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By Elizabeth M. Lynch, September 24, 2009

This past week the U.N. General Assembly in New York was filled with wave after wave of speeches and meetings dedicated to limiting global climate change.  With the December Copenhagen conference less than three months away, the question remains – has there been any progress?

On Tuesday, September 22, both President Barack Obama and President Hu Jintao (pronounced Who Jin-Dao) separately addressed the General Assembly, each discussing their country’s commitment to a global climate change agreement.   Their rhetoric was considerably more conciliatory, signaling that perhaps the two largest polluters of greenhouse gases are finding common ground.  The substance of their speeches though, indicated that there still remains a large division between these two critical countries.

Conciliatory Rhetoric

This past summer saw many important countries digging in their heels on climate change.  In July and August, both China and India adamantly stated that they would not agree to any type of defined targets that would limit their greenhouse gas emissions.  In June, the U.S. House of Representatives narrowly passed a climate change bill which received notable criticism from both sides of the aisle upon its passage, questioning the bill’s ability to pass the Senate.

But on Tuesday, President Barack Obama reinforced his Administration’s commitment to limit greenhouse gases, indicating his willingness to push his Democratic colleagues in the Senate to pass a climate change bill.  In response to the E.U.’s recent promise to assist developing nations both financially and technically in battling climate change, President Obama also committed the U.S. to help.

President Hu Jintao’s speech was heralded as a huge step forward for the Chinese.  President Hu affirmed his country’s

President Hu Jintao speaking to the U.N General Assembly on Tuesday, Sept 22, 2009

promise to tackle climate change and surprisingly mentioned China’s “mandatory national targets for reducing energy intensity and discharge of major pollutants…”

India also seems to be moving in the direction of targets.  In an interview with the Financial Times on Tuesday, India’s environment minister, Jairam Ramesh discussed the possibility that India could adopt legislation increasing its energy efficiency and thus having “implicit targets.”

Divisions That Could Hamper an Agreement in Copenhagen

Target: What is in a Word?
The press has largely been positive to President Hu’s discussion of “mandatory national targets for reducing energy intensity,” heralding such a step as China’s “first commitment to climate change targets” and that China “pledges to lead effort to combat climate change.”

While it is true that this is a step forward for the Chinese – never before have they used the word “target” in reference to climate change on the world stage – in no way is this a “carbon emissions target.”  In fact, China has been using “energy efficiency targets” domestically since 2005.  As John Romankiewicz explained on the Green Leap Forward, in China’s 11^th Five Year Plan passed in 2005, the Chinese government established a 20% reduction target in energy intensity from 2006 to 2010.  While this is a laudable goal, it still allows China to increase its carbon emissions since there is no cap – the calculation is relative to the percentage growth of GDP.

China’s goal is to cut energy intensity as a percentage of its GDP.  If GDP rises, a rise in energy use, as long as it is lower than the previous year, can still show a reduction in energy efficiency.  For example, China’s National Development & Reform Commission (NDRC) noted that a 4% rise in energy consumption in 2008, matched with a 9% increase in GDP for that year, resulted in a 4.2% decrease in energy intensity from the previous year (see Green Leap Forward).

Additionally, a focus on energy intensity only marginally impacts carbon emissions, a fact not lost on President Hu in his speech on Tuesday.  After committing China to set targets to reduce its energy intensity, President Hu vaguely addressed carbon emissions by noting that China will “endeavor to cut carbon dioxide emissions [inaudible in original speech but likely “as a percentage of”] GDP by a notable margin by 2020 from the 2005 level.”

China has certainly taken a step forward on approaching some form of targets.  Furthermore, by even mentioning targets, China implicitly commits to making those targets measurable and verifiable as Julian L. Wong from the Center for American Progress noted, something that China in the past was not willing to do.  So there has been progress which China should be rightly commended for.  But at this stage, to limit global warming to the U.N. target of 2º Celsius, the world community needs to push China to agree to carbon emissions targets.

Obama Adverse to China Being Defined as a Developing Nation?
Central to the requirement of carbon targets is the definition of “developing nation” and this was perhaps the greatest divide between the U.S. and China, and could possibly stall progress in Copenhagen.

For purposes of climate change negotiations, China has repeatedly portrayed itself as a developing country.  In his speech on Tuesday, President Hu dedicated around two-thirds of it to discussing the special circumstances of developing countries, implying that China is one such nation.

Under the previous international climate change treaty, the Kyoto Protocol of 1997, China was defined as a developing nation.  China is keen to keep this definition in Copenhagen for two reasons: (1) emission targets are not applicable to developing nations, and (2) developing nations can avail themselves of financial and technical aid provided by developed nations.

