Trade
Europe’s carbon emissions plan risks more damage to global trade regime
Author: Editorial Board, ANU
The European Union (EU) recently announced its ‘Fit for 55’ plan to reduce carbon emissions by 55 per cent from 1990 levels by the end of this decade and to reach net zero carbon emissions by 2050.
The commitment of the European Union and other major industrial powers to similar carbon reduction targets will require an upheaval in established patterns in global production and international trade the like of which has not been witnessed since the industrial revolution.
Central to the EU’s plan is a carbon border tax. Europe plans to charge higher tariffs on imports of products made in ways that generate higher emissions than EU producers will be permitted to generate for the same goods. The scheme will begin by targeting four prominent carbon-intensive sectors: cement, steel, aluminium and fertiliser.
The United States is developing its own plan to tax carbon-intensive imports as part of its pending budget reconciliation package — to expedite their congressional passage — although the details of the scheme are not clear.
These are among a suite of other trade restrictions that are being considered both by the United States and the European Union to force international compliance with labour protection, human rights and other social and political goals, including national security.
There are many questions about the implementation of the EU carbon border adjustment measure and the practicalities of making such schemes work without offending core trade rules. The main concern is how they stack up against the central principles around which the global trade regime is ordered.
The global trade regime, which underpins protections against discriminatory treatment and coercion in international trade, is under attack from many sides. Managed trade, embraced by the Trump administration in its trade war against China, mimicked by China against the United States and in its application of trade coercion for political purposes (against Australia among others), has been let out of the cage by the two most important players in the world economy.
The foundational principle of the WTO free trade system is non-discrimination, embedded in Article I of the General Agreement on Tariffs and Trade (GATT). The EU’s and other carbon tariffs potentially pile more pressure on that principle, threatening to sink it altogether. Their application will necessarily be complex — and open to abuse — with supply chains and different emissions reduction policies across different jurisdictions.
Measures that seek to rid the atmosphere of carbon, improve human rights in Xinjiang or Myanmar, or protect labour conditions in Bangladesh may all seem eminently reasonable, indeed righteous, international social causes. Using trade instruments to achieve them creates a global economy divided by ideology, contested values and environmental commitments, the cost of which are offloaded onto others by those who espouse them.
That world will certainly be a less efficient world, one in which businesses will need to tune both investments and production decisions to the values of the countries they wish to sell to. And it will be a world in which there is vastly more economic conflict.
The more exceptions to the principle of non-discrimination become embedded in the trade system, the easier it will be to expand them in the future. The road to this kind of managed trade is a slippery path into more damaging protectionism.
The EU has pledged to ensure the new border carbon tax mechanism will not violate WTO rules, but implementation is likely to be very complex. The means for assessing the carbon content of imports are unclear, and EU firms will lobby for the highest possible tariffs to protect their markets. In the United States, where there is still no domestic carbon price, the risk of protectionist discrimination through carbon import tariffs is higher.
As Ken Heydon explains in our lead article this week, ‘the EU plan reflects concerns about carbon leakage and fear of a, largely unsubstantiated, race to the bottom as production moves to countries with less strict emissions regulation’.
The eventual outcomes and the extent of distortion to world trade are difficult to predict, Heydon says. They will depend on two main factors: the extent to which affected exporters shift away from Europe towards other markets, and the extent to which they incorporate carbon costs in their exports, or are deemed by the European Union to have done so.
What is clear is that the measures will have an important impact on…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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