China Dialogue, Geneva, 28th NOV, 2008 Climate change, Competitiveness and Trade Restrictive Measures: A Chinese Perspective Jiahua Pan and Laihui Xie Research Center for Sustainable Development (RCSD), Chinese Academy of Social Sciences (CASS)

Outline Three questions discussed: Is the competitiveness concern a real problem? Why is the trade restrictive measure proposed as tool for addressing this problem? Is it really effective and necessary?

1. Is the competitiveness concern a real problem?

The competitiveness concerns and carbon leakage have been exaggerated. There has been no evidence that carbon leakage is taking place. It is difficult to single out climate policies as causes of carbon leakage. Related sectors under regulation always have the incentive to exaggerate the competitiveness concerns for self-interests. Competitiveness problem: the change of differences of production cost in countries caused by climate policy.

2. Why is the trade restrictive measures proposed?

2.1 Why not use domestic tools? Cost increase is an inevitable part of any regulation for mitigation. Tools for double dividend should be proposed. such as free allocation of carbon credits; giving transit assistance; reducing corporate tax or employment tax. It may require considerable institutional change and courage, as there are many political risks and obstacles.

2.2 The role of Trade restrictive measure As tool to shift domestic conflicts to the international level: Protect Competitiveness; Reduce Carbon leakage; As a leverage, to promote participation of developing countries.

3. Will the Trade restrictive measures be effective?

3.1 The cost for import countries The trade measures will not benefit for the national economy as a whole. It protects the benefits of some sectors at the expense of other downstream sectors. After all, the domestic cost for climate regulation will be overtaken domestically.

3.2 The cost for Taxed Export Countries Worsening terms of trade, as cost increase much. “Best available technology” regulation will hurt innovation incentive. Maybe more political calls rise against international cooperation for mitigation. Developing countries governments may lose flexibility and room for participation.

3.3 The asymmetry of climate treaty Justified The common but differentiated principle underlined by the UNFCCC. According to Bali Action Plan, it will last in the future.

3.4 Role in international cooperation The uncertainty of BTAs legitimacy in the WTO context. It will challenge the trade system, and most importantly poison the atmosphere of the UNFCCC negotiation for post 2012 agreement. Developing countries are unlikely to concede in participation as a result of trade restriction.

Conclusion Positive incentives rather than the negative incentives. The developed countries should take a good lead. to balance the mitigation and prosperity. to give support of funds and technology for developing countries.

Thank you!