Australian Journal of International Affairs

ISSN: 1035-7718 (Print) 1465-332X (Online) Journal homepage: http://www.tandfonline.com/loi/caji20

Trade policy, climate change and the greening of

business

John A. Mathews

To cite this article: John A. Mathews (2015) Trade policy, climate change and the
greening of business, Australian Journal of International Affairs, 69:5, 610-624, DOI:
10.1080/10357718.2015.1048782

To link to this article: http://dx.doi.org/10.1080/10357718.2015.1048782

Published online: 28 Jul 2015.

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Australian Journal of International Affairs, 2015
Vol. 69, No. 5, 610624, http://dx.doi.org/10.1080/10357718.2015.1048782

Trade policy, climate change and the greening of

business

JOHN A. MATHEWS*

There is under way a worldwide greening of industry, driven by the huge

demand generated by China and India as emerging industrial giants whose
growth cannot be accommodated by business as usual fossil-fuelled
developmentfor reasons having as much to do with energy security as
concerns over global warming and climate change. While the role played in
this process by fiscal and industry policies (e.g. carbon taxes and other
market-based incentives) is well understood (even if not pursued currently in
Australia), the potentially powerful leverage to be exercised by trade policy
is under-recognised. There are some positive developments such as a
proposed Environmental Goods Agreement being discussed in Geneva,
while there are negative developments embodied in various bilateral and
regional trade agreements such as the proposed Trans-Pacific Partnership
(TPP) agreement, to which Australia has committed itself. There are rising
levels of conflict over trade and climate change mitigation measures, in
actions brought at the WTO against countries looking to promote green
industries through measures like local content requirements being attached
to foreign direct investment, or by countries imposing border tax adjust-
ments against exporters who allegedly fail to implement carbon taxes. The
issues involved are discussed in this paper and possible ways forward are
proposed, along with some implications for Australia.

Keywords: border tax adjustments; environmental goods agreement; green

trade; local content requirements

Introduction
The links between trade policy and environmental issues, particularly climate
change, and the promotion of the greening of the global economy, remain
under-explored. Yet the links are significant. Climate change mitigation, in the
terms of the Kyoto Protocol, has been confined to countries making unilateral
commitments to reduce carbon emissionswithout these commitments being
reflected in trade or in the countries standing in financial markets. Countries

*John A. Mathews is the Professor in the MGSM Macquarie University Sydney NSW 2109
Australia. <john.mathews@mgsm.edu.au> 20092012 Eni Chair of Competitive Dynamics and
Global Strategy, LUISS Guido Carli University, Viale Romania 32 00197 Roma, Italy.
2015 Australian Institute of International Affairs
 Trade policy 611

seeking to promote their green industries, as a wholly positive contribution to

climate change mitigation, through such measures as fostering local content
requirements attached to foreign direct investment, find themselves taken to the
World Trade Organization and forced to relinquish their policies. Some
developed countries that reduce their carbon emissions by outsourcing manu-
facturing activities to developing countries then turn around and threaten to
impose sanctions on exports from those same countries, in what are known as
border tax adjustments. While negotiations at the global level over a compre-
hensive trade deal under the Doha Round remain stalled, there is some progress
evident in the early negotiations in Geneva over a potential Environmental
Goods Agreement (EGA) which would reduce trade tariffs on a host of green
products. But this positive development at Geneva has to be set against the
mega-FTAs such as the US-led Trans Pacific Partnership (TPP) which offer little
if anything to promote the greening of members economies while providing
potentially far-reaching powers to investors to block moves by member
countries who wish to take unilateral action to curb fossil fuel use or promote
renewables.
In our recent article in Nature, on renewables, energy security and China,
Hao Tan and I commented on the impact that trade policy could play. We noted
that trade policy could enlarge the narrow agenda which the Kyoto process has
enforced (Mathews and Tan 2014, 168). One way forward, we noted, would
involve expanding free trade in renewable devices.1 This present paper is an
elaboration on this succinct comment in Nature.
In this article the various links between trade policy, climate change and
promotion of green growth are explored, from the perspective of the centrality
of world trade and its governance to the success of future climate change
mitigation efforts, and in complementary fashion from the perspective that
views the greening of the global economy as a driver of future trade
arrangements. The article thus provides a complement to other papers published
in this special issue, and offers in that spirit some comments on the options
confronting Australia in dealing with the trade aspects of the global greening
agenda.