It is the second reason that appears to be more important to the Chinese.  In prior climate change negotiation simulations that global power participate in as practice for Copenhagen, the Chinese representatives do not budge unless there is an offer of technical or financial assistance from other countries like the U.S. or the E.U.  President Hu’s speech reiterated the importance of such assistance to the Chinese: “developed countries should take up their responsibility and provide new, additional, adequate and predictable financial support to developing countries…”

President Obama wholeheartedly agreed with President Hu’s sentiment to assist developing nations.  However, he

President Barack Obama before the U.N. General Assembly on Tuesday, Sept. 22, 2009

appeared to disagree with President Hu that China is such a country.  In his speech before the U.N., President Obama put China and the U.S. on the same level in assisting developing countries: “These [developing] nations do not have the same resources to combat climate change as countries like the United States or China do…” (emphasis added).

This division between the two countries regarding the developmental status of China could do one of two things: (a) completely derail any agreement in Copenhagen that includes both the U.S. and China, or (b) provide the compromise necessary to have the two largest emitters of greenhouse gases agree to a climate change agreement.  U.S. policy makers should look to the latter.  Agreeing to provide financial and technical assistance to China might just be the push necessary to get it to agree to carbon emission targets, a necessary goal to limit global climate change.

For a transcript of President Barack Obama’s address to the U.N., click here.

For a transcript of President Hu Jintao’s address to the U.N., click here.

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By Elizabeth M. Lynch, September 23, 2009

Subsequent to Presidents Barack Obama and Hu Jintao’s meeting, Administration officials met with the press to answer questions regarding what was discussed between the two. Below is a transcript of that Q&A session. Stayed tuned to China Law & Policy as we delve deeper into some of the issues raised during the two Presidents’ meeting.

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By Elizabeth M. Lynch, September 11, 2009

France's President, Nicolas Sarkozy

Does France’s president Nicolas Sarkozy read China Law & Policy?  Sure looks that way.  In an effort to promote carbon caps domestically, Sarkozy also called for any international climate change agreement to include a carbon tax on imports into Europe from countries that do not impose carbon emission caps.

In response, many economists argued that Sarkozy’s push for a carbon tax on imports could lead to alienating China from agreeing to any sort of emission caps in Copenhagen.  This is the same criticism lodged against the tariff provisions in the U.S. House of Representatives’ Climate Change Bill.

There is a real risk that these economists are right; China will begin to feel bullied and, for its domestic audience’s consumption, walk away from an international climate change agreement.  Although the Chinese government enjoys one-party rule in an authoritarian state, it is still susceptible to domestic public opinion, especially given the fact that nationalism runs very high.

But at least our European allies realize that any international agreement is a give and take; there are carrots and sticks.  On the same day that Sarkozy called for carbon tariffs, the European Union’s (E.U.) environment chief, Stavros Dimas, announced that the European Commission would pledge $3 billion per year to developing countries, including China, to assist with capping emissions and developing clean technologies.

A key issue for China in its lead up to Copenhagen has been financial and technological assistance from developed countries in implementing carbon emission caps or clean technology.  China has repeatedly stated that they will not be able to meet the requirements of an international treaty unless there is assistance from developed countries.

The E.U.’s pledge is the carrot in this situation.  It is agreeing to a term that China has said is necessary for it to consent to any international climate change treaty.   So even in light of Sarkozy’s call for carbon tariffs, the Chinese government can turn to its people and show that it was not bullied.  Instead, China received the one element that it considered indispensible.

The U.S. unfortunately has only been providing sticks.  There is evidence that the tariff provisions provide some leverage against a country like China, but without providing some sort of bargaining chip, China will likely not respond positively to the U.S.’ hard-line tariff provisions.  Instead, the U.S. should learn for the E.U. and look to see where it can find common ground with China.  Without this common ground, it starts to look a lot like bullying.

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By Elizabeth M. Lynch, September 10, 2009

An Expert Weighs In

On Monday, we ran a piece on the international trade implications of the border adjustment measures of the House’s climate change bill.  The article ends with a section questioning the legality of the tariff provision under WTO rules.

China Law & Policy was fortunate to have Henry Gao, Associate Professor of Law at the Singapore Management

Prof. Henry Gao

University and expert on WTO law comment on our analysis.  In his comments below, he questions whether the provisions would in fact violate WTO rules.

If I understand it correctly, this means that the carbon tariff provision is in violation of the national treatment obligation under the WTO. However, this seems to be rather unlikely. The national treatment obligation only applies with regard to domestic taxes and other regulations. The carbon tariff, by definition, is not a domestic tax. Instead, it is a tariff that will be applied before the goods enter the border. Thus, for me, it appears that it’s more accurate to say that this is a violation of the MFN clause (given the assumptions in your article that some foreign firms will qualify while others don’t), or possibly the tariff binding obligation under GATT Article II, assuming that the US might exceed its bound tariff levels by imposing the extra tariff.

