Bush faces trade sanctions

Observations on global warming

It wasn't long before something toxic merged with the dull haze of disappointment following George W Bush's re-election. Myron Ebell of the US-based Competitive Enterprise Institute, part funded by Exxon, and who is one of Bush's advisers on climate change, told Radio 4's Today programme on 4 November that global warming was a European plot to undermine US economic dominance.

Astonishing as Ebell's remarks may have seemed, they were just another example of the Republicans' speciality: the preventive strike. Now that Russia has ratified Kyoto and the European Union is on the verge of launching its emissions trading scheme, the US administration knows that it is only a matter of time before the rest of the world gets serious about American free-riding on climate-change action.

The US has argued consistently against doing anything because it would cost too much. By not playing climate ball, the administration thinks, it is saving domestic businesses money. In other words, the failure to act is subsidising US producers, especially those in fossil-fuel-intensive industries. But the rules of the World Trade Organisation forbid subsidies, which means that other countries can retaliate.

There have already been clear hints from Pascal Lamy, the outgoing EU trade commissioner, that Europe feels within its rights to use economic measures against the US. So the next big climate-change conference, due in Buenos Aires next month, could be the moment when international environmental rules grow up.

It has been a long time coming since the UN Convention on Climate Change was first signed in 1992 at the Earth Summit. The biggest problem with any international treaty or convention is enforcement. When countries break the rules of the WTO, the World Bank or the International Monetary Fund, they can face swift and effective sanctions. Multilateral environmental agreements, however, are often voluntary, in effect. That could be about to change as the economic effects of acting to slow climate change begin to bite, and anger grows at those who refuse to act. Developing countries would be exempt as, rightly, they are not required to do anything until the rich countries, which created the problem, take a lead. So the two countries that are free-riding on the Kyoto Protocol, the US and Australia, are the vulnerable ones.

The most likely economic weapons would be "counter-subsidy" measures or "border tax adjustments". Both are acceptable in international trade, where environmental agreements such as Kyoto have been negotiated in good faith.

There are interesting precedents. When the European Commission considered a climate-change tax in 1992, it cited the US "superfund", used to clean up toxic sites in the United States and paid for by taxes on the petrochemical industries, with importers paying higher rates. A direct trade measure is thus being used to pursue environmental objectives.

When the New Economics Foundation proposed trade measures as the stick needed to get the US to move on climate change, Lamy's response was a delicious example of the political art of "denial, non-denial". It was a "thought-provoking contribution", he said.

And he elaborated: "There is a clear case for being aware of any adverse effects on our industry and doing everything in our power to minimise these. In that sense, it is relevant also to keep under review the scope for action under WTO rules to 'level the playing field'." At the time, with the EU trying to seduce Russia into Kyoto, it would be "counter-productive" in Lamy's view, to contemplate trade action. That problem, however, is now out of the way.

And, to focus his mind, Bush might note that his home state has the third-highest level of exports to the EU of all US states - a mixture of Texan chemicals, consumer electronics and "transport equipment".

Andrew Simms is policy director of nef, the New Economics Foundation, and author of the nef briefing Free Riding on the Climate