Wednesday, October 7, 2015

More on the Trans-Pacific Partnership and the Environment

As many of my blog readers know, I have a regular blog at the Huffington Post Canada. On that blog I post shorter versions/updates of my A Chemist in Langley posts and post “short takes” on recent issues in the world of evidence-based environmental policy and renewable energy. The good thing about that venue is that it draws more eyeballs to the screen than my own little blog here. The downside is that it has a pretty strict limit on how long a post can be (about 800 words). Having a word limit can be a good thing as writing for that blog has allowed me to refine my writing and find shorter ways to say things. The downside is that I blog about topics that are not always black and white and a word limit can restrict my ability to expand on an important point or give useful examples to clarify topics of interest.

My post yesterday Why the TPP Doesn't Spell Doom for the Environment is a really good example of where a post would be improved with the addition of a few hundred more words. So today, I am going to add those words. In doing so I will take some others out and mix it up a bit.   

 As I wrote in my Huffington blog post, early Monday negotiations on the Trans-Pacific Partnership (TPP) concluded with an Agreement in Principle. While details of the agreement are still under wraps, the Canadian government has provided a Technical Summary of the Agreement. Now an Agreement in Principle is not a final deal ready to be ratified by governments and so we don’t have to go rushing about and panicking yet but it is important to understand what the deal means from an environmental perspective.   

The thing to understand about these trade agreements is that they are not the black/white story that the activists claim they are. Rather from an environmental perspective, trade agreements have both positive and negative aspects. They can have the negative effect of slowing down the development of unilateral environmental regulations, but they can have a positive effect by forcing environmental laggards to catch up with the pack.

It is quite true that trade agreements typically include considerations to prevent individual countries from developing their own distinct environmental policies. One of the important features of these trade agreements involve knocking down or eliminating non-tariff barriers (also called technical barriers to trade). The problem is that environmental regulations have historically been used by the bad actors on the international trade front to disguise simple protectionism. Like the wolf in the story Little Red Riding Hood the protectionism is dressed up to look like it is intended to enhance environmental performance but under the covers hide regulations intended to harm foreign competitors, often without improving environmental performance in the least. A recent example is the case of Korean emissions standards which did nothing to improve emission characteristics of cars on Korean roads but did a wonderful job of stopping the export of North American autos to Korea.

To further explain how these trade agreements can hurt individual action on the environmental front, imagine that Canada implemented a national carbon tax. Every pound of steel produced in Southern Ontario would be subject to that tax. This would make Ontario steel more expensive than the steel from an identical steel plant with otherwise identical cost structures elsewhere in the TPP zone. Under the National Treatment and Market Access (NTMA) chapter of the TPP, Canada would not be allowed to put a tariff on imported steel (that was not subject to the carbon tax) to address the difference in price and our steel industry would suffer. In this case the TPP would slow down the development of innovative, Canada-first policies to fight climate change.

Now the example above ignores some very important points put forward by the environmental community. The first is that we almost never see an example where a Canadian plant is identical to one in Vietnam (for example). Canadian plants tend to depend more on automation to address the differences in our employee cost structures. If we are running more efficient factories, the addition of a carbon tax can actually have a positive effect. By driving up the cost of carbon Canadian producers are forced to improvise and adapt. This is what fuels innovation. A factory dependent on cheap labour is less likely to make those adaptations and thus Canadian companies have the potential to adapt their way out of the higher costs.

A further important consideration is what happens to the money generated by the carbon tax? If that money is reinvested into new energy efficient processes or renewable energy projects then once again a country like Canada can thrive under a carbon tax regime. This is why I, among many, don’t like the idea of purely “revenue neutral” carbon taxes. I think a percentage of the money generated by a carbon tax should be funneled back into rapid transit, environmental infrastructure and research. In a perfect world a carbon tax should only be a temporary thing as we move away from carbon. Making our government dependent on the revenues from a carbon tax only ensures that we will never move away from carbon because I have yet to see a government give up a revenue source once it has figured out a way to hook its way into that revenue. Earmarking carbon tax revenue, rather than throwing it in general revenue, is a way to ensure that the government doesn’t rely on it to keep the lights on and thus our government has an incentive to eventually get us off the carbon train.

The most important feature of a low-carbon, high environmental value economy comes down to consumer choice. The TPP will not force Canadians to buy foreign products, it only says that we cannot deny other countries the opportunity to sell their product in our market. We, as consumers, can make a conscious choice to pay a little bit more to get a better, greener products. This is where the Greens of our world have to actually start living by their words.

