News and Analysis • Volume 11 • Number 6 • October 2007
Trade, Climate and Competitiveness
At a recent ICTSD dialogue held in Shanghai, experts and policy-makers shared insights on the impact of current and potential future climate change mitigation measures on China’s trade flows and competitiveness.
Carbon Leakage
OECD members are increasingly concerned about ‘carbon leakage’, i.e. the relocation of energy-intensive industries to countries such as China or India, which are exempt of mandatory greenhouse gas reduction targets under the UN Convention on Climate Change.
Several dialogue participants argued that concerns over carbon leakage were exaggerated. While China has indeed allowed many energy- or natural resource-intensive companies to operate on its territory, further relocations of such industries will not be accepted under the new ‘greening trade and investment’ strategy. Since mid-2006, the government has also imposed export tariffs on natural resources, eliminated or reduced export tariff rebates and tightened financial credits for processing plants in an effort to control the production and trading of products that require high energy or natural resource inputs.
Competitiveness and Border Tax Adjustments
Views were mixed on how China should respond to potential border tax adjustments (BTAs) in OECD countries. Such initiatives, allegedly aimed at ‘levelling the playing field’, are already under consideration in the EU and the US (see page 16). Some said that China should start thinking about policy options for offsetting potential risks of foreign BTAs, such as a carbon tax, a carbon-related export tariff, or even taking on mandatory commitments in international agreements. Others argued that BTAs based on the ‘levelling the playing field’ argument were morally unacceptable since developed countries were responsible for the lion’s share of historic greenhouse gas emissions.
It was also pointed out that many countries not bound by the Kyoto Protocol had introduced policies to limit the impacts of global warming. Australia, for instance, will phase out the standard incandescent light bulb by 2009, whereas the EU will only phase out heavy antidumping duties on Chinese energy-saving light bulbs by the same deadline.
Impact of Climate Change Policies on Chinese Exports
Some participants believed that energy efficiency requirements in OECD markets had negative impacts on Chinese exporters. According to a recent national survey, industries’ direct costs for compliance with technical barriers – including energy efficiency standards – amount to US$36 billion, while indirect costs reach US$19 billion. Others argued that China had benefited, and would continue to benefit, from stricter energy efficiency standards. They pointed to significant market access gains for high value-added products, such as new generation air conditioners and energy-saving light bulbs (China produces around 80 percent of the world supply of compact fluorescent light bulbs). In the end, there was an emerging consensus that – as a Chinese proverb states, ‘instead of cursing the darkness, light a candle’ – the best way forward would be to turn challenges into opportunities.
Technology Transfer
While technology is a central piece of the Chinese climate change strategy, few the latest technologies are currently transferred to the country. For instance, only ten percent of the technologies involved in 9902 international technology transfer contracts in 2005 were patented. Similarly, advanced technologies are rarely transferred under the Climate Convention’s Clean Development Mechanism. Chinese experts believe that this is due to a number of reasons, including strict IP protection, licensing or export controls, and non-binding commitments in industrial countries, as well as China’s own tariff and non-tariff barriers, and its weak legal system for IP protection, particularly with regard to know-how.