Trade and the greening of business

Recent experience in the world of manufacturing and trade has been dominated
by the emergence of Asia as driverand particularly by the rise of China. Asias
growth is fundamentally changing the structure of the global economy, resulting
in a process of shifting wealth (Drysdale and Armstrong 2010; OECD
Development Centre 2010). The worlds wealthy and advanced countries all
industrialised through a common patternnamely use of fossil fuels, access to
almost unlimited resources, and credit made available through a sophisticated
banking and finance system. In the 21st century there is now underway a vast
expansion of the industrialised world, from the approx. 1 billion people of the
612 John A. Mathews

West and North to the billions of people in the East and South who aspire to
enjoy the fruits of industrialisation. This expansion, or diffusion of industria-
lisation to the rest of the world, was concentrated last century in East Asia, and
is now diffusing to encompass the emerging giants China, India and Brazil, to be
followed by the other major countries of the presently developing world
(Mathews 2014).
The OECD has captured this fundamental phenomenon in what it calls
shifting wealth. A falling proportion of world manufacturing value-added by
the OECD countries can be contrasted with a rising level of manufacturing
value-added of the non-OECD countriesfor which, read China, India and
Brazil (OECD 2011). The two lines representing these trends will clearly cross
over before the year 2020by which time it will be correct to talk of a
sinocentric world, at least in terms of manufacturing, trade and industrial
production. This is the world in which new green trade industries will have to be
fashioned.2 (Figure 1)
These trends indicate a shift in two sensesboth in terms of the rise of the
East effected through its own industrial development, exploiting its latecomer
advantages and leapfrogging to the lead in certain sectors (such as in high speed
rail and renewables, for China, or in sustainable biofuels, for Brazil), and in
terms of the decline of the West through outsourcing, off-shoring and other
practices exacerbated by a malignant form of financialisation. Both trends
working together make for a dramatic shift, or what the Financial Times terms
the Great Convergence (superseding the Great Divergence of the 19th and
early 20th centuries).3 A globalised world production system, with new logistics
hubs (e.g. Dubai in the Persian Gulf; Chengdu in Western China providing rail
links to Central Asia and Europe), new global value chains and the rise of new

Figure 1. Shifting wealth: manufacturing moving East.

 Trade policy 613

clusters of industrial activity in China, India and Brazil, represents a 21st-

century phenomenonthe dominant trend in our era.
All would be well if this phenomenon of shifting wealth could extend
business as usual (BAU) indefinitely. But this is not possible. Even if the planet
allowed such expansion in fossil fuel usage and resource spoliation to continue
indefinitely, the geopolitical pressures arising from tightening pressure on oil,
coal and gas supplies, and on commodity supplies more generally, would rule
out continued BAU expansion. The fact is that the Western model of
industrialisation cannot scale to accommodate the rising industrial powers of
the 21st century.4 This is a profoundly inconvenient truth.
Yet there are moves under way to develop industrial systems that depart from
BAU assumptionsas promoted by rising industrial powers like China and
India in their mixed green and black energy and resource strategies.5 How
then does world trade impinge on these developments?

