Resurrecting the Environmental Goods Agreement



William Reinsch | Center for Strategic and International Studies

Several weeks ago I warned you there would be a lot of climate columns this fall, and this is one of them. The Scholl Chair has begun a number of projects that look at the intersection of climate and trade policy, some of them simply an effort to get the environmentalists and the trade experts to speak the same language and communicate with each other. I’ll have a report on how that is going later on.

This week’s comment is on a project that I thought would be fairly simple, which asked two questions: What happened to the Environmental Goods Agreement (EGA) negotiations, and how can we restart them? As with many things in life, it may look simple, but it hasn’t turned out that way. We are not finished yet, this as an interim comment, but what we have learned so far demonstrates some sad truths about the trading system that we should have been able to avoid.

The first question—why it tanked in 2016—is easier to answer than the second one, although there is not one single story everyone agrees with. The proximate cause was bicycles. The Chinese wanted them on the list of items subject to duty elimination, and the European Union did not. But that was only the tip of the iceberg. China arrived at the last round of EGA talks at the end of 2016 with a substantially revised list of items along with other demands, all of which were regarded as poison pills by Western negotiators. The view from the other countries was that China had decided it did not want an agreement and rather adroitly constructed a set of demands guaranteed to achieve that outcome.

Why China decided that is a mystery. It had been a reluctant participant from the beginning of EGA negotiations, even though it would probably have been one of the biggest beneficiaries had the agreement been concluded, depending on the final list of items included. At the same time, China, like everybody else, had domestic industries insisting on protection. It also had to deal with the result of the 2016 U.S. election, which may have persuaded officials that anything they negotiated with the Obama administration would at best have to be redone with Trump and at worst would be tossed into the trash can, never to be seen again.

But there was a larger issue as well, which is common to trade negotiations: domestic political pressures from industries that do not want to be exposed to more competition. These are often referred to, somewhat unfortunately, as iron rice bowls—pockets of protection that particular industries have obtained over time and which they do not want to give up. China was not the only guilty party—it was the European Union, after all, that resisted including bicycles because of pressures from its own companies. This suggests that the underlying problem was a familiar one—the inability of countries to move beyond their self-interest and do something for the greater good.

The EGA talks, however, were a bit different from a normal trade negotiation. In the latter, nations recognize they need to give something up in order to get something they want, and the trick is to find a balance of concessions that gives everybody enough to justify agreeing to the final text. The EGA negotiations were about a global commons problem. Countries were all being asked to make collective concessions in the interest of global climate mitigation. It was not simply about market access. Unfortunately, countries were not willing to get beyond the market access question—what will be good for me—and focus on the greater good. So, while we can blame the Chinese for sticking the knife in at the end, it may well have been a failure of imagination on all sides that made the biggest difference.

So, how to restart? We begin with the hope that the issue has taken on greater urgency in the past five years. The damage climate change is wreaking is much more obvious and the need to act promptly more compelling. An EGA is not the biggest thing that needs to happen, but it would be a useful small step forward, as well as evidence the World Trade Organization (WTO) remains capable of making agreements, something that is badly needed.

Second, we hope for a return of U.S. leadership. It disappeared during the Trump administration, but climate is a priority for the new team, and one would think EGA would be a priority. Apparently, however, one would be wrong. Administration officials have missed many opportunities to express support for it, and it is increasingly obvious there is no interest at the Office of the U.S. Trade Representative (USTR) in pursuing it. The administration remains allergic to any trade agreements, even those that advance its other priorities, the United States has its own iron rice bowls that do not support anything that will provide more competition, and there is a reluctance to do anything where China would be an obvious beneficiary. Organized labor seems not supportive, and, surprisingly, neither are environmental nongovernmental organizations.

This is a mistake on all their parts. This is an agreement where U.S. leadership could get it across the finish line and where doing so would be good for the environment, good for the WTO, and good for our tarnished global image. If we cannot put our parochial concerns aside in the interest of the global commons on a small issue like this one, how will we do it on the big ones, and how can we expect anybody else to do the same?

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

To read the full commentary from the Center for Strategic and International Studies, please click here.