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By Elizabeth M. Lynch, February 9, 2014

New York Times journalist Austin Ramzy

Last month, while another U.S. journalist was packing his bags, forced to leave China, the U.S. Senate was poised to hold the confirmation hearing for Max Baucus, the Administration’s nominee to replace Gary Locke as ambassador to China.  You would think that central to the Baucus hearing would be the issue of journalist visas, or at least it would be mentioned by the candidate himself as a troubling development.  But you would be wrong.   Instead, after a December where the issue of U.S. journalists in China reached crisis level, Congress reverted to its shortsighted old ways, barely even raising the issue.

But, as the recent expulsion of the U.S. journalist clearly demonstrates, such a lackadaisical approach is increasingly dangerous as the Chinese government attempts to develop a more sophisticated response to try to maintain control of foreign journalists and U.S. media outlets through the visa process.

New York Times Reporter Austin Ramzy Effectively Expelled from China

For ten years, Austin Ramzy diligently covered Asia and China for Time Magazine, first out of Hong Kong and then since 2007, out of Beijing.  While his pieces were thought-provoking for a Western audience, they were hardly the type that would illicit anger from the Chinese government.  There were no articles exposing government officials’ vast wealth and while Ramzy did report on certain human rights issues in China, those articles were interspersed among other more general pieces.  In other words, he was likely not on the Chinese government’s target list in terms of renewing a visa.

But Ramzy’s status changed when, in April 2013, he took a job with the New York Times.  Since October 2012, when it published a Pulitzer-Prize

Former Premier Wen Jiabao

winning series on former premier Wen Jiabao’s questionable role in his family’s lucrative business holdings, the New York Times has become the Chinese government’s Enemy Number One.  Its website, including the Chinese-language portion, has been blocked in China, its U.S. website allegedly hacked from China, and every December, when it comes time to renew their visas, the New York Times China correspondents have faced excessive delays and effective expulsion.  The New York Times Fall 2013 coverage of the U.S. investigation into J.P. Morgan’s cushy ties with the children of China’s government elite, including the daughter of Wen, likely did not help its situation.

Ramzy’s visa troubles began almost as soon as he started working for the Times.  Although Ramzy had a journalist visa good through the end of December 2013, because he switched employer, under Chinese law, Ramzy was required to first apply for a new press card with the Chinese Ministry of Foreign Affairs (“MOFA”).  Once issued, Ramzy then, with his new press card, would be required to apply for a new journalist visa and residency permit with the Public Security Bureau (“PSB”) to reflect his new employer (see Regulations on News Coverage by Permanent Offices of Foreign Media Organizations and Foreign Journalists -“Foreign Media Regs” – Art. 10).

But, according to a source familiar with the matter, MOFA began giving Ramzy a hard time from the beginning.  For two months, the Beijing MOFA office refused to accept his press card application, informing him first that he would have to apply through Hong Kong, and then informing him that it would have to be through the New York consulate.  However, Article 10 of the Foreign Media Regs clearly states that the application can be made within China and directly to MOFA.

As the source told China Law & Policy, it was not until June 2013, two months later, that MOFA finally accepted his press card application.  But MOFA would sit on Ramzy’s application, and come December 2013, Ramzy was part of the New York Times contingent that was almost effectively expelled en mass when MOFA failed to process any Times correspondents’ press card applications and renewals.

Photo from Ramzy’s Twitter feed showing that he had mostly packed his things

While the pressure from the Obama Administration, in particular Biden’s December visit to Beijing where he publicly raised the issue, appeared to have averted the de facto closure of the Times‘ China bureaus, Ramzy seems to be the lone casualty.  Ramzy’s vulnerability likely came from the fact that he was the only New York Times correspondent who was hired in the middle of the year.  For some reason, MOFA processes “new” applications for a press card with a news agency differently than a mere renewal of the press card for a reporter that continues to work for the same news agency.  This is what happened to New York Times correspondent Chris Buckley the year before.  Like Ramzy, Buckley took a job with the Times in October 2012 but MOFA failed to process his press card.  When his prior journalist visa and residency permit expired on December 31, 2012, Buckley was forced to leave China.  For the past year he has been reporting for the Times from Hong Kong while MOFA allegedly is still processing his press card application.