Trade arrangements embodying a positive approach

The abortive Doha Round of discussions for a global trade reform had as one of
its sub-themes a track to develop a WTO Environmental Goods Agreement. But
discussions on this issue stalled just as in the wider agreement. It therefore came
as a surprise when, after much discussion, a serious move was mooted in
Geneva to bring about a global Environmental Goods Agreement (EGA) with
the ostensible aim of promoting trade in green products and services. The case
for such a comprehensive clean tech trade deal creating a free market in green
goods (to match the existing global free market in oil and other fossil fuels) is
strong. It would be a huge market in itself, and have every prospect of growing
to be the biggest market of the 21st century. It could give a huge fillip to efforts
to curb global warming, well beyond what was envisaged under the Kyoto
protocol. The Geneva 14 countries proposing such an EGA are doing so
outside the usual WTO framework, as a plurilateral agreement which would
be endorsed by the WTO and would become operative once a certain threshold
is passedprobably to be set at 90 percent of global trade in green goods.6
There is an important WTO precedent for this initiative by the Geneva 14.
Behind the huge surge in IT investments of the past 15 years stands a similar
agreement providing for free trade in IT goods. This was the 1996 Ministerial
Declaration on Trade in IT Products (better known as the Information
Technology Agreement (ITA)), concluded by 29 participants at the Singapore
Ministerial Conference in September 1996. It has now expanded to 70
participants, who have signed up for an agreement that envisages totally free
trade in all IT goods.7 What gave teeth to this IT agreement was that it was
adopted by the WTO, and now drives free trade momentum amongst the
worlds leading economies, stimulating their adoption of IT products and
helping to expand markets for IT producers. It drove the elimination of tariffs
on hundreds of products, making them accessible by developing economies
614 John A. Mathews

around the world. The ITA proves that free trade really does workwhen it is
targeted and really is free.8
A trade agreement focused on clean technology goods and services could
work in the same way. It would bring together a core group of signatories who
would agree to phase out tariffs and trade barriers on goods that are central to
the promotion of green growth. This agreement would be adopted by the WTO,
and become operable as other countries joined in. This is already happening
with the proposed EGA.9 The proposed Environmental Goods Agreement
represents one way forwardparticularly if it could be expanded beyond a
simple tariff reductions measure to incorporate an exemption of environmental
goods from other WTO actionsfor a specified period (say, five years).10
An important precedent has already been achieved by APEC; the Asia-Pacific
countries agreed to such a clean tech deal (on a voluntary basis) at their APEC
Ministerial meeting in Vladivostok in 2012. The statement from the APEC
member countries committed them to reduce tariffs on environmental goods to
less than 5 percent by 2015. There followed a long list of clean tech goods
(encompassing for example renewable energy systems and components, energy
efficiency technologies and environmental monitoring systems) as an
attachment.11
The APEC agreement provided a start.12 But the anticipated next step was
some time coming. Eventually a group of 14 WTO member states took the
initiative of issuing a statement at the World Economic Forums Davos meeting
in January 2014, committing themselves to achieving an EGA for adoption by
the WTO on a most-favored nation basis (meaning it would be non-
discriminatorya welcome change from discriminatory FTAs and RTAs).13
So whether it is a Clean-Tech Agreement (CTA), or a Sustainable Energy
Trade Agreement (SETA), or just a plain Environmental Goods Agreement
(EGA: as per the APEC statement and the Geneva meeting of July 2014), the
purpose of such an agreement would be to dismantle barriers to free flow of
goods needed to promote green growth and curb global warming.14 As such it
would provide for free trade in green goods and energy sources just as free trade
already applies in the case of fossil fuels. Such a WTO-endorsed agreement
would underwrite market expansion around the world for green goods, giving
developing countries an incentive to base their industrial strategies on green
growth rather than black, coal- and oil-fired growth. It shows the trade system
working in potential synergy with trends toward green growth.

