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  • Sep 21, 2014
  • Updated: 1:47pm

A climate of conflict

PUBLISHED : Thursday, 13 January, 2011, 12:00am
UPDATED : Thursday, 13 January, 2011, 12:00am

Last September, the United Steelworkers, a major United States labour union, filed a 5,800-page petition to the US Trade Representative accusing China of illegally stimulating its green technology export industry - technologies such as wind power, solar energy, advanced batteries and clean-energy vehicles.

If the US acts aggressively on this complaint, it could become a dispute of wide-ranging and long-term significance.

China could argue that its actions are not merely self-serving but an enactment of its global responsibility. This could put the US in a negative light by comparison. As Zhang Guobao , the head of China's National Energy Administration, put it, if the US brings the case before the World Trade Organisation (WTO), 'the only ones who will be humiliated are themselves'.

The US does appear to be proceeding with great caution. Last month it announced that it was requesting consultations with China at the WTO on one among a list of issues brought by the union - to end 'import substitution subsidies' of wind power. The complaint concerns grants that are contingent on local content requirements, that is, dependent on the grantee using parts and components that are made in China.

This case rests on whether the effect of China's actions is only to protect its local industries against foreign competition, or whether they bring benefits that are shared worldwide.

Under WTO rules, members may adopt trade-related measures aimed at protecting the environment, provided they fulfil conditions to prevent 'the misuse of such measures for protectionist ends'. The US has historically been at the forefront of adopting such trade-related measures. In the 1990s, it banned shrimp imports from countries where shrimp fishermen used nets that harmed endangered sea turtles. As a result, a case was brought before the WTO against the US by India, Malaysia, Pakistan and Thailand.

Little doubt remains that greenhouse gas emissions - chiefly carbon dioxide from fossil fuels - pose a serious risk of global climate change. And economists agree that effective measures to mitigate this risk must include economic incentives to reduce fossil fuel use, either through disincentives such as taxes or caps on its use, or incentives favouring its alternatives.

China has implemented subsidies as part of a major push to promote renewable energy. As a result, the worldwide rate of increase in alternative energy has soared. From 2004 to 2008, renewable energy investment increased fourfold; wind power capacity increased 250 per cent; and solar photovoltaic capacity increased sixfold. The US government has done much less by comparison.

Currently, the US case rests only on the accusation that China's subsidies require locally made parts. But according to Reuters, China has already agreed to eliminate local content requirements for wind power. Besides, such requirements have historically been common. From direct experience, I know that the policy of at least one US grant-making agency, the US Trade and Development Agency, was to impose local content requirements on its grants.

Bringing a wider case against China at the WTO could highlight America's relative inaction on climate change.

The US shows little sign that it will do much as a national polity in the foreseeable future. By contrast, Europe, Japan, and now China, have installed serious incentives to reduce fossil fuel use.

The US has not felt shamed by its inaction so far, partly because of the imperfections of the Kyoto Protocol, an international treaty aimed at reducing greenhouse gas emissions, which the US had refused to ratify. But a case before the WTO now could damage its global reputation.

But instead of taking China to task at the WTO, the US could take the action of heavily subsidising its own green industries. This could only win on the world stage.

If the US wished, it could advertise this as retaliation against China for its subsidisation. If indeed the WTO were to view China's subsidy as protectionist, the US would be justified in retaliating. If on the other hand the view is that China's subsidisation is globally beneficial, the US action would be viewed as beneficial also.

While this action is unlikely in the present political atmosphere in Washington, it would be the right thing to do.

Michael Edesess is a visiting fellow at the Hong Kong Advanced Institute for Cross-Disciplinary Studies, City University

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