Similarly, by the end of this December, without a press card, Ramzy was unable to apply for a new journalist visa.  His prior visa and residency permit was set to expire on December 31, 2013.  At the end of December, MOFA provided Ramzy with a one-month “humanitarian” visa so that after seven years, he could pack up his life and leave.  On January 30, 2014, Ramzy left Beijing and relocated to Taipei, Taiwan to cover China from there.

Stronger Response from Both the US & China

With his departure, the White House issued a strong statement, condemning China on Ramzy’s effective expulsion.  This was a marked departure from the White House’s prior strategy of silence when other U.S. reporters were effectively expelled or banned from reporting from China (Melissa Chan in 2012, Philip Pan in 2012, Andrew Higgins from 2009 to 2012 and Paul Mooney in 2013).

But the U.S. was not the only country with a changed strategy.  For all of these prior expulsions and bans, the Chinese government has never

MOFA spokesperson Qin Gang

provided a specific reason for its delay or denial.  But in Ramzy’s case, the Monday before his departure, MOFA spokesperson Qin Gang addressed the issue and tried to put a fig leaf of legality over the situation.  While Qin implied that MOFA was still processing Ramzy’s press card application, he accused Ramzy of violating Chinese regulations because he continued to enter and leave China on his old visa connected to his prior employer and never applied for a new visa or residence permit.

Qin was correct that Ramzy did not apply for a new visa and residence permit once he took the job with the Times, but that was not a willful act.  For a journalist visa and residency permit, part of the application is submission of a valid press card (Foreign Media Regs, Art. 10).  Here Ramzy was not able to apply for a new visa where MOFA was sitting on his application for a new press card, failing to process it.

Regardless of that fact, the law does not require Ramzy to apply for a different type of visa (presumably a non-journalist one) while waiting on a new press card.  The only time that a journalist must apply for a different type of visa to remain in China is if his press card has been “canceled,” a decision that must be made public (Foreign Media Regs., Art. 14).  Here, Ramzy’s prior press card was not cancelled; rather he was applying for a replacement.*  Nowhere in the Foreign Media Regs is there a requirement that a journalist change his visa type while waiting on a replacement press card.

Finally, China’s Exit-Entry Administration Law permits a foreign resident to stay in China to expiration of a prior residence permit even when a new one is denied: “[I]f an extension is denied, the foreigner concerned shall leave China on the expiry of the validity period specified in their residence permits” (Exit-Entry Administration Law, Art. 32).

Ramzy was within the law in entering and exiting China on his prior visa while waiting on his press card.  But MOFA’s citation to the law, even if inaccurate, is an interesting development and not restricted to foreign journalist visas.  Rather, it has been a trend in dealing with criticism from abroad.  An examination of how the Chinese government has dealt with public interest lawyers shows a government increasingly using the law – even if only a fig leaf – to explain its suppression of dissent.  The Chinese government has come to realize that the rhetoric of law is often an effective defense and silencing device in dealing with the West.

The Danger of the Senate’s Silence

It is this more sophisticated response that should put the U.S. government on warning that Beijing does not intend to back down in toying with

The Baucus Senate Confirmation Hearing – Why Bother?

foreign journalists visas.  That is why the absence of this issue during the Baucus hearing was a dangerous disappointment.  During the hour and a half session, not a single Senator specifically asked what Baucus intended to do about this issue.  Instead, the hearing descended into the verbal embodiment of a high school social studies essay on the “interconnectedness” of the world, how they are like us, and with Baucus addressing human rights only superficially, stating that its protection “is the bedrock of American society.”

By not focusing on the issue of journalists visas during the hearing, Congress has effectively signaled to Beijing that it can go back to the status quo; the Senate is too concerned with how to sell beef in China to pay attention  to one journalist unable to stay there.  This is certainly a missed opportunity because if there is one thing the Chinese government does not understand and fears as a result, it is Congress.  Even if five minutes of the hearing addressed the issue, that might have given the Chinese government food for thought.

And it would also have been useful for Americans to know what Baucus’ strategy will be.  As Ambassador, Baucus will have a lot of power to determine if there should be a policy of visa reciprocity.  Does he think that is an appropriate approach?  Does he think there are other ways to deal with this issue?  How public will he be when the Chinese government again trifles with a U.S. journalist’s visa?