Trade arrangements with a potentially negative impact

By contrast, there are developments in the trade arena that stand to undermine
efforts such as this proposed EGA. There is the proliferation of bilateral Free
Trade Agreements (FTAs) of which the Australia-US FTA of 2005 was a
notable exampleand Regional Trade Agreements (RTAs) and now moving to
the stage of mega-RTAs in the form of the US-inspired agreements covering the
 Trade policy 615

Americas (NAFTA and CAFTA), the Pacific region (Trans-Pacific Partnership

agreement, still under negotiation) and the EU (Transatlantic Trade and
Investment Partnership (TTIP) agreement likewise under negotiation). It is
notable that none of these mega-RTAs involves China; the view of many that
these RTAs are expressly designed to isolate and marginalise China even as it
becomes the epicentre of world manufacturing activities, seems plausible. While
most of the critiques of these trade initiatives focus on their clear goal of
extending US institutional arrangements across a range of economic and social
topics (quarantine, health, pharmaceuticals, IPRs, etc.), the role of these
agreements in having an impact on environmental matters and on mitigation
of climate change in particular has been under-researched.15

The TPP and BITshow they could slow action on climate change
The TPP is arguably the largest-ever trade treaty (larger even than NAFTA)
covering more than 40 percent of the worlds GDP.16 The TPP can be viewed as
forerunner of the equally large-scale US-EU trade agreement (Transatlantic
Trade and Investment Partnership) begun in 2013. Together the TPP and TTIP
would cover more than 60 percent of global GDP, and could in large measure
provide an alternative to the current WTO world trade ruleswithout the
checks and balances incorporated in the global trade regime. The main
provisions of this series of US-initiated agreements are concerned with much
more than free trade and are focused more on building institutional machinery
internationally that is consistent with domestic US institutions and procedures
across such matters as protection of copyright, patents and trademarks,
quarantine provisions, health and public medicines, local content and industry
promotion, public procurement, and (as a half-hearted addition) environmental
provisions. Indeed environmental provisions seem to be very low on the order of
priorities, and nowhere give evidence of engaging with such global issues as
climate change.
Of salience is the system of tight rules governing transnational investment
(bilateral and multilateral investment treaties) that have proliferated in the
absence of advance in multilateral trade negotiations. Under these complex rules
and procedures, which are enforceable under contract law, countries are tightly
constrained in what they can and cannot do. It is therefore likely that a country
seeking to introduce green finance provisions that depend (for example) on
differential interest charges, might find itselfif these extend to foreign
investorsin breach of some such agreement or treaty, and thus liable to
compensation. There have already been several such investor-state disputes
registered against European countries including Spain and Italy over their
discontinuation of green energy promotion schemes via feed-in tariffs.17 As
countries move toward green finance, then, they may be required to submit their
international agreements (bilateral and multilateral) and treaties to close review,
616 John A. Mathews

to ensure that the agreements and treaties do not end up strangling the
initiatives or blocking them through investor-state court proceedings.18

Environmental goods provisions of the TPP

The TPP has a chapter on trade and the environment, kept a tightly guarded
secret but leaked to and published by Wikileaks in January 2014.19 This chapter
on the environment actually says very little (which is doubtless the intent) other
than committing the parties to the TPP to respect existing international
environmental treaties. Just as in the relevant chapter in the AUSFTA on the
environment, the treaties recognised are spelt out, and an international Arbitral
Tribunal is established which is given powers to hear cases where claims are
made that a country has been in breach of one of the recognised treaty
obligations. Innocuous as this sounds, it is part of the creeping surrender of
sovereignty by countries that sign up for this agreement (as is apparently being
done by Australia) and adoption of US norms and institutional procedures; the
Arbitral Tribunal could (in theory) over-ride a partner countrys parliament or
supreme court rulings.
Article 15 treats trade and climate change and limits itself to the anodyne
comment that the parties recognise the desirability that trade and climate
change policies be mutually supportive and that measures to deal with climate
change should be cost effective.20 This latter provision could in fact be used to
challenge a member countrys resort to effective renewable energy promotion
policies such as feed-in tariffs or local content requirements, on grounds that
they are deemed not to be cost-effective.21
The final Article 18 treats environmental goods and services and here
commits to elimination of all tariffs (customs duties) upon entry into force of
this Agreement on a wide range of environmental goods and as soon as
possible on all other environmental goods. Here we see evidence of editing to
remove specification of a list of goods, such as the 54 environmental goods
specified in the APEC Declaration. In other words, whatever teeth this Article
might have had in promoting free trade in green technology goods are pulled by
failing to specify (in this draft of the Agreement) what constitutes environmental
goods.22