I live in the community of Walnut Grove in Langley. Walnut Grove has very good selection of local stores that provide high-quality products often at a price slightly higher than it would cost to buy at a big box store or an American warehouse outlet. My family has made a choice that we are willing to pay the 5% -10% more to be able to walk to our local baker, vegetable market, butcher, wine store and grocery store. We value the fact that everyone at our local stores know us and our kids by name. We like the fact that Mr. Lee from IGA gives our kids hugs when they walk into his store and that his niece shares a classroom with our son at the local elementary school. We love that profits from our meat purchases at Meridian Meats go to their head office in Port Coquitlam and that our money for vegetables go to local farmers and not to some corporate head office in Arkansas. We appreciate the Overwaitea Food Group, whose corporate head office I can see on my walk to work. Sure we could, and sometimes have to, shop at places like Costco and Walmart but that makes up a very small percentage of our shopping dollar. The TPP does not take any of that away from us.

It is only when consumers demand low prices above all that we as a country will suffer. Meanwhile, the low prices often come at a cost of lower quality or higher inconvenience. I’m not sure about you, but spending 20 minutes each way to drive to a big box store is often a false economy both in lost time and in travel costs.    

On the positive side of the ledger, under the TPP multilateral environment agreements (MEAs) are further strengthened. Enforcement of the Montreal Protocol, the International Convention for the Prevention of Pollution from Ships and the Convention on International Trade in Endangered Species of Wild Fauna and Flora will all be strengthened for exactly same reason that individual action is discouraged. In order for competition to be considered fair every country is expected to live up to its international environmental obligations. MEAs set a baseline that every member of the TPP must meet, to do otherwise results in penalties. A country trying to shirk its environmental duties would be punished and forced to improve environmental performance to group norms. Thus in this case the environment benefits from the agreement. If the TPP had been in effect when Kyoto was signed Canada may not have been able to drag its heels in implementing the plan because its trade partners would have been there to force Canada to do its part or suffer the consequences of failing to act.

In following the debate on the TPP I find it particularly odd that the people who most dislike these international trade deals, are often the same people who demand that we, as a country, involve ourselves in international environmental deals/regulations. You either trust in international cooperation or you don’t. Somehow the leaders in the environmental movement want us to believe that international is good when it comes to the environment and bad when it comes to trade?

The other thing to recognize it that most of the really big problems of the world today cannot be handled by individual governments. Climate change, loss of biodiversity, destruction of coral reefs, the virtual elimination of the upper trophic levels in our world oceans, these are topics that have to be handled by a community of nations. Our shared global future is one where MEAs are going to be a necessity and trade agreements like the TPP are going to provide one of the few dependable mechanisms to enforce those MEAs.  

Thus international trade agreements like the TPP can discourage independent action but strongly encourage international cooperation and movement towards common international goals. To discourage foot-draggers from stopping all environmental advances, typically once an agreed upon percentage of the trade partners take a side on a MEA everyone has to jump on board or suffer the consequences. From these examples you can see the issue. When a single country wants to make a unilateral advance in environmental regulation, the TPP is going to slap it down, or failing that the industries in the affected country are going to become less competitive. However, when the global community agrees on a common environmental goal the foot-draggers and slow movers are punished.

Finally, a lot of the naysayers have popped up to ask how NAFTA helped the environment? My response to that question is that it is complicated. NAFTA was one of the first really big trade deals and when it was written, politicians didn’t really understand how important locking environmental performance into a trade deal was to ensure fairness in international trade. As such, the environmental components were tacked on at the end of the negotiations with NAFTA. Even with this proviso NAFTA ended up improving environmental performance in Mexico without a commensurate decrease in Canada/the US. I welcome my readers to go to the literature on this topic, because the references are many and surprisingly weighted in the positive direction.

So are trade deals like the TPP perfect? Absolutely not, but from an environmental perspective they are far more nuanced than the anti-free trade activists would have you believe.


  1. I'm not sure you are correct with your steel example.
    Nothing in the NTMA explainer on the government of Canada site argues that If Canada imposed a carbon tax, then this levy could not apply to imported steel in the form of a tariff (to the extent that this steel wasn't subject to a carbon tax in its country of origin).

    Indeed, the "National Treatment" section would indicate that imposing such a tariff would be expected: so that they would be subject to the same treatment as Canadian steel.

    Have you read Jeffrey Frankel on the subject of environmental tariffs in trade?

  2. My main concern with these agreements is their tendency to strengthen and legitimize dictatorships. I wouldn't include Vietnam.

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