The U.S. government – both Congress and the Administration – cannot allow this issue to slip into the background.  While the White House should be commended for issuing a statement on Ramzy’s expulsion, it needs to use every opportunity to remind the Chinese government that this is a key issue.  Just stating it is not enough.  Last week, when Daniel Russell, Assistant Secretary of the Bureau of East Asia and Pacific Affairs at the State Department held a press conference, two reporters in the audience were from Chinese government-run media outlets.  Perhaps starting the press conference with a comment about how the U.S. allows a free foreign vis-a-vis China might demonstrate just how important the issue is to the current Administration.

Goodbye New York Times?

Consistent pressure on the Chinese government from all parts of government must continue until Pan, Buckley, and Ramzy’s visa applications are processed.  Back in December, when it looked like the New York Times and the Bloomberg China bureaus would effectively close, the U.S. government was able focus its resources and pressure China to renew the correspondents’ visas.  But here, the danger is no different.  Where the New York Times is unable to get a new press card for any new employees in China, it will be unable to replace its current correspondents.  How long can David Barboza, 10 years in China and Ed Wong, six years, stay there?  It might be a slow death for the Times‘ China offices, but, unless something changes, its end inevitable

 ——————————————————————————————–

* After publication of this post on February 9, 2014, it was brought to my attention that Ramzy’s prior press card with Time Magazine could have been “cancelled” under Chinese law and that Article 14 might apply to him.  A correction in the form of a new post can be found here.  Apologies in advance.  — EML

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By Elizabeth M. Lynch, August 2, 2010

As promised, on July 9, 2010, China submitted its proposal to join the World Trade Organization’s (WTO) Agreement on Government Procurement (GPA).  China’s government procurement market – in which the government purchases supplies and services to keep it running –is larger than the GDP of many small nations, accounting for $500 billion by some estimates, a size that makes many western companies salivate.  But China has no legal obligation to open its government procurement market to global competition.

Needless to say, the inability for foreign companies to access such a huge market has been a sticking point for many foreign governments in its dealings with China.  During May’s Strategic & Economic Dialogue (S&ED), Secretary of State Hillary Clinton raised the government procurement issue often.  By the end of the S&ED, China promised to submit an application to the GPA in July, its first submission since 2007 when China’s application was resoundingly rejected by other GPA member nations for being over-protectionist.  But the U.S. is not the only country with issues concerning government procurement.  German Chancellor Angela Merkel visited China in the beginning of July and market access was number one on her list of discussion topics with the Chinese leadership.  Even the U.S. Congress is threatening action, proposing the adoption of the “China Fair Trade Act of 2010” if China does not open its government procurement market.

So with all that pressure, will China’s 2010 revised offer to join the GPA open its markets to foreign corporations?

Don’t hold your breath.  While China responded to some of the criticism lodged against its 2007 application – it shortened the implementation period from 15 years to 5 and significantly lowered the monetary values of the projects and purchases covered to be more in line with other member states – its 2010 application does little to actually open its government procurement market.

In Annex I of China’s 2010 application, a larger number of central government agencies are covered compared to China’s previous application – 61 to be exact.  But the largest market – namely government procurement on the local level – is completely absent.  Annex II, which is to list those sub-central government agencies covered by the agreement, is left blank.  Additionally, China’s state-owned enterprises (SOEs) are also not covered by the GPA

More high rise aparment buildings in Shanghai

application.  Although a hybrid between a government-run organization and a private corporation, SOEs maintain good ties with the government, especially on the local level.  As Monday’s New York Times pointed out, many SOEs whose businesses are completely unrelated to housing development, such as the Anhui Salt Industry Corporation, have been the biggest players in China’s real estate construction boom.  This is largely due to the SOEs huge amounts of cash and their ability to endless borrow from government-run banks.   But under China’s 2010 GPA application, these SOEs would be allowed to ignore competitive bids from foreign companies.

Although this is a disappointment for foreign corporations looking to crack into China’s government procurement market, China’s current 2010 GPA application is at least honest in admitting to the fact that the central government might have a lot less control over the provinces than many thought.

This is especially true if central policies seek to disrupt the symbiotic relationship that exists between local governments and local SOEs.  As Reuters notes in its report on China’s GPA application, China’s provinces have had a long history of preferential treatment of local provincial industries, even at the expense of Chinese corporations from other provinces.  These local SOEs – like the Anhui Salt Company – employ hundreds if not thousands of local workers, and local SOEs are often more willing to partake in a “I-scratch-your-back-you-scratch-mine” economy.  Take for example the real estate auction mentioned in the New York Times article.  At a government-run public auction, Anhui Salt put in an offer that far surpassed other offers, unnecessarily bidding up the price that it would eventually pay for the land.  But that inflated price goes directly to the coffers of the local government.  And in some provinces, where the government’s balance sheets are more of charade than actual accounting, this extra income is important.  Needless to say, provincial governments are inherently protectionist of its local industries and the system the two have created.

