologies?  WTO negotiations aren’t known for their speed.  By the time an agreement is reached, will today’s “green” technologies have turned “brown”?

brown banana

It’s still good, right?

Who else wants in?  The International Wood Products Association would like USTR to include wood products from “sustainably managed forests.”  However, there’s always debate over what makes a forest “sustainably managed,” even among third-party certifiers like the Sustainable Forestry Initiative and the Forest Stewardship Council.

The National Association of Manufacturers has a laundry list of items for USTR, including laundry – well, “personal protective equipment,” such as gloves.  Liquified Natural Gas? Sure!  Why not throw in the kitchen sink?  Wait, there it is.

And yet this potential trade agreement doesn’t have every company seeing green.  Some companies benefit from existing tariffs on their products.  For example, a U.S. producer of a product that has low foreign tariffs and high U.S. tariffs might enjoy that it has foreign market access and limited competition for its U.S. sales.

Timken wrote to tell USTR that certain of its products (ball and roller bearings) emphatically were not environmental goods.

“While bearings may be incorporated in such environmental goods, they are also incorporated in a wide variety of other goods. Indeed, bearings are used in virtually everything that moves or turns. Thus, bearings, in and of themselves, are not environmental goods even if these products can in various circumstances help in the reduction of energy use.” (emphasis in original)

Seriously, we don’t even turn the lights out when we go home for the night.  Please stop accusing us of helping the planet.  (Just kidding, Timkin.  Love those HTS 8482’s – keep ’em coming.)

Clearly, the biggest issue facing this WTO negotiation is how to define an “environmental good.”  Expect lots of wrangling and horse-trading (wait a minute . . . is a horse an environmental good?  How about a horse-drawn carriage?  A butter churn?  Are we headed toward an Amish export boom?) before this agreement gets the green light.

Pass the Molybdenum, Please

While trade nerds wait with bated breath, copies of 19 CFR clenched in their fists, for the conclusion of the TPP and TTIP* negotiations, the WTO issued its ruling on Chinese rare earths.  The three complainants, the U.S., E.U., and Japan, are each involved in TPP / TTIP, and this ruling may affect the language in those final agreements. On March 26, 2014, the WTO Dispute Settlement Body (DSB) issued its Report, which addressed the limits of a state’s power to restrict the export of exhaustible natural resources.  In this case, the state is China and the resources are 19 “rare earth” elements critical for personal electronics, high-tech weapons, and green energy production.  (One of the elements, neodymium, gives magnetballs their (in?)famous powers.)

The case is DS431.

Why “rare earths?”

They’re called “rare earths” because it’s rare to find them in concentrations worth mining, and extraction can be difficult and dangerous.  Rare earths often are found alongside radioactive elements, and the mining, refining, and recycling of rare earths can release deadly toxins.

Sounds interesting.  Where can I get some?

Currently, almost all of the world’s rare earth extraction happens in China, and that’s also where almost all of the rare earths are processed.  China restricts rare earth exports, which helps keep the processing “in-house.”  This means that Chinese rare earth extractors might get less for the elements than they would on the open market, but Chinese producers of downstream products have an edge over their foreign rivals.  China says it needs export controls to protect an exhaustible resource from overexploitation and to guard against negative environmental effects.  The U.S., E.U., and Japan say sustainability concerns are just a pretext for domestic protectionism, so — don’t bogart that erbium, my friend.

Tough call.  Who’s right?

The mother of all international trade agreements is called the General Agreement on Tariffs and Trade (GATT), and it was the precursor to the WTO.  Before joining the WTO and agreeing to GATT, China could do what it pleased with its rare earth supply.  However, one of GATT’s purposes was trade liberalization, and export restrictions are disfavored.  GATT Article XX(g) provides an exception, but only for measures “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.”

China tried to convince the DSB to apply an Article XX(g) exception (an uphill battle — historically, few states have raised any Art. XX clause successfully).  While the DSB recognized that states can develop sustainability plans for natural resources that might meet Art. XX(g), the DSB found that China’s restrictions were for economic gain, not environmental protection.  The DSB also found that China had not made equivalent restrictions on domestic use of rare earths.  This was a pretty clear victory for the U.S., E.U., and Japan — the DSB agreed that China’s environmental concerns were a pretext.

What’s next?