Trade conflicts in the greening of business

There are many ways in which the governance of world trade can impact on
greening tendencies, either slowing them down or seeking to impose trade
penalties, thereby adding to the complexity of the current situation. Consider
just two cases, namely the use of local content requirements as a means by
which countries can promote their own green industries, and by contrast, the
 Trade policy 617

resort by countries to impose border tax adjustments on countries accused of

exporting goods with associated high carbon emissions.

Local content requirements

Many countries are now making good use of local content requirements which
are effectively the 21st-century equivalent of infant industry protection, and
which were outlawed by the WTO at the time of its creation in 2001. This
applies particularly in the field of renewable energy industries, as utilised in
spectacular fashion by China but also by India, Brazil and South Africa (the
BICSless Russia)as well as by several EU member countries and individual
US states. The issue is: do these local content requirements (LCRs) work against
free trade in green goodsas envisaged by the proposed EGA at the WTO? Can
these two principles be made compatibleor does one approach preclude the
other?23
The extent of LCR provisions in attempts by countries and/or states (e.g.
individual states in the US and provinces in Canada) to promote their green
industries is striking. In Canada, for example, the provinces of Ontario and
Quebec have both adopted green industry development policies that include
feed-in tariffs for market expansion and LCRs for local industry and supply
chain development.24 Meanwhile individual states in the US have likewise
adopted LCR provisionsincluding California, Massachusetts, New Jersey,
Ohio and Washington, as well as local blending requirements for biofuels
adopted by Montana and Louisiana: none has been challenged at the WTO.25
In Europe, both Italy and Spain have been strong proponents of LCRsagain
without being challenged at the WTO. LCRs were adopted by Spanish
provinces including Galicia, Navarra, Valencia and Castile and Leon, to great
effect; these are widely held to have underpinned the rise of the Spanish
engineering company Gamesa to world prominence in wind turbine manufac-
turing. In 2011, Italy adopted LCRs as part of its solar generation promotion
policies.
The BICS countries have been strong proponents of LCRs in their renewable
energy promotion efforts. India experimented with LCR provisions applying to
local investment, and in 2010 it adopted the Jawaharlal Nehru National Solar
Mission (NSM) which provided that assistance would only be granted to
companies using PV modules made in India; these requirements were strength-
ened in subsequent rounds in 2011 and 2012. Brazil has likewise been an
effective proponent, in both establishing a complete domestic value chain for its
sugar-cane ethanol producing industry (the largest in the world outside the US)
and more recently in building a local value chain for the wind power industry.
In South Africa successive bidding rounds for renewable energy projects have
been marked by extensive (and growing) LCRs, under the South African
Renewables Initiative, which is targeting solar thermal developments. None of
618 John A. Mathews

these schemes (with the important exception of India) has been challenged at
the WTO.
China is the outstanding case, where its wind power industry has grown from
a near-standing start in 2005 to become world leading producer of wind
turbines by 2010, largely on the strength of stringent LCRs in successive rounds
of bidding for contracts. The Chinese tendering system started in 2003, with an
LCR of 50 percent, rising to 70 percent andafter US objections and threats to
take China to the WTOthe scheme was abandoned in 2009. But it had done
its job, and helped to create a thriving value chain in China and turn several
leading Chinese companies into world-class competitorsincluding Goldwind,
Sinovel and MingYang. The impact of these new competitors has been felt
worldwide in the form of declining costs, driven by the experience curve as the
scale of production expands; these lower costs in turn drive accelerated diffusion
of clean energy power systems. So the China case shows that a country with a
strong state and a strategic approach to industry development can utilise LCRs
for a relatively short period, allowing them to do their job and then
withdrawing them. The rapid growth in Chinas production of wind turbines
largely reflects the success of the LCR provisions. (Figure 2)
Thus the record demonstrates that several countries and states/provinces have
successfully utilised LCRs in the building of their green and renewable energy
industries with consequent positive impact on decarbonising energy systems and
reducing the energy insecurities associated with reliance on fossil fuels.26 But in
a move that dismayed both environmental and trade specialists, the Ontario
LCR provisions were challenged at the WTO by Japan (an action joined by the
EU); eventually a WTO Appellate Body found that the Ontario scheme violated
WTO rules under GATT and the TRIMS agreement, but left undecided whether
the Ontario provisions constitute a prohibited subsidy under the SCM
agreement.27 In June 2014 Canada informed the WTO that Ontario had