Also, legally speaking, while the US will surely have to fight hard to defend its case if the issue is really referred to the WTO, it’s less than certain that the US will win.  Indeed, in the very first case that went before the WTO Appellate Body (AB), the US-Gasoline case, the WTO has, contrary to popular belief, affirmed the right for WTO members to take actions to conserve exhaustible natural resources, which has been explicitly interpreted by the AB to include clean air. Of course, this doesn’t give countries an open license to do whatever they want. They will need to demonstrate first, that are no less trade-restrictive measures; second, that their measures do not constitute arbitrary or unjustifiable discrimination. To sum up, it’s OK to take actions to control climate change, but the legality of the measure would depend on how you structure your package. The devil, as always, is in the details.

Henry Gao
Professor of Law
Singapore Management University
Editor, WTO & China Blog

As Prof. Gao notes, the devil is most certainly in the details.  As of yet, the House bill does not clearly spell out how exactly these tariffs will be applied.  Because of this, experts fall on both sides of this issue.  Paul Krugman of the New York Times expressed the opinion that the tariff provisions would like be okay under WTO rules.  However, attorneys at Akin Gump’s Climate Change practice disagree and offer their assessment that the provisions are a violation of WTO rules.

While there is a call by some moderate Democrats and many Republicans in the Senate to make the provisions stronger, expect at the very least for the provisions to be made a bit clearer.

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By Elizabeth M. Lynch, September 7, 2009

Originally posted on the Huffington Post.

Health care will not be the only derisive issue on the Senate’s calendar when it returns to Congress on September 8.

Rep. Ed Markey Announces Climate Change Passage, June 26, 2009

This past June, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009 (the “Climate Change Bill”).  Far-reaching in its impact on the U.S. economy and particularly detrimental to certain energy-intensive sectors, debate in the Senate will become increasingly cantankerous as special interests and certain states lobby for protection.

And while the Bill, through a series of complicated cap-and trade equations and a plethora of subsidies to renewable energy, has the potential to completely alter the domestic market, debate thus far has been about its global impact.  With fear that countries like China will not pass legislation to cap their domestic industries’ carbon output, the House added two provisions to protect U.S. industries from companies in countries that are not similarly restrained.  Out of a 1,400 page bill, these two provisions have become the center of the debate, some calling these provisions much needed protection and others calling them tariffs.

But conspicuously absent from these discussions is an analysis of what is really going on here.  How exactly do these provisions work?  Will they have the intended effect of maintaining the competitiveness of U.S. industries or are they attempts by certain industries to protect their profits?  Will these provisions bring countries like China to the table in Copenhagen or will they ultimately produce a tariff war?  Can they withstand a challenge under global trade rules?

To answer these questions, China Law & Policy sat down with Jake Caldwell, director of Policy for Agriculture, Trade & Energy at the Center for American Progress.  Click here to listen to the interview with Jake Caldwell.

The Trade Provisions

Applicable Only to Energy-Intensive and Trade-Sensitive Industries
In our interview, Jake stressed that the two trade provisions in the Climate Change Bill will only apply to those U.S. industries that are both energy-intensive and trade-sensitive, making these provisions applicable in fact to only about five U.S. industries: ferrous metals (iron and steel), nonferrous metals (aluminum and copper), non-metal minerals (cement and glass), paper and pulp, and basic chemicals (World Resources Institute (WRI) report, p. xvi).

Under the Bill, these industries will initially be given a two-year waiver from compliance to the Bill’s cap-and-trade regulations.  However, after the two years, these industries can seek protection from foreign competition through the following two trade provisions.

Provision 1: Recovery of Some Cost of Compliance
The first of these provisions is less controversial.  Found in Title IV, Part F, subpart 1 of the Bill, it establishes an emissions allowance rebate program.  As Jake explained, this will allow companies in energy-intensive, trade-sensitive manufacturing industries to be compensated in other ways for the cost of complying with the Bill’s cap-and-trade program.  The rebate program will reduce the threat that these companies will lose business to companies from countries that do not impose equally as rigorous caps on greenhouse gas emissions. The rebate program will be phased

Click on image for a PDF of the Trade Provisions in the Climate Change Bill

out by 2035.

Provision 2: Border Adjustment Measures (a.k.a. Tariffs)
It is the second trade provision, found in Title VI, Part F, subpart 2, that is the most contentious; this is the provision that establishes unilateral border adjustment measures – a.k.a. tariffs –  on imports from countries that do not have similar emissions reduction policies.  Under this provision, if by 2018 there is no international climate change treaty in force, the President, starting in 2020, is required to impose a border adjustment measure on imports from sectors in countries that have not capped their emissions or reduced their energy-intensity to comparable levels.  The U.S. importer of the competing foreign product will have to purchase an “international reserve allowance” through a carbon market.  This in effect establishes a tariff on imports from that foreign country.