While many believe that the Chinese central government, with it authoritarian rule, can force provincial level governments to act a certain way, China’s 2010 GPA application reflects that there are actually limits.  It also hints that China might be more of a federalist system than originally thought.  Although the U.S. is a member nation of the GPA, because the federal government cannot mandate state government behavior when it comes to government procurement, states have to affirmatively agree to the join the GPA.  In the U.S., only 37 states are signatories to the GPA; the federal government can’t force states to comply with the GPA.  Similarly, China’s 2010 application and the fact that the central government apparently cannot force provinces to sign on to the GPA, raises the question if China is in fact a de facto federalist system.

At any rate, given the absence of SOEs and local governments from China’s GPA application, expect the 2010 offer to be rejected again.  What will be interesting is how loudly the U.S. will object when 13 states have yet to sign on to the GPA.

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By Elizabeth M. Lynch, July 28, 2010

A worn out Senate Majority Leader, Harry Reid

The past week has provided closure to two issues China Law & Policy has been following  for the past few months.  Last week, Senate majority leader Harry Reid announced that the Democrats would not be moving forward on the climate change bill that had been sitting in the Senate for the past year.  Although the bill had the potential to completely reorganize the U.S.’ energy policy, the Democrats were unlikely to get the votes necessary to pass the bill and opted not to try.

The death of the climate change bill raises serious questions about the U.S.’ ability to compete with China on green technology.   The Chinese government has made major and obvious commitments to green technology, attracting capital from around the world.  Without a coherent energy policy, don’t expect investors to seek out green technology opportunities in the U.S.  Until the U.S. has a more coherent policy, anticipate the continued flow of capital to China.

As if the failure of climate change legislation was not enough, the Senate announced yesterday that it would not take up the DISCLOSE Act, the House of Representatives’ response to the Supreme Court’s decision in Citizens United v. FEC, a decision that expanded corporations’ speech rights in U.S. elections.  As China Law & Policy wrote soon after the decision, Chinese companies, some of which have ties to the Chinese government, could use the loophole of their U.S. subsidiaries to donate to U.S. campaigns. China Law & Policy testified before Congress in May on the legislation – the DISCLOSE Act – as it was being considered by the House of Representatives.  Looks like we won’t be testifying before the Senate anytime soon.

Gees, did Harry Reid just have the worst week ever?

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By Elizabeth M. Lynch, April 27, 2010

With the fortieth anniversary of Earth Day this past April, Americans celebrated with vigor and advocated saving the planet.  Well, most Americans did.  As China-observer Marcy Nicks Moody notes, recent breakdown between Democrats and Republicans in the Senate could forestall any hope of the U.S. moving forward on climate change legislation.  And could allow China to remain ahead of the green technology game for a long time.

Happy 40th? – Congress Says Bye, Bye Climate Change Legislation

By Marcy Nicks Moody

Last Thursday, Americans celebrated the fortieth anniversary of Earth Day, established by U.S. Senator Gaylord

Earth Day Founder, Sen. Gaylord Nelson

Nelson in 1970 to raise awareness of environment-related issues. Last Sunday, thousands gathered on the National Mall in Washington, DC to participate in the Earth Day Climate Rally with the alleged goals to “stop protecting polluters,” “enact comprehensive climate legislation,” and “demand accountability from Washington.” There were exhortations to grow kitchen gardens along with clamorous chanting of the word ‘green.’ The weather was glorious, and spirits did not seem dampened by the blow dealt to climate legislation by the U.S. Senate just the day before.

Sandwiched between Earth Day and the Earth Day Climate Rally was the day on which another U.S. Senator, Republican Lindsey Graham of South Carolina, announced that he would no longer participate in negotiations on a Senate version of proposed climate legislation. In a letter to colleagues Senators John Kerry (D-MA) and Joseph I. Lieberman (I-CT), Senator Graham cited his disappointment over reports that the Democratic leadership of the Senate was planning to take up discussions of immigration before addressing climate change as a reason for his changed stance.

