Emily Benson: Okay, great. Well, Peter, thank you very much for joining today's podcast To our listeners, Peter Rashish is Vice President and Director of the Geoeconomics Program at the American German Institute. Peter has previously served as Vice President for Europe and Eurasia at the US Chamber of Commerce, where he spearheaded the chamber's advocacy ahead of the launch of the Transatlantic Trade and Investment Partnership. He's had an otherwise very storied career in the transatlantic trade investment and geo-economic space. And today he joins us to fill in some of the contours of what's happening in the transatlantic context on trade and climate change mitigation. So, Peter, let's kick off with a very broad question that I perpetually ask myself. Thinking about trade and climate, which a lot of folks in the blob in recent years have claimed that trade is different. Trade has a set of unique features that best enables it to combat climate change. So, what makes trade unique in its abilities to combat climate change, particularly when we're thinking about the transatlantic context?
Peter Rashish: Well, Emily, it's great to be you today. I think that when we look at trade's potential uniqueness, we should distinguish between two of its aspects. One is trade itself, the exchange of goods and services, and I think the other one is trade policy and trades policies, ability to create rules especially. So on the first one, I think that there is a sense that even still very large countries like the United States don't have all the resources that they need to successfully accomplish the green transition. And even if they did or try to acquire those all on their own, would not be cost effective to have everything produced in the United States. So you need to look for those goods and services elsewhere. And so trade can help ensure that supply chains for decarbonization are working efficiently. And I think that's the main thing people think about when they think of trade having a particular role in the context of fighting climate change.
And that's certainly the thinking that was behind the WTOs environmental goods agreement that was negotiated under the auspices of the World Trade Organization until 2016 when they hit a roadblock. But I think right now it's probably trade policies. I mean, I hesitate to use the word unique, but something close to unique ability to create rules. In other words, governments using all the resources they have at their disposal to influence who does what and how in the international economy, and in this case, in the climate space. And I think it's that interaction of trade and climate in the rules area where things are getting quite interesting. And I think there's a lot of action in the transatlantic space for at least three reasons. One is that you find that the commitments, governments may out of the Paris Agreement in the UN are the right ones, but they're voluntary.
Another, I think is there's concern about how slowly it would probably be to update the WTOs rules or to negotiate something new under the WTO. And then I think the third is even though the U.S. and the EU aren't what they once were, they're still somewhere between 40 and 50% of the global economy and they have the most integrated relationship bilaterally. And I think the two of them together sense that they should be responsible for setting the pace and for decarbonization that other countries can emulate. And why trade policy, particularly between the U.S. and the EU? I think it has to do with providing a way to create incentives to up their game when it comes to climate change. I think that that is clearly the case with the EUs carbon border adjustment, which would replace a tariff or attacks on imports of carbon intensive goods. But I think it's also something that's at the center of the ongoing negotiations between the U.S. and the EU for what is called the global agreement on sustainable steel and aluminum.
Emily Benson: All right. So let me remind our listeners that Peter is actually joining us from Geneva, Switzerland, where the WTO is located. This is great timing to have Peter as our guest. Peter, you were talking about, if I understand you correctly, one of the special features of trade that makes it so suitable for combating climate change is that it is enforceable. And I think that's really an interesting attribute of the carbon border adjustment mechanism and of course the GASSA, which you mentioned. But let's drill down a little bit on the potential differences and similarities between the EU and U.S. approaches. So let me ask with actually a more basic question, which is do the United States and European Union share the same goals when it comes to using trade policy to combat climate change? If not, where do they differ?
Peter Rashish: I think they share a number of the same goals. I mean, they're quite similar economies and act in many similar ways in the global economy, so that's not completely surprising. I think they both have this goal of, we've been discussing of using trade to encourage other countries to decarbonize also in a bit more self protected way to prevent their industries from migrating to other countries with lower environmental standards. I think they both want to ensure that supply chains are providing inputs to manufacturing that are as green as possible, something that they've been discussing among other places in their joint trade and technology council. And I think they both agree that any reform of the WTO whose rules really haven't changed since its founding almost 30 years ago, should include some areas related to climate like subsidies. Right now, the rules governing subsidies to fossil fuels are, I think you could say it's fair to say not strict enough, whereas they're not lenient enough towards subsidies of renewable energies. So I think those are some areas where the U.S. and the EU really do take common approaches. But there are some differences.