As Jake pointed out, the President can grant a waiver to certain countries if he or she deems that there is an important national economic or environmental reason that takes precedence.  But the Presidential waiver is subject to Congressional approval through a joint resolution of Congress. In effect, Congress has to “second” the President’s decision, making for a cumbersome procedure.   If either house of Congress does not agree with the President’s reasoning, the waiver is denied.  Given the already politically-sensitive as well as politically-expedient nature of the U.S.-China relationship, it is difficult to imagine that any waiver to a Chinese industry could make its way through Congress without a fight.

Effectiveness of the Trade Provisions

As Jake explained in our interview, the trade provisions were adopted for three reasons: (1) to prevent carbon leakage (the transfer of production and jobs from industries in the U.S. subject to cap-and-trade rules to companies in foreign countries that do not have such rules in place), (2) to keep U.S. manufacturing industries competitive in a potentially unequal carbon-restricted world, and (3) to be used as leverage against other countries that have yet to set emission reduction targets.  But will these provisions achieve their stated goals?  Or are they protectionist responses to pressure from a few select industries?

Carbon Leakage
If a goal is to prevent carbon leakage and promote emission caps in other countries, the trade provisions, especially the border adjustment provisions, are not tailored narrowly enough to achieve these goals.  Congress was largely targeting China with the trade provisions.  However, out of the five U.S. industries that would be able to use the tariff provisions (steel, aluminum, chemicals, paper and cement), only one industry imports more than 10% of its product from China: the cement sector (WRI report, p. xviii).  For the other industries, the majority of foreign imports are from Canada and other developed nations, many of which already have emissions standards that surpass the U.S’.  While there will inevitably be some carbon leakage, it’s questionable just how dramatic it will be.  Currently, the majority of U.S. imports in these sectors come from countries with less-carbon intense production methods than China or even the U.S.  Just because U.S. companies will bare the cost of meeting more rigorous emission standards does not necessarily mean that production will be shifted to countries with less rigorous standards.  Currently, China’s production of aluminum is carbon-intensive and uses a tremendous amount of energy.  However, China’s production is more expensive than Canada’s or the U.S.’ and can barely remain competitive in the global market.  Thus, lower carbon emissions and greater energy efficiency do not always equate with higher costs.

Furthermore, if the goal is to prevent carbon leakage, the trade provisions offer no recourse to individual companies from foreign, carbon-heavy countries that are meeting their own private emission caps.  For example, Baosteel, China’s largest steel producer, is relatively energy-efficient (WRI report, p. 35).  However, under the current Climate Change Bill, even though Baosteel may voluntarily subject itself to carbon targets similar to those that will be imposed on steelmakers in the U.S., Baosteel will still be penalized.  The Bill’s trade provisions evaluate imports on a sector-wide basis and not an individual company one.  Arguably, if the goal is to prevent carbon leakage, the U.S. has a better chance of influencing a Chinese company’s behavior than an entire sector in China.  Thus, the trade provisions should establish a secondary track where certain companies, if they are able to show that they are compliant with U.S. standards, are exempted from the border provisions applied to their country and sector.

Finally, the question remains – how do you measure the carbon footprint of an imported product?  These provisions rely heavily upon the assumptions that monitoring and reporting of greenhouse gas emissions from the country of origin is (a) an easy task and (b) accurate.  While these assumptions might hold true in countries like Canada or Japan, for China, where implementation and enforcement on the local level is a perpetual struggle, any form of data collection is a challenge and results are often less than reliable.  Thus, in a world where carbon measurement is problematic, the actual ability to implement the trade provisions remains questionable.

Competitiveness
As mentioned above, imports from China in the energy-intensive, trade-sensitive industries are very small (14% of cement, 7 % of steel, 3% of aluminum, 4% of paper, and less than 1% of chemicals).  These five industries also make up a small portion of the U.S. economy, accounting for 3% of economic output and less than 2% of U.S. employment.  While these industries will inevitability be negatively affected by the Climate Change Bill, the impact on the greater U.S. economy is relatively small.  Additionally, over-protection of these industries loses sight of the broader U.S. economy and the other goal of the Climate Change Bill: to shift production and jobs to energy-efficient or renewable energy industries.

Furthermore, while the border adjustment measures protect these raw material industries, it potentially could hurt those industries that use the raw materials for production of “downstream” products.  For example, the border adjustment measures are only applicable to the importation of sheet steel, and not to products that are made out of steel, like cars or appliances (WRI report, p. 52).  U.S. car makers will still have to compete against foreign car manufacturers whose products could contain steel from countries without carbon regulations.  Without the benefit of border adjustment measures on cars, U.S. car makers would become less competitive.