Senators Graham, Kerry, and Lieberman were the primary architects of this bill-to-be and had been planning to formally announce the bill with the White House last Monday. But any debate on immigration would make it impossible to deal with national energy and climate change policy, the South Carolina Senator said. So he won’t support the draft climate change bill, in spite of the fact that he helped create it. Senator Graham won’t support some legislation because talking about something else would just be too painful or distracting? This seems a bit irrational.

In Happier Times - Senators Graham, Kerry & Lieberman

Setting aside speculation over why Senator Graham radically and suddenly changed positions, the simple fact that he did it is disappointing. To be sure, the Senator is not the only culpable party in this turn of events. He is likely under enormous pressure from fellow Republicans to stop negotiating with Democrats. And if reports are true that both the White House and the Democratic Senate leadership had been planning to take up immigration first not because it could pass (the House has not yet discussed the matter) or because it is more urgent (climate change is equally as urgent: the longer we wait to address climate change, the more expensive it will be), but because it could present a useful wedge issue for the Democrats in the coming election cycle, then Senator Graham has every right to be peeved.

But unless Graham’s strategy has the result of getting climate change legislation considered in this session of Congress, it is bad for Americans. The science demonstrating the negative and possibly catastrophic consequences of anthropogenic climate change is overwhelming. That emissions of greenhouse gases (GHGs) must decrease is flagrantly obvious. And that the United States, which prides itself on its innovative strength, global leadership, and remains the largest economy in the world, has still not acted on this evidence is disgraceful.

It is also bad for business. The clean technology market is big and growing, but without the passage of climate change legislation, signals to U.S. businesses as to the future prices of clean versus pollution-intensive energy remain unclear. A recent Pew report on clean energy in the G-20 economies notes that appropriate domestic policies—such as those aimed at reducing GHG emissions or incentivizing the use of renewable energy—have tended to positively affect a country’s competitive position in the clean-tech market. The winners in this race include Brazil, the United Kingdom, Germany, Spain, and—who else?—China. The United States does not make the shortlist of enlightened energy and environment policymakers of the rich world.

Lights out for the U.S. in the race for green tech?

In fact, the Pew report finds that China has already overtaken the United States on several important measures (including, of course, its dubious distinction of being the largest emitter of greenhouse gasses for the past several years). In 2009, for instance, China overtook the United States for highest financing of and investment in clean energy. And it is likely to overtake the United States in installed renewable energy capacity soon. Though targets are not always met, Beijing has set ambitious targets for wind, biomass, and solar energy usage, and these targets do not exist solely not to be met. They may currently be aspirations, but that’s more than the United States currently has to go on.

Mitigating climate change and making U.S. clean-tech business better is accomplished by limiting greenhouse gas emissions. The best way to limit GHG emissions is to put a price on them. Indeed, the fact markets have not already done so has been described by climate expert Nicholas Stern as “the greatest market failure the world has ever seen.” The climate legislation which has been stalled and stalled and stalled again in the U.S. Senate is generally envisaged as a cap and trade system that would cap GHG emissions at a certain level, create a scheme in which licenses to emit GHGs could be traded, and eventually shrink gross amount of permissible emissions. This amounts to an indirect tax on GHG emissions, and though it is far from ideal, it would create a price for emissions at the margin and therefore makes strides in the right direction.

As the Senate continues to dawdle, the Earth Day Climate Change rally on the National Mall was far from unimportant. Especially in a democracy like the United States, it is important that citizens buy into ‘going green.’ It is important, frankly, that green be cool. But though considerations of how to green one’s lifestyle are admirable, they are not game changers. Coal is still cheap; Whole Foods is expensive, and “going green” remains largely the privilege of the wealthy in society.  Unless we change our laws.  The Senate should get to work. The alternative is to accept an outcome in which a hundred U.S. kitchen gardens bloom while a hundred Chinese companies compete for the top spots in clean-tech. In addition to, well, catastrophic climate change.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

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By Elizabeth M. Lynch, March 21, 2010

Not a day goes by without mention of China and its currency: “China’s manipulating its currency, injuring the U.S.” “No it’s not, and if it were, it only hurts the Chinese people.”  Guest blogger Marcy Nicks Moody tries to make sense of it all and examines the mechanics underlying the Treasury Department’s pending decision to either designate China a currency manipulator or not.

A Dusty Springfield Approach to the Chinese Exchange Rate?

