Oliver Griffiths

Carbon of Origin

Peter Mandelson made a short speech on trade and climate change in Oslo recently that is well worth a read. A couple of things sprang to mind for me.

In the first paragraph of the speech there's an (unconscious?) echo of one of Adam Smith's best quotes. Mandelson said: "A tomato grown and shipped to Europe from Senegal produces less carbon than a tomato grown in an artificially-heated greenhouse in Europe". Compare that to Smith in the Wealth of Nations: "By means of glasses, hotbeds and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about 30 times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of Claret and Burgundy in Scotland?" In defence of the carbon footprint of 18th century Scottish glasshouses, they were probably only solar powered.

It must be the case that a positive trade policy, based on liberalising markets for low carbon technologies, can help in addressing climate change. A negative trade policy designed to punish international free riders is more problematic. There is rightly a lot of interest in the idea of border adjustment measures, not least because the US Congress currently seems so set on the idea. Setting aside the issue of how compatible border adjustments would be with WTO rules (see a debate here if you're interested), any adjustment mechanism would be very difficult - and consequently costly - to operate. In practical terms, with the globalisation of supply chains and individual products now containing parts sourced from many countries, such measures would be a nightmare to implement. They are also likely to produce incentives to game the system. If you thought preferential rules of origin were complex, just you wait until carbon of origin. 

It also feels like using a sledgehammer to crack a nut. It may be axiomatic for some people that US cap and trade legislation without border protection would lead to whole swathes of US industry being wiped out by (especially Chinese) competition. But this hasn't been the experience in the EU under the Emissions Trading Scheme. And the evidence is that cap and trade legislation would have a strictly limited impact in the US too. That's not to belittle the impact on a couple of sectors - but there must be better ways to deal with the problem than overarching border defence. Some free permits perhaps?

My personal nightmare is that if we fail to complete the Doha Round in the near future, one tricky multilateral negotiation cross-fertilises with another tricky multilateral negotiation in the shape of the post-2012 climate change framework. That way madness lies.

Posted at 09:06 09 October 2008 by Oliver Griffiths  |  Comments[3]

Consumer Patriotism

On a recent trip to the local bike shop I overheard another customer deliberating between two bikes - a Cannondale and another make. Now the British government doesn't endorse any particular bike brand.  But I do. I love Cannondales and own two. But they're definitely pricey, as the customer in the bike shop discovered. The Cannondale was about $100 more expensive than the other, equivalent bike and he quite naturally asked why it cost more. The assistant's answer was that it was because Cannondales are made in the USA (in Pennsylania) while the other make was made in Taiwan. This isn't the reason I buy them but it got me wondering about the premium that home producers can charge over competitors from abroad for similar goods. And whether you could put together a league table comparing the different level of premium that home producers could charge in different countries.
 
The economist's answer is that you should just buy the best goods at the best price. End of story. That will force the competition to catch-up or get out of the business, raising standards across the board. But emotion seems to pull the other way. This phenomenon has been given the rather grand title of consumer patriotism.
 
A 2007 Zogby poll found that one in three Americans would be willing to pay four times as much for American-made toys over foreign substitutes (which in effect means Chinese goods, as China has over 90% of the global market in toys). Paying four times as much sounds absurd. But if true, MBA graduates must be flooding into toy manufacturing. Japanese consumers have also, famously, been willing to pay a substantial premium for Japanese rice - though in that case supposedly because of a superior level of stickiness. (Consumer patriotism - if only I had known the phrase - also dictated the choice of our family car. My father bought a succession of unreliable estate cars made by British Leyland. It didn't save British Leyland.) One of the least effective consumer patriotism initiatives was - or so I recall from law school - a Buy Irish campaign that was brought to the European Court of Justice for being in contravention of Article 85 of the EC Treaty (one of the EU's competition articles, now changed to Article 81) because it discriminated between producers in the EU. One defence put forward was the fact that sales of Irish goods had actually dropped during the campaign. So my initial international consumer patriotism league table runs: USA, Japan, UK, Ireland. 
 
Anyway, the customer in the bike shop decided not to buy the Cannondale.

Posted at 20:49 21 September 2008 by Oliver Griffiths  |  Comments[2]