Figure 2. Chinas green face: build-up of wind power.

Source: Author.
 Trade policy 619

complied with these rulings, and weakened (but not eliminated) its LCR
provisions. Quebec by contrast escaped unscathed. Nevertheless the case of
Ontario reveals that the use of LCRs is open to challenge at the WTO; they are
probably in breach of the WTO current agreements on investment (Trade-
Related Investment Measures: TRIMS) and on trade in services (General
Agreement on Trade in Services: GATS).28 Meanwhile the United States has
challenged Indias renewable energy incentives at the WTO, first in February
2013 contesting the solar energy promotion on grounds of its use of LCRs, and
again in February 2014 on the same theme. Whatever the formal outcome, this
will have a dampening effect on Indias enthusiasm for such green promotion
policies, which is doubtless the aim. There are several further cases in the
pipeline which threaten to impede the diffusion of green energy sources and the
greening of industry more generally.

Border tax adjustments

Another form of interaction between trade and environmental policy involves
the scope for countries to give preference to imports produced in an
environmentally sustainable fashion. While some disputes have been brought
to the WTO over such matters as US vs. Mexico over the export of dolphin-safe
tuna, the issue of climate change mitigation looms large here, notably through
the imposition of border taxes on carbon-intensive commodities that are not
subject to a mitigation plan.29 Border tax adjustments have been discussed for
some time, but to date the only serious attempt to implement them explicitly
involved the EU attempting to discriminate against foreign airlines on the basis
of their carbon emissionsa strategy that was quickly curtailed in the teeth of
determined opposition. The problem with such BTAs is that they ignore the
reasons that many countries are focusing on carbon-intensive manufactures
(largely because of outsourcing of such activities by the developed countries),
and they offer penalties for the export of carbon-intensive products but no
incentives for the export of carbon-light products. In this sense they can be
viewed as discriminatory, and unlikely to make much further headway until
carbon taxes become much more widely diffused.

Implications for Australia

Australia is currently a participant in many of the ongoing trade negotiations
involving issues of climate change mitigation. It is one of the Geneva 14 who
as a group are negotiating a draft Environmental Goods Agreement (EGA),
while it is also a prominent member of the group of countries currently
negotiating a Trans Pacific Partnership (TPP) with all the risks this entails for
promoting the greening of the economy. Granted the current Australian
government shows little interest in either greening its own economy or in
promoting an international greening agenda. But it would be a lapse to allow
620 John A. Mathews

this negative attitude to lead to outcomes that create obstacles to greening by

default.
Is there a case for Australia to drop out of negotiations over the TPP, or is it
better to remain in the negotiating group and thereby influence the outcome?
For the case of China, which stands to lose much more than Australia by being
left out of the TPP, the issues are difficult; Du Ming (2015) provides a sound
exposition of the issues as seen from the perspective of Chinas own
development and integration into the global trade system. Likewise in the case
of Australia there are advantages in remaining inside the group of negotiators, if
only to protect the national interest in resisting moves to give investors greater
powers over member states. For the issue of greening there is a case to be made
for remaining inside the TPP to promote the EGA as currently being fashioned
by the Group of 14 (including Australia) in Geneva. But there are also
advantages in remaining outside, to prevent further undermining of the
countrys sovereign institutionsa process that began with the signing of the
Australia-US FTA 10 years ago.

