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Protectionist threats a lot of hot air

By Geoff Carmody - posted Monday, 5 October 2009


The threat of punitive tariffs on imports from countries not acting to reduce greenhouse gas emissions has been raised by the Prime Minister as a reason why Australia should adopt his carbon pollution reduction scheme. He’s cited threats apparently made by French President Sarkozy and others. Provisions in the US emissions trading scheme bill are perceived the same way. Paul Kelly (Weekend Australian, 26-27 September) is one of the latest to retail these arguments.

This trade retaliation red herring, per se, is no reason to adopt the CPRS. It doesn’t stand up to cursory analysis. At best, it adds another layer of confusion to a confused policy. At worst, it’s rubbish.

Current World Trade Organisation (WTO) rules are clear.

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First, countries generally are not allowed to discriminate between imports from different countries by imposing border taxes (e.g., tariffs) on imports differentiated by source country, unless that has been enshrined in existing agreements.

No such agreements are based on whether or not different countries have adopted policies to reduce greenhouse gas emissions. Punitive tariffs would violate existing WTO rules and constitute grounds for seeking remedies under WTO processes.

Second, countries are not allowed to discriminate in favour of locally produced goods and services by taxing them less than imports of the same products. Punitive tariffs (i.e., higher ad valorem equivalent taxes on imports than applied to locally-produced substitutes) would breach existing WTO rules and be a basis for seeking remedies under WTO processes.

In both cases, such “punitive” action is protectionist. The WTO’s role is to punish those adopting such measures.

Besides, widespread adoption of such measures by relatively wealthy developed economies would amount to “doing a Samson” on world trade, dragging global economic growth and living standards down in the process.

This is the trade policy bogeyman raised by our Prime Minister as a competitiveness threat to Australia if we don’t adopt his CPRS. (Let’s ignore the negative protection competitiveness threat embodied in the CPRS itself for now.)

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Assume the threat is implemented.

Assuming substantive failure at Copenhagen (however it’s dressed up in the communiqué), it implies world trade collapses as the developed world, “led” by Europe, sets off a round of protectionist tariff increases, others retaliate, and chances of even an anaemic global economic recovery are destroyed.

Everybody loses, including the EU, which needs to seek out new, growing markets to buffer growth in living standards from its own slowing domestic markets driven by its ageing (in some cases shrinking) population.

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First published in The Australian on September 30, 2009.



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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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