This is maybe a little bit kind of more of a broader perception that I have, but I think the EU is somewhat more attached to the international economic status quo than the U.S. is. I think they're both proponents of a global economy that is based on high standard rules and norms. But I think the EU seems a bit more invested in the WTO as the key way to do that than the U.S. I'm not saying that the U.S. administration has articulated it this way, but my sense is that the Biden White House is kind of defacto more comfortable with experimenting and using smaller and formal groups of countries as a way to advance their climate objectives, but also to use trade to do that.
Emily Benson: That's an interesting point because I was actually in Madrid and Brussels in May talking about climate and trade and the WTO obviously came up because that is such a profound difference, at least under this administration and the last one in the United States. And some government officials told me at the time that there's just this existential philosophical belief in multilateralism that really ties the EU to the WTO. And so I think that while there may be a certain utility for these smaller, plural lateral sectoral arrangements, there are a lot of parties that still regard the multilateral institutions as the premier method of effectuating carbon emissions reductions. But that brings up another issue because one member of the WTO is quite prominent and top of mind in all things U.S. policymaking right now, and that is China. China has also featured prominently in the Inflation Reduction Act. Germany just released its new strategy on China in June, the European Commission released its own economic security strategy. So I'd like to ask you a more specific question about the role of Germany. Does Germany think that the de-risking agenda can coexist with its decarbonization agenda? How does this all fit into what's happening in the transatlantic context?
Peter Rashish: I think the short answer is Germany has decided that it has no choice but to make its decarbonization agenda and its de-risking agenda work together. If you look at Germany's China strategy or its national security strategy issued a little before that, there is really a remarkable focus on avoiding unilateral dependencies of the kind that I think Germany thinks got itself into trouble in the energy area with Russia. And that's a big lesson. I think Germany, part of the Chancellor Schultz made this famous speech, kind of a big turning point in German policy. And I think after Russia's invasion of Ukraine, and I think this is probably on the economic side, the main element of that kind of rethinking of Germany's approach, and that is being carried over into other areas and it's being carried over into the relationship with China.
And I think specifically it's being carried over into industries related to the green transition. Because if you look right now, Germany imports huge amounts of inputs for solar energy, of critical minerals for wind power. And it's increasingly importing Chinese made electric vehicles. And that's of course in a sector where Germany automobiles, where Germany has traditionally been very strong and remains very strong. And I think that Germany is concerned to increase it's sort of its climate sovereignty and the EUs climate sovereignty. And so they are very dedicated to doing so. I think the German government knows it's going to be costly. I think they are trying to get closer to countries which could be key reliable suppliers for them for a number of these inputs. But I think they assume Germany assumes that even if there's some short-term costs, the long-term costs, whether those are economic or in terms of security, would even be higher.
Emily Benson: Interesting. So it sounds like we have some pretty profound shifts happening not only in recalibrations of exposure to risk, as you note in light of the Russian invasion of Ukraine and weaponization of trade, but also because of climate change. And I know you've thought about this a lot, but what role should the WTO play that it is not currently playing in helping manage this transition?
Peter Rashish: I think the key thing for the WTO is to continue doing what they're doing. They've made some innovations. They've created a new dialogue on trade and climbing, which among other things is looking at the very important issue of subsidies to enter different energy sources. But I think that ultimately there needs to be a clarification about the WTOs current rules. And I think that specifically there needs to be a clarification of the exceptions that countries can call upon in Article 20, which includes some environmental exceptions. But the problem is that while there is this room in the existing WTO rules to that allow countries to sort of invoke the greater concern of the environment over other obligations that they have in the WTO, that same exception Article 20 said, well, you can call on these exceptions, but done in, they can't be exercised in a discriminatory way.
And that idea of anti-discrimination is kind of right at the core of the WTOs DNA. And you see that in Article one and Article two on the most favored nation status and national treatment. So to me, there's kind of an ambiguity, right, inherent in the WTOs rules. And I think a clarification of that would be important that would give countries a much more solid basis when they consider national actions that would use trade to combat climate change. And so I think the EUs carbon border adjustment mechanism, the seamen, is a really fascinating example of this kind of tension, right? And by the way, there's been bipartisan proposals for something similar if not exactly the same in the U.S. Congress, but I think on the one hand, the EU has been really scrupulous about making sure that its CBAM fits with WTO rules.
But at the same time, we've seen that India has already said that they're going to challenge the CBAM because they don't think it is, in fact in conform with WTO’s rules. And so I think the issue there is I respect that the EU has made all these efforts to make this NATO compliant, but I think there is this issue of the fact that while the CBAM would apply the same rules and standards, other countries that it would apply, that the EU would apply to its own products, it would not actually apply the same standards to all other countries, right? Because some countries with low carbon production would have the same rules applied to them, that the EU applies to its own production, that it incentivizes to be done in a low carbon way through its emissions trading system.
