► As the host for APEC 2023, the US can take the lead to respond to the concerns of members related to the rising momentum of green (new) protectionism and advance the economic agenda to limit the scope of protectionism.
► The APEC fora can increase its economic leverage and facilitate trade in environmental goods by expanding the list of related goods based on a global value chain approach, identifying practical measures to reduce non-tariff barriers and streamline standards and technical regulations.
► The APEC Fora can commit to cooperating in a coherent and effective manner on circular economy issues – define, classify, and set standards for circular economy goods and explore options to incorporate circular economy related provisions in regional trade agreements.
Accelerating decarbonization through trade is gaining significant traction globally. Many members of the Asia-Pacific Economic Cooperation (APEC) have already set targets to reach net-zero greenhouse gas emissions (GHGs), and some countries, namely, China, the United States (US), Japan and South Korea, have already emerged as global exporters in environmental goods (EGs). That said, the transition towards greener and sustainable trade is a daunting task, as it is no longer confined to trade in EGs but involves supply chains and the circular economy (CE) (trade in recycling or secondary materials, trade in goods for refurbishment or remanufacturing, trade in wastes, among others). Recent studies suggest that global supply chains (GSCs) generate approximately 60% [1] (other reports indicate 80% to 90%) of the world’s total carbon emissions, while materials use (especially that of the extractive sector) lead to growing environmental impacts.
Environmental concerns, however, can be somewhat overshadowed and directed by other powerful drivers - national self-interests and economic (green) competition - in accelerating the green trade transition. Strong multilateral cooperation is needed to reign in the risks and costs associated with trade distorting national green (industrial and environmental) policies.
Green Industrial Policy and New Protectionism
Aggressive developments are already underway among the leading economies to address the intersection between green trade, supply chains and the circular economy and to enforce global green standards. This includes the Green Trade Strategy of the US Customs and Border Protection (CBP) on environmentally friendly trade practices and supply chains, the Green Deal Industrial Plan of Europe on net-zero transition and acceleration of decarbonization by scaling up clean-tech manufacturing, and the United Nations Economic Commission for Europe (UNECE) Traceability Protocol on product information tracing (percentage of recycled content).
Unfortunately, the green shifts in the leading economies are laced with protectionist industrial policies in the form of tariffs, export restrictions (critical raw materials [2]), subsidies (targeted intervention for electric vehicles [3]), grants, loans, tax incentives and state aid that restrict access to markets and green technology for emerging and developing countries that have limited capacity to compete in the green race. These policies trigger green trade tensions, such as the current controversies over carbon tariffs and subsidies for biofuels. They also result in tit-for-tat retaliations from trading partners [4] that in turn resort to trade barriers to reduce cost disadvantages and compete on a global scale. For example, Japan, Canada, France, and Australia have responded with new policies, such as state funding for green investments and green tax credits. Almost all countries are unlikely to roll back on domestic support in the form of environmentally friendly regulations (even for those that are discriminatory and restrictive) as they are found to yield both profits and a competitive edge for businesses. Studies have shown that, over time, cleaner products can even compete on price vis-à-vis their polluting alternatives [5].
Going forward, green industrial policy and green competitiveness should be recognized as integral components of the green trade transition. Towards that end, balancing green industrial policy with trade policy while limiting new green protectionism is important to manage potential green trade tensions in the next decade.
APEC and Green Policy Coordination
The forthcoming APEC 2023 Economic Leaders Week in San Francisco provides a unique opportunity for member countries to share their concerns on green trade distorting industrial policies - the Industrial Reduction Act (IRA) [6] of the US and environmental policy thresholds of the European Union (EU), among others - and derive solutions and better outcomes for all.
Though critics tend to dismiss the effectiveness of APEC given its non-binding nature and the diversity of its member economies, APEC provides the platform for members to act in a coherent manner on common issues and drive cooperative change. This is important as it also lays the foundation for cross fora collaboration beyond APEC, such as with the Organization for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO), among others.
Member countries of this multilateral APEC forum should therefore consolidate their position to move ahead more effectively on the following, green-related trade issues, that are already work in progress:
[3] https://www.imf.org/en/Publications/fandd/issues/2023/06/green-trade-tensions-kaufman-saha-bataille
[4] https://www.eiu.com/n/climate-ambitions-threaten-a-new-wave-of-trade-protectionism/
[5] https://www.ft.com/content/30747917-d28e-4011-bdf8-a8854809cc1a
[7] https://www.apec.org/press/blogs/2022/time-to-expand-the-apec-list-of-environmental-goods