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China Risks Undermining a Unique Economic and Environmental Pact

By Jake Colvin, The Hill
December 3, 2016

In Geneva this week, senior officials will seek to conclude a deal to lower the cost of environmentally-friendly technologies, but it will take greater leadership and increased flexibility from China to get this unique economic and environmental agreement over the finish line.

The Environmental Goods Agreement (EGA) would eliminate tariffs between China, Europe, Japan, the United States, Costa Rica and other innovative economies on a broad range of products beneficial to the environment from wind turbines to LED lighting.

Such a deal would have important economic benefits for all of the participants. For China, a study commissioned by the Coalition for Green Trade suggests that an agreement would increase China’s GDP and national income by billions of dollars.

For the United States, the Office of the U.S. Trade Representative notes that American exporters produced and sent $130 billion of environmental goods abroad in 2015, and this agreement would enable American manufacturers to grab a larger share of the $1 trillion dollar global environmental goods industry. Other Asian, European and Latin American economies would see new markets open for their manufacturers.

An agreement would also have a positive effect on the global environment. In particular, it would help China and other participants meet their global climate commitments and reduce air and water pollution at a lower cost.

The Paris-based International Energy Agency estimates that one million people die each year in China from outdoor air pollutants. This deal would help economies including China adopt air pollution control technologies at a lower cost. Ultimately, the Coalition for Green Trade study notes that China could gain approximately $659 billion annually in economic benefits that stem from improved environmental quality thanks to cost savings that an EGA would bring.

For all of these reasons, experts and business groups from around the world have strongly encouraged negotiators to finish the deal this year.

Last month at a seminar in Beijing, Professor Tu Xinquan, Dean of China Institute of WTO studies at the University of International Business and Economics noted that an EGA “will have very great environmental benefits,” and noted that China’s pollution “will challenge the Chinese government to make great progress in the EGA negotiations.”

At the same seminar, Wang Zhuo, Vice Secretary-General of the China Association of Lighting Industry (CALI), highlighted how LED lighting can reduce energy consumption and called for a rapid conclusion to the negotiations.

In the United States, the effort enjoys strong and longstanding bipartisan support across multiple Administrations and Congresses, as well as from business groups from the Business Council for Sustainable Energy to the Business Roundtable and U.S. Chamber of Commerce.

And dozens of business groups, including the Australian Industry Group, Business New Zealand, Canadian Association of Importers and Exporters, Japan Machinery Center for Trade and Investment, Singapore Business Federation, and Solar Energy Industries Association, signed a letter earlier this year calling for a conclusion of the agreement by year-end.

Despite these clear, shared benefits for Beijing and Washington in particular, as countries send their senior ministers to Geneva in an attempt to finalize an agreement, China has arrived with a lengthy shopping list but little flexibility or currency in its pockets to pay for what it wants.

The hallmark of any successful negotiation is a good-faith give-and-take between countries that results in a deal which benefits all parties. To the extent that any one party to a negotiation arrives asking that all of its requests be accommodated while simultaneously refusing to accommodate the requests of others, as China appears poised to do, that is a recipe for failure.

Failure to conclude this unique agreement now would be more than another missed deadline. It would undermine the authority of world leaders who, under Chinese President Xi Jinping’s leadership at the G-20 Ministerial in Hangzhou, hailed a “landing zone” for the agreement and emphasized a shared commitment to finish an ambitious deal by the end of 2016.

The inability to conclude an EGA would be a particular blow to China’s credibility on trade. Last month, President Xi touted China’s commitment to free trade, saying at the APEC leaders’ summit that Beijing “oppose[s] all forms of protectionism” and wishes to “inject positive energy into economic globalization.” China’s state-run news agency touted the idea that China would “take the driver’s seat in terms of pushing for greater free trade” in the Asia Pacific.

Failure would also diminish the World Trade Organization (WTO), the umbrella under which this agreement is being negotiated. A failed ministerial meeting  —  on a topic that is relatively uncomplicated and enjoys broad support  —  could undermine the credibility of the organization as a forum to modernize other, more complex trade rules in the future.

The flip side is that an ambitious agreement would be an important shared victory for the participants’ economies, the global environment and the international institutions and rules that support the global marketplace. Success would also help cement the leadership of China, the United States, Europe, and the other innovative participants in the global economy.

We will soon find out whether world leaders can keep their word, and whether innovative economies can join forces and secure an ambitious agreement that enhances shared economic and environmental goals before time runs out.

Jake Colvin is Vice President for Global Trade Issues at the National Foreign Trade Council and Executive Director of the Global Innovation Forum. Follow the conversation @NFTC and @GlobaliForum