19th April 2009

Kirk moves to quell concern over carbon border tax

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A recent letter from US Trade Representative Ron Kirk downplays the notion that the Obama Administration would implement a border tax on imports from large developing countries to help domestic industry under a cap-and-trade scheme.

Kirk’s statement came as a response to a request for clarification by Republican Congressman Joe Barton, regarding Energy Secretary Stephen Chu comments at House hearing in early March. Chu had suggested that in order to prevent ‘leakage’ and protect local industry under a US cap-and-trade programme, the US would not rule out tariffs and other trade barriers as a means to place pressure on countries like China and India to cut back on emissions. “If other countries don’t impose a cost on carbon, then we will be at a disadvantage,” Chu said at the hearing.

Leakage, a term referring to the movement of carbon producing industry to countries with more lax environmental standards, is a prime concern for the Obama Administration as it mulls over a proposed emissions trading scheme, unveiled on 31 March (see Bridges Trade BioRes, 3 April 2009). Much speculation has been made over the ways in which the US plans to prevent such leakage under the scheme and protect domestic industry.

Letter addresses protectionist concerns

China has been particularly vocal over the suggestion of any such US import tariffs, arguing that the US could use the cap-and-trade scheme to justify protectionism. China maintains that the responsibility for emissions should be shouldered by the country importing the goods, rather than where the goods are manufactured.

Kirk’s 14 April letter - addressed to Republican representatives Joe Barton, Ralph Hall, Greg Walden, and Paul Brown - takes aim at protectionist concerns, insisting that the Administration will ensure that its energy and climate policy will not infringe on the country’s international trade obligations and will avoid initiatives that could trigger retaliatory trade measures on US exports.

”Our consideration of the necessity of, and options for, addressing carbon leakage will include how potential measures might be targeted towards the circumstances of energy and trade intensive industries,” the letter reads. “The Administration, however, does not support any specific measures, including border measures, at this time.”

Commitment to UNFCCC process re-affirmed

The letter also re-affirms US support for Copenhagen deal, suggesting that concerns over carbon leakage would be dealt with best through the UN Framework Convention on Climate Change (UNFCCC).

”The Administration believes that the best approach to address concerns with carbon leakage is to negotiate a new international climate change agreement in the United Nations that ensures that all the major emitters take long term, significant action to reduce their greenhouse gas emissions,” Kirk wrote. “We look forward to working with these countries to negotiate a meaningful global climate agreement and actively avoiding circumstances in which we are simply exporting carbon emissions abroad.”

Letter leaves ‘unanswered questions’: Republicans

Responding to the letter, deputy Republican staff director on the Energy and Commerce Committee Larry Neal said Kirk “tries to make up in cheery confidence what it lacks in facts.” Neil said the letter leaves many unanswered questions regarding the possibility of other countries taking ‘strategic advantage’ of the higher cost of production US manufacturers would face under the cap-and-trade programme.

The proposed US carbon trading scheme has been controversial. The proposal faces bipartisan opposition and many observers say the bill is unlikely to get approval from congress if concerns over protecting domestic manufacturing are not addressed.

Additional Information

Ron Kirk’s 14 April letter to Joe Barton can be accessed here: http://ictsd.net/downloads/2009/04/kirk-letter-14-04-09.pdf

ICTSD Reporting, “Obama Wants Climate Bill Mindful Of WTO Rules - Kirk,” REUTERS, 16 April 2009.

This article appears in Bridges Trade BioRes, Vol. 9 No. 7