Reposted by Forbes
By Tilak Doshi
Trade protectionism has venerable roots in the history of economic thought, from the famous German Friedrich List in the 1840s to Raul Prebisch, who headed the United Nations Economic Commission for Latin America in 1950 and who advocated import-substituting industrialization behind a wall of tariffs. and non-tariff barriers to trade. Prebisch’s theories became the canon of a failed economic development strategy in post-colonial Asia, Africa, and Latin America, as their “infant industries” seldom grew up to compete in world markets. Instead, they have become conduits for crony capitalism, corruption and loss-making public investment in the developing world.
Governments that favor key domestic constituencies at the expense of international trade are widespread enough in OECD countries as well. For example, the EU’s common agricultural policy has often been cited as one of the most burdensome burdens on millions of farmers in developing countries. The showering of subsidies and the protection of tariffs for wealthy European farmers, the increase in food production and the fall in world food prices are a well-documented part of the historical record. But what the EU is now considering in its protectionist arsenal is an entirely different animal. What sets this new protectionism apart from its predecessors is the extent of its application.
Trade protectionism old and new
On March 10, the European Parliament overwhelmingly approved the creation of a “Mechanism for Adjusting Carbon Frontiers” (CBAM) to protect EU companies from cheaper imports from countries with “weaker” climate policies. The “CBAM” will generate revenue to fund the “Green Transition” or, to use a term that has become a mantra by European policymakers, “net zero by 2050”. The marginal carbon tax is one of the highlights of the European Commission’s $ 750 billion green deal.
Adoption as an EU political stance could precede the G7 meeting in Cornwall, UK, scheduled for June 11-13. Kwasi Kwarteng, British Secretary of Commerce in Boris Johnson’s government and host of the meeting, said: “There will be a discussion about adjusting the carbon limit, carbon leakage. That has to be part of the multilateral discussion. “By“ CO2 leakage ”, Kwarteng means that many energy-intensive industries have migrated to countries where such regulations do not apply because the richer countries have tightened their environmental regulations. Carbon leakage will undoubtedly also be a central theme at the 26th United Nations Conference of Parties (COP26) hosted by the UK when it meets in Glasgow in November. Alok Sharma, a member of Boris Johnson’s administration and President-elect of COP26, has called on the world to “be on the way to zero by 2050”.
By penalizing carbon emissions, developing countries are being denied the only path on the energy ladder that would enable people in the now developed countries to ascend to their present level of prosperity and comfort. The EU’s plans punish those countries that do not accept the EU’s “climate emergency” proclamation and willingly forfeit the benefits of fossil fuel industrialization and economic growth for their citizens. Even more egregious is that the EU will use the revenues from the carbon marginal tariffs to help fund its green recovery plans.
The climate club
The Executive Vice President of the European Commission, Frans Timmermans, said earlier this year: “It is a question of the survival of our industry. So if others are not moving in the same direction, we must protect the European Union from distortions of competition and from the risk of carbon leakage. “According to Mr. Timmermans, many countries outside the EU” distort “competition because they have not introduced similarly criminal climate rules and regulations in their own industries.
Nobel laureate William Nordhaus’ solution for carbon leakage is to create a club of countries that have similar climate policies, trade freely with each other and impose some form of carbon tariff on everyone else who is not in the club. Now that the Biden administration has made climate change its top priority across the government, the EU and US seem able to work with like-minded governments in Canada and the UK. transatlantic climate club ”and thus impose global costs on CO2 emissions.
For those outside the climate club
It is no surprise that many countries outside the Climate Club find the EU’s proposed “CBAM” extremely worrying. Australian Trade Minister Dan Tehan described carbon tariffs as “a new form of protectionism”. India, the fourth largest carbon emitter in the world, is not interested in joining the climate club. Speaking of calling for a pledge to be “net zero” by 2060, India’s power minister Raj Kumar Singh said at a meeting organized by the International Energy Agency (IEA) last week: “2060 sounds good, but it is just that. it sounds good … I’d name it, and I’m sorry to say that, but it’s just a cake in the sky. “Even more bleakly, he said poor nations must continue to use fossil fuels and rich countries” cannot stop it. ” For most developing countries, “the second most important concern about an increasing carbon footprint caused by economic growth is that the growth of many is not happening at all”.
It is not clear how the EU’s CBAM proposal could be in line with WTO rules and, in particular, with the obligations of WTO members that expressly prohibit discrimination between countries. Even John Kerry, the international climate envoy for the Biden administration who led the “global climate emergency” awareness raising call, expressed concerns about the EU coal tariff proposals, which could have potentially disastrous effects on international trade and relations. It seems that the climate clubs at the UN climate conference in November will cut out their work for them.
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