Similarly, U.S. chemical manufacturing companies are fairly competitive globally.  These companies refine the carbon-intensive, raw material chemicals to make downstream, specialty concoctions (WRI report, p. 52).  However, by imposing a border adjustment measure on the raw material chemicals, any of these chemical manufacturing companies who import raw materials, would experience an increase in the cost of production, making their products less competitive abroad.  While the border adjustment measures will protect the five energy-intensive, trade-sensitive industries’ profits, they could likely hinder the competitiveness of industries that use these raw materials to manufacture downstream products.

Leverage
The jury is still out on whether border adjustment provisions do in fact bring countries to the table to discuss climate change.  The general assumption is that tariff threats rarely cause countries to act, especially countries as large as China.  However, after the U.S. backed out of the Kyoto Protocol, the European countries threatened similar types of tariffs, targeted precisely at energy-intensive U.S. industries.  Perhaps a mere coincidence, but it’s interesting to note that today, the U.S. is now close to passing climate change legislation.  Recently, South Korea voluntarily set a 2020 emissions reduction target; the South Korean government cited the fear of border tariffs as a reason to set targets.

But it is still questionable how far the threat of tariffs can go.  China has certainly taken notice of the border adjustment provisions in the U.S. Climate Change Bill, but that does not mean it will agree to carbon caps.  China’s exports to the U.S. that would likely be subject to the tariff provisions accounted for less than 0.2% of economic output in 2005, thus making the U.S.’ tariff threats of little consequence to China (WRI report, p. 57).  However, of greater consequence to the U.S. and to the rest of the world is if China, the largest emitter of greenhouse gases, walks away from climate change negotiations because it feels as though it needs to “act tough” for its domestic audience.  In looking at the current border adjustment provisions in the Bill and the tepid success they have had thus far, the Senate might want to ask itself if the risk is worth it.

Legality of the Trade Provisions

As Jake mentioned, World Trade Organization (WTO) rules require that countries pass nondiscriminatory trade provisions – that the provisions do not discriminate against foreign products in favor of domestic ones.  Arguably, the current Bill does discriminate.  As discussed earlier, individual companies that could be meeting similar carbon caps will be discriminated against if their home country has not agreed to carbon caps.  Without some sort of procedure that exempts foreign firms which individually meet carbon caps from the border tariffs, the current trade provisions may not withstand a WTO challenge.

There will certainly be a Senate showdown over the Climate Change Bill.  Already ten Democratic Senators have stated that the trade provisions need to be stronger.  But do they really?  If your singular goal is to protect 3% of the nation’s economic output and 2% of its jobs, then yes, the trade provisions will maintain the status quo, at least for the time being.  But if your goal is to increase innovation in new sectors like renewable energy, create clean jobs and limit global climate change, then the trade provisions, as they stand now do not achieve that goal.  There is a need to maintain U.S. competitiveness in the five effected industries, but in the current tariff provision, what is being maintained are corporate profits in a few select, and powerful, industries.  The Senate needs to take a good hard look at the current trade provisions and question if it is worth it.  Perhaps it is time to move away from defensive measures against China and begin to better engage China in agreeing to a climate change treaty.  Without China’s agreement, any legislation the Senate passes will have negligible effect in limiting climate change.

Click here to listen to the interview with Jake Caldwell

Click here to open a PDF of the transcript of the Jake Caldwell interview

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By Elizabeth M. Lynch, August 5, 2009

In a recent interview with the Council on Foreign Relations (CFR), CFR Senior Fellow and China environmental expert

Dr. Elizabeth C. Economy

Elizabeth C. Economy analyzes the recent Strategic & Economic Dialogue with China and the U.S.’ changing relation with the emerging global power. While noting that serious differences remain, Dr. Economy stresses the importance of the U.S. and China to work together on a myriad of global issues.

She also pontificates on the changing dynamic in our relationship with China due to the weakened economic might of the U.S. vis-à-vis China and the increase of differing opinions on issues from the Chinese leadership.

But for us at China Law & Policy, where our focus is on the interplay of legal development in China and U.S. policy toward the country, most exciting part of the interview was Dr. Economy’s powerful insistence that the U.S. make rule of law development a priority in its policy toward China.

CFR: What issues should the United States prioritize in its talks with China?
Economy: Off the top of my head, I would say climate change because it is potentially game changing for the entire world in an overwhelmingly negative way. However, my second thought would be the rule of law. The rule of law underpins virtually every other issue. Whether we’re talking about food and product safety, or environmental implementation of anything China might agree to when it comes to global climate change, or trade and investment barriers and intellectual property rights protection, all of them hinge on China having an effective rule of law. Without that, the relationship will continue to founder, because even though we have high-level agreement that we want to work on these issues, if China can’t ensure that it will live up to its obligations, then we’re going to continue to have serious conflict. From my perspective, the most important thing we can do is help them develop the rule of law; it is at the root of most of our conflicts. (emphasis added)

Read Entire Interview Here.