Concluding remarks
Trade policy has yet to make any substantial contribution to the global
environmental issues headlined by climate change which signal the need to
bring Business as Usual to an end. Under the UN-sponsored Kyoto protocol
countries have been making unilateral declarations of commitment to reduce
carbon emissions at some point in the futurewithout these commitments being
linked to changes in trade or investment regimes that would actually promote
green growth. Trade policy has the strong feature that it rewards countries and
firms that are greening their energy, transport and industrial systems, while
punishing those that are not. Current efforts under way to create an
Environmental Goods Agreement under the WTO are to be supportedeven
if the agenda at this stage is quite narrow, and could be improved dramatically if
linked to exemptions for a designated period from action by WTO members on
anti-competitive grounds. But there is also a counter-current involving moves
already under way through successive FTAs, culminating in mega-RTAs like the
TPP and TTIP, which appear to be designed to promote business as usual, and
to restrict the scope for countries to enact effective policies and programs to
green their industries. Their environment chapters reveal little inclination to
impose stringent standards, and in the TPP, even the final article of the chapter
on the environment retreats even from specifying what is meant by environ-
mental goods. The provisions governing investor-state dispute resolution offer
investors (normally corporates) an alternative to the laws developed and
enforced in the country, and thereby a potential way around any provisions
adopted to green the economy. Under such circumstances, there is much to
commend countries like Australia walking away from involvement in such
agreements, thereby correcting the mistakes made in agreeing to the AUSFTA 10
 Trade policy 621

years ago, and looking instead to new environmental agreements concluded

within the ambit of the WTO.

Disclosure statement
No potential conflict of interest was reported by the author.

Notes
1. We stated

Here the WTO could complement the Kyoto process. Just as trade in
information technology products such as personal computers and their
components was greatly expanded in the 1990s by a voluntary agreement
to reduce tariffs, adopted in Singapore in 1996 and then by the WTO, so the
preliminary agreement to free up trade in renewables adopted by APEC
countries in 2012 should be expanded and adopted (perhaps through the
G20) by the WTO, as a Clean Technology Trade Agreement (Mathews and
Tan 2014, 168).

2. The changed character of Australias role in such a world is discussed by White (2011).
3. See In the grip of a great convergence by Martin Wolf, Financial Times, January 4, 2011,
available at: http://www.ft.com/intl/cms/s/0/072c87e6-1841-11e0-88c9-00144feab49a.html#
axzz37dYAJ8q6.
4. See Spence (2011) for an argument that the Asian powers are moving toward a new
development model; while Hu Angang (2006) provides a much more explicit argument as to
why green development is the inevitable choice for China.
5. These green and black strategies are discussed in Mathews (2014).
6. For recent reviews of progress, see the reports from the International Centre for Trade and
Sustainable Development (ICTSD), based in Geneva. See Mahesh Sugathan, road ahead for
the environmental goods agreement talks, September 2, 2014, at: http://www.ictsd.org/
bridges-news/biores/news/the-road-ahead-for-the-environmental-goods-agreement-talks.
7. See the WTO website on the ITA: http://www.wto.org/english/tratop_e/inftec_e/inftec_e.htm.
8. On the other hand the ITA is defined by a positive list of products that have proven to be
rather rigid and resistant to updating; the latest attempt to update the list was vetoed by
India. The case for an alternative negative list that is open-ended in mentioning categories of
products, and only listing exemptions, has merit.
9. In April 2014, the International Trade Commission of the United States opened an
investigation into the potential economic effects of a trade agreement on environmental
goods, EGA. This indicates the seriousness with which it is being pursued.
10. Allocating certain goods to an exempted category (for a limited period of time) is well-
established in WTO procedures, as discussed in recent contributions such as those by Cosbey
(2013), Cosbey and Mavroidis (2014), Howse (2010), Simmons (2014) or Wu and
Salzman (2014).
11. See the list at: http://apec.org/Meeting-Papers/Leaders-Declarations/2012/2012_aelm.aspx.
12. The Australian Trade Minister at the time, Dr Craig Emerson, was reported to have played a
major role in clinching this APEC cleantech trade agreement.
13. The 14 WTO member countries are: US, EU (as one bloc), China, Japan, Australia, Canada,
Korea, Singapore, Taiwan (Chinese Taipei in WTO-speak), Hong Kong, New Zealand,
Norway and Switzerland. Notable absentees are Brazil, India and any country from Latin
622 John A. Mathews