Will China allow its currency to float?

By Marcy Nicks Moody

Last week, in a discussion about the administration’s approach to China’s exchange rate policy, White House press secretary Robert Gibbs remarked that President Obama “mentioned just a few days ago that he wished and hoped that China approached their currency using a more market-based interpretation.”

If only wishing and hoping were the ne plus ultra of sound policy-making. Unfortunately, they’re not. And Mr. Gibbs’ comment was more revealing of his administration’s approach to the Chinese exchange rate than he may have hoped. Or wished.

On a more or less biannual basis, chatter over China’s undervalued currency increases, coinciding with a report that the Treasury Department must submit to Congress on international economic and exchange rate policies. This is the document in which a country is formally designated a currency manipulator or, in the case of China or any other country since 1994, is not.

Does China manipulate its currency? Yes. This fact is well-known and rarely questioned. The gargantuan scale of its global trade and current account surpluses and rate at which China is intervening and accumulating foreign exchange reserves to keep the renminbi (“RMB”) from appreciating make it all but impossible to argue otherwise.

But does China intend to manipulate its currency in order to gain an unfair trade advantage? Well yes, but this is part of the legal metric by which China must be judged in the foreign exchange report, and it remains the technical basis on which the Treasury sidesteps formally designating China a manipulator of its currency. The arguments for so doing do not include any serious contention that China does not intend to manipulate its currency, but rather that engagement works better than saber-rattling.

That is one possibility. Another is that there is no saber. What if China were designated a currency manipulator in a Treasury report to Congress? Would the administration huff and puff and hold its breath until all of Washington turned blue? That might be the best option, for nothing necessarily follows from the findings in these reports, other than expedited negotiations, which are fancy words with few teeth. And demonstration of ineffectiveness on an important issue is something the Treasury might understandably like to avoid. Naming China a currency manipulator would strain relations further but in itself provide no foreseeable gain. And besides, the whole world knows it anyway – it’s not like the report would be telling us anything we didn’t already know.

The U.S. Treasury - preparing its April 15 report

Though the Treasury Department’s stance is far from principled, it does have some weight. But the exceptionalist tone of this stance—which suggests that China is exempt from Treasury censure because of some special status it holds—may well damage U.S.-China relations in the longer term. For years, the United States has encouraged China to act as a responsible stakeholder in the global economic and financial system, playing by the rules China increasingly helps to write. Allowing China to escape criticism for undervaluing its currency simply because ‘it is China’ runs counter to the notion of that stakeholder. Given the belligerent tone Beijing has recently taken on a range of foreign policy issues from Copenhagen to the Dalai Lama’s recent U.S. visit to exchange rate policy itself, the United States would do well to move away from this more recent G2-style exceptionalism and towards responsible stakeholdership in its rhetoric and substantive discussions with China.

Moreover, American concern about undervaluation of the RMB dates to at least 2003. Modest appreciation notwithstanding, engaging and talking softly behind closed doors have not worked. That Chinese surpluses cost Americans jobs should be an abomination to Washington, especially now, as unemployment remains unacceptably high. China is unlikely to move on its exchange rate unless it perceives that doing so would be in its own interest, and for better or for worse, it is up to Washington to create that incentive.

Might a Treasury report designating China a currency manipulator encourage China to move on its exchange rate? Let’s be clear: This is only a document submitted by one branch of the federal government to another, and by itself, the report does little. But might a Treasury report designating China a currency manipulator trigger other events that could encourage China to move on its exchange rate? Congress may be emboldened to pass legislation mandating countervailing duties on goods from countries with misaligned currencies. Indeed, even without the Treasury’s report, which isn’t due until April 15, Congress has already started to move forward on the issue. There is currently a bill with unusual bipartisan support in the Senate that would give Treasury less flexibility in determining whether a country manipulates its currency. Further, the Chinese exchange rate is not solely a U.S. problem. If Washington did, for example, undertake trade sanctions, the frustrated international community would likely follow suit. And this would create a strong incentive for China to allow the RMB to appreciate.

A Treasury report designating China a currency manipulator is unlikely, by itself, to produce any results vis-à-vis the RMB. And it might not even trigger events that would compel China to allow the RMB to appreciate. But it might. The current state of affairs is unacceptable, and as even Dusty Springfield knows, wishin’ and hopin’ and dreamin’ and prayin’ are not enough.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

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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