We at China Law & Policy say “You go Liz Economy!”

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By Elizabeth M. Lynch, August 4, 2009

In Friday’s Huffington Post, Sen. John Kerry published a timely op-ed piece, “Who Lost the Earth?” on the need for the U.S. and China to reach some kind of an agreement on climate change.  “Who Lost the Earth?” comes at a point when it appears that any agreements reached during  December’s U.N. Conference on Climate Change will likely not include the two biggest emitters of greenhouse gases: the U.S. and China.

In his op-ed, Sen. Kerry correctly commends China for its efforts in already implementing measures to curb greenhouse gases.  It is in fact impressive that China is already experimenting further than the U.S. with some energy efficient technologies.   Furthermore, Sen. Kerry is right to criticize those in the U.S. who say that China “won’t lift a finger.”  While nervous that it could forestall economic development, China still has a sincere interest in solving its impending environmental crisis.  Every year, over 60,000 “mass incidents” (protests often involving thousands of people) in China are spurred by environmental damage.  The Chinese government views these mass incidents as a very real threat to its rule.

But even in light of these factors which propel China forward on the issue of climate change, Sen. Kerry and his Democratic colleagues still need to be realistic about China’s capacity.  Sen. Kerry notes that there needs to be legal commitments on the international stage and that China needs to be held accountable.  All of this is true.  But at the same time, China’s circumstances must be understood.  While moving forward in some areas, China still lacks the technical capacity to implement many energy-saving measures.  Simple things like an energy audit of a building often elude local officials.  Many industries, such as waste-heat recovery, have yet to be developed.

Another impediment is the difficulty for the central government to implement environmental laws on a local level.  Because China is an authoritarian regime, many believe that whatever the Chinese central government wants to achieve, it can easily impose.  But with this authoritarian government comes a layer of inflexibility.  Rule is from the center out; from top down; for the central government to guarantee that laws are implemented on the local level, it must amass all of its power, and oversee the locality, a very time-consuming and exhausting activity.

Unlike the U.S., China does not have a flexible regulatory state where government authority has been delegated to specific agencies that have almost exclusive jurisdiction over a field.  Nor do laws allow for individuals to enforce the law through lawsuits on behalf of the government (i.e. private right of action).  Instead, the Chinese central government must do all in a country as large as the U.S.  Not surprisingly, its ability to control the local level and guarantee that laws are implemented is not as prevalent.

In moving forward, U.S. policy makers must take China’s circumstances into account.  While they need to push China forward to meet greenhouse gas emission targets, these targets must reflect China’s current capabilities.  If Sen. Kerry and the Democrats do not devise a realistic strategy to help China in terms of technology assistance and implementation skills prior to Copenhagen in December 2009, opponents in Congress will use China’s capacity issues as an excuse to reject any agreement arising out of Copenhagen.  This would not just be a defeat for Sen. Kerry and like-minded Democrats; this would be a defeat for the future of this world.

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By Elizabeth M. Lynch, July 31, 2009

This past Monday and Tuesday marked the sixth Strategic and Economic Dialogue (S&ED) between the U.S. and China.  Formerly just the “Strategic Economic Dialogue” and before under the sole supervision of the U.S. Treasury

Secretary Hillary Clinton & State Councilor Dai Bingguo with the Strategic Track delegation, July 28, 2009 (White House Photo/Public Domain)

Department, the inclusion of  the conjunction “and” to the title brings non-economic issues to the table as well as Secretary of State Hillary Clinton.

On day one of the two-day conference, President Obama spoke to the delegation, stressing the need for the U.S. and China to continue cooperation to guarantee a lasting economic recovery, to lessen the impact of climate change and promote “a clean, secure and prosperous energy future,” and to stop the spread of nuclear weapons in places like North Korea and Iran (these three issues were also the main thrust of an op-ed written by Secretary Clinton and Secretary of the Treasury Timothy Geithner  in Monday’s Wall Street Journal) .

Was the S&ED successful?  Did it produce more than just mere rhetoric?  At first glance, no.  But in the relationship between the U.S. and China, sometimes even rhetoric is a step forward.  See below for a review of the issues in greater detail.