America; they are no doubt suspicious of the impact that a free trade agreement in green
goods might have on their own efforts to promote a greening of their economies. I deal with
this question below. For an up-to-date account of the negotiations for the EGA, together with
statements from the parties, see The road ahead for the environmental Goods Agreement,
September 2, 2014, at the website of the ICTSD: http://www.ictsd.org/bridges-news/biores/
news/the-road-ahead-for-the-environmental-goods-agreement-talks.
14. The idea of a CTA (or SERA, or EGA) has the backing of the Geneva-based International
Centre for Trade and Sustainable Development (ICTSD) where the agreement is dubbed a
Sustainable Energy Trade Agreement (SETA).A high-level workshop was staged in Wash-
ington DC in January 2012 to canvass support for just such a SETA, organised by the ICTSD
and the Peterson Institute (http://ictsd.org/i/events/dialogues/152707/).
15. For a useful overview of the TPP, the environment and climate change (mitigation), see
Meltzer (2014).
16. General sources on the TPP include Lim et al. (2013); Palit (2014); and Lewis (2011). On the
perspective from China, examining its options, see Du (2015).
17. Wu and Salzman (2014) provide a useful discussion.
18. For a classic statement of the issues involved, see the 2003 report Unwanted, unproductive
and unbalanced: Six arguments against an investment agreement at the WTO, available at
Public Citizen: http://www.citizen.org/documents/MIA@WTO.pdf.
19. See Wikileaks press release and the full text of the Environment chapter, plus Report from the
Chair on consultations and negotiations, January 15, 2014, Secret Trans-Pacific Partnership
AgreementEnvironment Chapter, at: https://wikileaks.org/tpp-enviro/pressrelease.html.
20. Ibid.
21. It is this negative bias of existing regional trade agreements that makes them unlikely
candidates for greening the global economy, contra the arguments of Leal-Arcas (2013).
22. The worry is that of the 14 members of the WTO who claim to be developing an
Environmental Goods Agreement at Geneva, six countriesthe US, Japan, Australia,
Canada, New Zealand, Singaporeare also negotiating members of the TPP Agreement.
This does not bode well for the forthcoming EGA talks.
23. For discussion, see for example Mattoo and Subramanian (2012) and Jha (2013).
24. Ontario adopted a Green Energy and Green Economy Act in 2009, including both Feed-in
tariff and LCR provisions. The Act envisaged that local content requirements would reach 50
percent of wind and 60 percent of solar projects by 2012. Likewise Quebec has insisted on
LCR in public tenders for renewable energy projects since 2003. It has been strikingly
successful, with international players GE, Enercon and REPower all opening wind turbine
manufacturing plants in Quebec.
25. For a review of these LCR provisions in individual US states, see Kuntze and Moerenh-
out (2013).
26. In Australia the focus has been on the (now repealed) carbon tax and the renewable energy
target, rather than on feed-in tariffs and local content requirements which are known
to work.
27. For details, see the WTO website on the dispute, at: http://www.wto.org/english/tratop_e/
dispu_e/cases_e/ds412_e.htm.
28. See the recent review by Hestermeyer and Nielsen (2014).
29. For discussion, see McKibbin and Wilcoxen ([2008] 2009) or more recently Mason, Barbier,
and Umanskaya (2014).

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