The U.S. and China each noticed an appeal, with the U.S. complaining about how the DSB rejected some of its exhibits, and China complaining about everything else.  I predict China will have a tough time before the Appellate Body, but the more interesting question is how might this ruling affect the ongoing trade relationships of the victors, each of whom is involved in TPP, TTIP, or both?  Will TPP and TTIP rely on GATT’s language when it comes to export restrictions for natural resources?  Or will they attempt a “WTO-plus” model that narrows the language and perhaps makes the outcome of raising a conservation defense more predictable?  By finding China’s conservation goal was a pretext, the DSB avoided drawing a line in the sand as to when a legitimate environmental concern might satisfy Art. XX(g).  However, with rising global interest in sustainability, I predict more and more of these cases will come before the WTO (or arbitration panels that might consider WTO rulings as persuasive authority).

Why should we care?

GATT has lowered tariffs to the point where many free trade agreements are being negotiated at the margins, and are more likely to involve the lowering of non-tariff barriers, such as sanitary/phytosanitary measures, technical barriers to trade, and export controls.  U.S. lumber companies have been grumbling for a long time over allegedly unfair Canadian log export restrictions.  The U.S. has its own restrictions on the export of crude oil and liquified natural gas.  Are these restrictions justified by conservation efforts?  Or is that merely a pretext to give domestic consumers an edge?  And if the answer’s somewhere in the middle, which way would a WTO panel jump?

*Or is it T-TIP?

U.S., EU kick off TTIP negotiations. Or is it T-TIP?

The first round of talks for the Transatlantic Trade and Investment Partnership, a trade negotiation between the United States and the European Union, began July 8 in Washington, D.C. and will run throughout the week.

The European Commission recently posted a multipage TTIP fact sheet with frequently-asked questions from their constituents, such as “Will European supermarkets be filled with meat from American animals fed with hormones?”  (Spoiler:  No.) The White House posted a more modest one-pager describing T-TIP’s potential benefit for Americans . . . wait a minute.  “T-TIP?”  Where did the hyphen come from?

That’s right.  Somewhere in the months leading up to these much-anticipated negotiations, the U.S. apparently made the aggressive move of changing the name.  (Compare acting USTR Marantis’ March 20 letter to Congress with the June 17 White House fact sheet).

Newly appointed USTR Froman seems to have followed the President’s lead, somewhat.  (See Froman’s July 8 remarks, using both “TTIP” and “T-TIP”).  However, no one appears to have told the Europeans at all (see the EC’s July 8 press release).

This bold unilateral maneuver is all the more perplexing, because “T-TIP,”  at best, sounds vaguely like a codename for US embassy wiretaps, and, at worst, like some kind of prophylactic.

The hyphen makes no grammatical sense, unless we are meant to believe that “transatlantic-trade” is now a word (a word whose definition excludes, for example, trade with the entire continent of Africa).  Also, it only aggravates the discord between the naming conventions for “T-TIP” and for the ongoing Trans-Pacific Partnership (“TPP”).

Is the surprise hyphen a U.S. power play?  Or the work of a rogue White House press agent?  Do we now have a federal imprimatur to hyphenate however we want?

Stay-tuned.

Does ITEC use Spy Tech?

The Interagency Trade Enforcement Center (ITEC) was established in 2012 with avowed, but vaguely defined, ties to the U.S. Intelligence Community.  Now, as the U.S. embarks on an ambitious global trade agenda, some of its main trade partners suspect that they are targets of U.S. espionage.  Has the trade war gone covert?

The Interagency Trade Enforcement Center (ITEC) was created by executive order on February 28, 2012.  One of the policy goals stated in that executive order was to “strengthen our capacity to monitor and enforce U.S. trade rights and domestic trade laws, and thereby enhance market access for U.S. exporters . . .”  However, since ITEC’s creation, the Obama Administration has provided only vague information on the means by which ITEC monitors and enforces U.S. trade rights.  The executive order that established ITEC provided for the appointment of three officials, a Director, a Deputy Director, and an “Intelligence Community Liaison” – who was to be a full-time senior-level official, recommended by the Director of National Intelligence.  The executive order states that “others in the Intelligence Community . . . are encouraged to detail or assign their employees to the Center . . .”  Since that Order, there has been scant public information regarding the staffing of ITEC.  All three officials apparently have been appointed, but while the persons holding the Director and the Deputy Director positions were publicly announced, the Intelligence Community Liaison was not.