(1) Climate Change

There was definitely paper success here.  The U.S. and China signed a Memorandum of Understanding  to Enhance Cooperation on Climate Change, Energy and the Environment (MOU), but the MOU just puts on paper existing relationships and does little to further climate change cooperation.  Both governments promise to continue with the Ten Year Cooperation Framework on Energy and Environment signed just last year and both promise to promote cooperation on a variety of vague steps, including capacity building and cooperation “between cities, universities, provinces and states of the two countries.”  Perhaps this shows a greater understanding on the part of U.S. policy makers that “capacity” is something that China sincerely needs assistance with (see The U.S. in Copenhagen: Preventing Another Toothless Tiger).  Also, in a nod to the Chinese delegation’s claim of differing responsibilities between developed and developing countries, the MOU states “Consistent with equity and their common but differentiated responsibilities, and respective capabilities, the United States and China recognize they have a very important role in combating climate change” (emphasis added)  Only time will tell if any of this rhetoric becomes a reality and whether the U.S. and China can reach an agreement in time for Copenhagen, an increasingly less likely proposition.

(2) Economic Recovery

Discussion regarding economic recovery was perhaps the most public, and most interesting, of all the talks.  Showing the changing dynamic of the U.S.-China relations, Xie Xuren, the Chinese finance minister, called the U.S. to task and requested that it reduce its budget deficit.  Holding an estimated $1.5 trillion in U.S. Treasuries, the Chinese government is concerned that an increased deficit could weaken the dollar, lowering the value of their Treasuries.  At the same time, for the U.S. to decrease deficit it would need to buy less goods, further decreasing demand on China’s manufacturing sector (an unfortunate Catch-22 here for China).  While Secretary Geithner promised the Chinese delegation that the U.S. would lower its deficit once recovery has begun, he also called upon the Chinese to increase

Who's got the ball? Vice Premier Wang Qishan with Pres. Obama at the Oval Office, July 28, 2009 (White House Photo/Public Domain)

domestic demand and lower the astronomically high savings rate of its people (estimated at 50%) in an attempt to rebalance the U.S.’ trade deficit with China.

(3) Currency

Always a thorny issue, the U.S.’ repeated request that China allow its currency to strengthen was most likely discussed during the S&ED.  However, nothing about currency was mentioned publically.

(4) North Korea

China has taken a much more foreceful approach to North Korea.  In May, when North Korea first began its saber-rattling, China spoke a hard-line against its neighbor, agreeing to abide by U.N. Security Council sanctions.  Less clear is what actions China actually undertook to promote these sanctions.  And although North Korea was a main point in President Obama’s speech before the S&ED, publically, neither the U.S. nor China made any statements on how they will cooperate to contain the country.   Such silence is par for the course since North Korea is a very sensitive issue for China but at the same time, their assistance in dealing with the North Koreans is essential.

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By Elizabeth M. Lynch, July 25, 2009

Gov. Jon Huntsman at his confirmation hearing, July 23, 2009

Originally posted on ChinaGeeks

Thursday’s Senate confirmation hearing for the next ambassador to China was a virtual love-fest from both sides of the aisle.  Democratic senators gushed about Utah Gov. Jon Huntsman’s China background and Mandarin language skills and Republican senators John McCain, Orin Hatch and Bob Bennett attended the hearing to show their ardent support for the nominee.  There is little doubt that Gov. Huntsman – a Republican governor, nominated as Ambassador to China by a Democrat president – will be confirmed on Tuesday when the full Senate meets to vote on his nomination.  But his confirmation hearing still proved a telling sign of the Administration’s priorities in its relationship with China (nominees are always prepped for weeks prior to their hearing by Administration officials).

In his opening statement Gov. Huntsman stressed the importance of working with China on two high-priority fronts: first, repairing the international economy and second, maintaining peace and stability in Northeast Asia.  In what was likely a nod to the Chinese government and an acknowledgement of the increasing tension with North Korea as illustrated by Secretary of State Hillary Clinton’s recent trip to Asia, Gov. Huntsman highlighted China’s leadership in organizing the six-party talks and commended China on working closely, and successfully, with the U.S. and the U.N. Security Council in dealing with North Korea.  Gov. Huntsman also mentioned other areas where the U.S. and China must continue to work together: advancing global counter-terrorism efforts, stopping the spread of weapons of mass destruction, combating extremism and promoting stability in Afghanistan and Pakistan, and promoting better governance and development in places like Sudan, Burma and Zimbabwe.

