Is all fair in love and trade?
Posted on 04. Jun, 2010 by Leela Raina in India
Feeling Special
Everyone wants to feel loved , more importantly wants acceptance and to build a mutual understanding , feel that buzz in the air, go for long walks and get lost in hugs. Look at in a trade context, which has to be a 2 way process, but like relationships can’t be defined or named along with them come the compromises which we as coutrities also need to make.
Of cheating, disappointment, getting ‘traded - up’ and using your ‘protectionist’ measures
making compromises
When you feel like you have taken advantage of , you feel cheated and disappointed is when you start using your protectionist measures and completely block people out of your daily life. While in other cases you could just get “traded- up” for someone supposedly better than you.
Recently one has noticed various interventions by China and India , accusing the annex 1 for having clauses in their ( to be) climate legistations( for US in specific the Waxman Markey Bill) of charging higher amount of tax or tariff on goods being produced by the countries on the basis of whether they are doing enough to reduce emissions. This is green protectionism
The Big Compromise
For India and China it will have to be a very big compromise, that of having higher tariff rates and for the US , the periphery problems of competition and leakage.
The basics of BCA- Border Carbon Adjustment is that it is introduced to create a level playing field between domestic producers and imported goods and it could be done three ways : by making the general product benchmarks for all countries, country specific treatment or company/ plant specific treatment. The idea is that it should reward the efficient producers and provide some incentives to producers to work towards reducing emissions.
This so called tax is called Border carbon adjustment , as in when the good is diffrentiated on the basis of actions of the counrty of where it has orginated and enters the borders of EU. This would make exports costlier for India and China where India is chiefly an export growth led country.Apart from a tax based adjustment one could also start an emissions trading scheme for allowances. It could be on imports or exports; on general products or specific products
Of defining the relationship
defining the relationship
As far as the international standardization is concerned, the ISO is working on it to standardize carbon foot printing (ISO 14067)for a whole product cycle but this is only taking into account the raw material and manufacturing stages and not the sale and resail stages. Since the inspection at the border cannot take place hence the company trades in certificate of emissions which is standardised by the above methodology. The high costs if verification and certification would be a challenge over and above setting up the massive infrastructural and institutional support.
And like in the WTO their is special and prefrential treatment similarly here the US proposes to use country differentiation in trade in basis of the pledges of countries to the Copenhagen Accord.
A study conducted to see the influence of BCA over imports in EU across 164 sectors found that 85% of imports were sensitive to the BCA, and the countries that could be worse effected by this would be the tin and article industry of Bolivia, Iron and steel industry of Argentina and soap industry of China among others. Hence its highly unlikely that EU would impose the BCA in LDCs. The border adjustment will vary accordingly to GHG intensity and trade intensity might demand for them and the adjustment would be targeted for specific sectors.
Why you can’t handle it…
But there are several bottlenecks in trade for developing nations pertaining to the high transaction costs , higher levels of corruption, lack of trust between the public and private sector , requirment of meeting the international standards, rent seeking and high administrative costs which will it make it difficult to make the trade transaction smooth.
What goes around will come around eventually
Life is not fair but it surely is a leveller. No matter what you do what goes around will come around. Maybe after 20 years when India and China will be the hub of green technology, US and EU will have to pay a very dear price for it.Moreover, the US economy will have to fill the gaps created by the policy dissonance with becoming export oriented otherwise the leakages and competition will lead to a downfall in the business activity at home and increase consumption along with the costs of fuel etc.
Only time will tell how the mechanisms will change the global scenario and the relationship among countries and whether it was the “right thing to do”.This is just an attempt at understanding the basics, and to leave the reader with a barrier free crash course to green protectionism and help them to take a stance and decide.
Your choices will reflect your character so make them wisely. Not that the US hasn’t already shown it’s true colours by not signing the kyoto but BCA will make life worse for a lot of Americans eventually.