ITEC’s mandate to “monitor” U.S. trade partners, even its explicit ties to the Intelligence Community, are no proof of clandestine activity.  However, the recent revelations by former NSA contractor Edward Snowden regarding secret NSA data collection raise questions about how such data might be used by federal agencies such as ITEC – agencies that do not have an explicit national security role.  Snowden revealed the existence of several NSA data collection programs that targeted both foreigners and U.S. citizens.   The revelation of these programs sparked immediate debate within the U.S., particularly with regard to the NSA’s collection of phone records from U.S. citizens.   However, in the weeks following Snowden’s initial disclosure, there has been a growing media focus on the NSA’s clandestine data collection from foreigners using the internet (the “PRISM” program), and even recent allegations of NSA wiretaps placed in brick-and-mortar facilities such as foreign government buildings and foreign embassies within the U.S.  Hong Kong officials reportedly asked the U.S. for clarification regarding Snowden’s revelation that the U.S. was cyber-spying on the Chinese.  European Union member states, such as France and Germany, have started to balk at reports that the U.S. wiretapped EU buildings and embassies in Washington, D.C. and New York.  And what Snowden has revealed so far may just be the tip of the iceberg.  Such relevations may raise concerns by U.S. trade partners about the relationship between the intelligence community and ITEC, which, as described in the President’s 2013 Trade Agenda “will play an increasingly critical role in the Obama Administration’s enforcement efforts.”

Given ITEC’s explicit mandate to coordinate the exchange of information among U.S.  trade agencies and the Intelligence Community, it is plausible that such information might include information obtained by clandestine means, such as the NSA programs described by Snowden.  Such information could be very valuable to ITEC to the extent it reveals potential trade violations, or even a foreign government’s strategy for handling a trade dispute with the U.S.  While the collection of such information might be authorized strictly for national security purposes, ITEC might be tempted to use the data collected for its own purposes – establishing evidence of trade violations and assisting the U.S. government in trade negotiations and disputes.

Furthermore, it is unclear what national security purpose would be served by clandestine surveillance of “friendly” nations, such as the alleged wiretapping of EU Member States embassies.  Information obtained through such means could, however, be very useful in trade negotiations, such as the ongoing Trans-Pacific Partnership negotiations or the burgeoning US-EU trade talks.  The US-EU talks have already hit snags as a result of the NSA revelations, with European officials denouncing the U.S.’s purported actions, and at least one participant, France, calling for a temporary delay of trade negotiations.

Snowden’s revelations provide a new lens under which to examine the role of ITEC and its ties to the Intelligence Community.  USTR and Commerce trumpeted the efficacy of ITEC in their joint 2013 Subsidies Enforcement Report to Congress, stating that ITEC “has already played an important role in vigorously pursuing U.S. rights under the Subsidies Agreement” — for example, in a WTO consultation regarding alleged Chinese export subsidies on autos and auto parts.  The Report stated that “Commerce, USTR and the ITEC subsidy experts collaborated closely in extensively researching, compiling and analyzing hundreds of Chinese central and provincial government measures.”  The means by which ITEC carried out this research and analysis are not specifically revealed, although the Report states that “IA and USTR officers stationed overseas (for example, in China) enhance these efforts by helping to gather, clarify, and confirm the accuracy of information concerning foreign subsidy practices.”  Could ITEC’s network include secret agents?  What about the Executive Order’s encouragement that the Intelligence Community assign employees to the Center?  Even if those employees do not bring with them data obtained through clandestine means, they may well use personal knowledge that they have gained through covert operations against U.S. trade partners.  References to ITEC’s “intelligence community liaison” have been particularly vague.  The most fulsome public report on the activities of this ITEC officer appears to be in the 2013 Trade Agenda, which merely states: “An intelligence community liaison provides a variety of critical services and assistance to ITEC in furtherance of its objectives, including introducing ITEC, its mission, and priorities to the various collection and analytic components of the intelligence community.”

As a federal agency, ITEC is relatively small.  Its approved budget in 2013 was approximately $15 million, and the Commerce Department has asked Congress for $20 million to fund ITEC in 2014 (as part of an $8.6 billion total Department budget).  However, ITEC is important in what it represents – a partnership between transparent U.S. agencies, agencies with an economic purpose, and clandestine U.S. agencies, agencies with a national security purpose.  The sharing of information and resources between such agencies may be highly effective in enforcing trade law and assisting the U.S. in negotiations.  But it could also be counterproductive, if it gives U.S. trade partners the impression that the U.S. uses the fruits of espionage to advance its trade agenda.