Most people believe that President Obama nominated Gov. Huntsman solely for strategic reasons – to eliminate a strong Republican presidential candidate in 2012.  But that could easily be only partially true.  Another reason is that Gov. Huntsman is actually a very good pick to represent the U.S. in a relationship that has become much more delicate as it becomes more important.  Gov. Huntsman has a strong China background, experiencing first-hand Chinese societies in Taiwan (during his time as a Mormon missionary) and Singapore (as Ambassador).  Additionally, during the hearing, Gov. Huntsman supported continued human rights discussions with the Chinese, criticizing our current approach as too “on-again-off-again.” Instead he advocated for a regularized and systematic forum where issues such as freedom of religion, freedom of speech, rule of law, and access to information can continuously be discussed.  While some might argue that this was mere political posturing to secure votes from Congress, Gov. Huntsman’s statement is a noted departure from Secretary Clinton’s recent announcement that human rights cannot interfere with our handling of other crises. Such a departure provides credibility that Gov. Huntsman sincerely wants to make human rights issues a regular part of his dialogue with the Chinese.  Also, his experience in Taiwan and Singapore provide him with the alternative perspective that economic development in a culturally-Chinese society does not necessarily require the authoritarian regime that currently exists on the mainland.

Although Gov. Huntsman’s approach to human rights is slightly different from the Administration’s, he whole-heartedly supports the Administration’s focus on climate change in U.S.-China relations, deviating from many of his Republican colleagues.  In discussing caps on greenhouse gases, Gov. Huntsman maintained that the U.S. should support an agreement on climate change with China, viewing any agreement as an economic, exporting opportunity.  The U.S. will become a leader in clean air and energy efficiency industries, industries that he argued would likely dominate the global economy for the next 20 to 40 years.  Unfortunately, Gov. Huntsman did not address the intellectual property concerns of exporting U.S. clean energy technology to China, a thorny issue that will certainly prove tricky in any discussions on climate change.

The nomination of Gov. Huntsman is a telling signal that the Obama Administration perhaps grasps the realities of the new China.  The China today is not the China that existed 30 years ago when the U.S. first normalized relations.  In only the past few years, China has quickly emerged as a global leader with a strong economy, large militarily and significant influence on other countries.   Today, the U.S. negotiates with a power that in many ways is its equal; one that can easily walk away from the negotiating table.  For the next few years, the U.S. and China will have to be able to cooperate on a myriad of tough issues that could impact the future of our world order – climate change, trade, humanitarian crises, currency, terrorism, just to name a few.  It is important to have a representative in Beijing who understands how to effectively negotiate with the Chinese and find common ground between our two nations, but at the same time is willing to stand his ground when our interests diverge, which, at times, will be unavoidable.  Gov. Huntsman, with his knowledge of Chinese culture, language skills, and his courage to buck his own party and accept the nomination, could likely be the best person for the job.

Gov. Huntsman, his wife and the author (on the right) after the confirmation hearing

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By Elizabeth M. Lynch, July 22, 2009

It’s 2015.  The immediate danger of climate change is apparent; rising sea levels in some countries, drought in others; countries on the brink of war due to shortage of food; governments that have existed for more than five centuries are toppling.  In this scenario, how would leaders in the United States, India and China respond?

This is no longer a theoretical question.  In testimony Tuesday before Congress on “Climate Change and Global Security,” Sharon E. Burke of the Center for a New American Security (CNAS), reported on a recent “climate change war game” that CNAS sponsored and which included representatives from the U.S., Europe, China and India.  Similar to war game simulations that countries’ militaries periodically organize, CNAS set up a dire climate change simulation to see how these countries would respond.  Ms. Burke testified that the responses in their simulation have thus far been accurately reflected in the current stalemate among the U.S., China and India.  In CNAS’ climate change game, India staunchly refused to agree to specific targets to carbon emissions, a sentiment that was recently shared with Secretary of State Clinton on her trip to India.  However, the CNAS simulation found that India was willing to negotiate on other issues.  Because they perceived their country as vulnerable to natural disasters, India was willing to concede certain things.  Ms. Burke also commented that the climate change game also showed that concessions made by the U.S., although provide the U.S. greater credibility, were not as important to other countries as the behavior of China.  However, in the simulation, China was not willing to concede to anything unless more developed countries financially supported their efforts.

While the countries in the CNAS climate change game were unable to reach an agreement, Ms. Burke was not willing to give up all hope.  Instead, she urged that the CNAS simulation be used to alter the current negotiations, negotiations that are obviously going nowhere.  The past has shown that the U.S. and China can reach agreement on issues even more complex than climate change (e.g. thermo-nuclear war) but policy makers need to find the commonalities between the two countries.  For China, climate change is a national security issue – currently there is great unrest in China due to environmental damage so they have as much of an interest as the U.S. in reducing the threat of climate change.  In a follow up with Ms. Burke after the hearing, she maintained that negotiators need to find a Plan B; we cannot continue with the current dialogue.  And although Ms. Burke thought that perhaps Plan B will not emerge until after the U.N. Climate Change Conference in Copenhagen, many policy makers have begun to realize that a Plan B is necessary.

To watch a full video of the hearing, please click here (starts at 30 minutes, 22 seconds in).