But countries that have a more intensive, more carbon intensive production would be treated another way. So I guess maybe it's a stretch, but I suppose you could try to make an argument that that's some kind of discrimination, but the rules aren't clear. And the fact is that not only do we not know how a WTO panel would rule on this, but of course, since President Trump blocked the appointment of new members to the second level, the appellate body, there's no more quorum. And so we can't really ever get any clarity on the issue if say the EU or any other country decided to appeal if they didn't like the ruling that came. So we'd be stuck with still this lack of clarity. So I think ideally the WTO members would want to negotiate new rules in the WTO, and that would help ensure that things like the EU, CBAM are in conformity, but that's probably going to be slow and it's uncertain where it would go.
So I think that ideally countries would desist from challenging climate measures for the time being until there is a clarification of the EU rules. I mean, of course, India has already said it's going to do that. So in a way that horse has already left the barn. But I do think in the transatlantic context, at least the U.S. and the EU could agree to something like that. They could say, we're not going to bring any cases against each other right now. And what I find very interesting is earlier this year, the WTO Director General was commenting on the U.S. Inflation Reduction Act and some tensions between the U.S. and the EU on the IRA. And she said, actually, why don't you guys try to solve it among yourselves rather than bringing it to the WTO, which I think was wise advice as a way not to de-stress the organization, not to stress the organization.
Emily Benson: Well, let me finish up here with one question, which is, given everything that we've talked about today, where do you think we go from here? What's next? Can we overcome the differences to attack climate change? What's the path forward?
Peter Rashish: Well, I think whatever happens, the transatlantic relationship will be the test case of what the potential is for trade policy to combat climate change. I think if the U.S. and the EU can't arrive at a joint strategy, it's going to be very difficult for them to engage a broader group of countries. And of course, climate change is a global issue, not a transatlantic one. So you'll need to have as wide a group of stakeholders who want to create the right trade policy context and reform trade policy rules. I mentioned this ongoing U.S. EU negotiation on steel aluminum, and I think this very specifically is where you're going to see this dynamic play out. So we know that the Biden administration has lifted the Trump administration’s national security tariffs on trading and aluminum, but that was only provisional, and that it will only be a definitive lifting of those tariffs if the U.S. and the UK can agree on a way to treat import is steel aluminum that is both carbon intensive and unfairly subsidized. And we hear different things. We hear that the Biden administration may be wanting to take an approach which is a little more reliant on tariffs than the EU may want to take.
So actually there are two potential headaches I see. One is that the EU already has a way to treat carbon intensive metals, which is its CBAM, and the U.S. doesn't have that. So there's an asymmetry. The other is that it seems that the U.S. is more from reports that we hear is willing to consider a common external tariff on imported steel and aluminum so that for example, it would treat Chinese products in a different way than it would treat products from say, Japan or Canada. And as we were discussing, the WTO doesn't allow for that kind of selective treatment of trading partners normally. There's that non-discrimination idea. And given the EU’s history, it's difficult to see it accepting this idea of a common external tariff that would not be in compliance with WTO rules. So I think where that leaves us is that while I do think that this negotiation is going to determine a lot of where things go in the future for political reasons, my guess is the U.S. and the EU will decide to punt until after the 24 presidential election, when the political and after the EU parliamentary election, when the political conditions will be a little less intense and perhaps more amenable to finding a solution.
But I think that one larger aspect of this is that we need a renewed international economic order that is also in part an international climate order.
And the WTO will be part of that, although it may be in the future that it won't have a monopoly on that. And I think that could be okay because an international order doesn't have to come from one institution alone. It can come from a collection of different institutions and agreements. But I think the key is that the U.S. and the EU have to have a strategy for what that world would look like and how those different agreements and any new institutions would reinforce each other along with the WTO. So that creates a stable environment and one where the whole is greater than the sum of its parts. And I think that here the timing is important because it would be prudent for the U.S. and the EU not to do anything that would violate its commitments to the WTO until they've at least come up with some kind of blueprint for something that would exist alongside the WTO. Something where trade and climate concerns would be much more central and probably have there be more leeway for climate actions. But I think it'd be especially important that anything the U.S. and the EU do, looking ahead, maybe five to 10 years should be seen to have some kind of legitimacy by a very wide number of countries, even if that legitimacy isn't going to be fully universal, just because we're living in that kind of more diverse multipolar world that is probably going to remain contentious for a number of years.
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