Protectionist EPA Trade Policies

For two decades U.S. presidents have consistently shared views on the need for a “level playing field.” President Bill Clinton in 1992, President George W. Bush in 2008, and, most recently, President Obama in this year’s State of the Union: “Our workers are the most productive on Earth, and if the playing field is level, I promise you—America will always win.”

Despite that shared rhetoric, the weakness of the U.S. economy over the past few years has helped obscure the Obama administration’s disappointing record on trade. The administration has failed to propose any new free-trade agreements (the Trans-Pacific Partnership began in the Bush administration), and other measures, such as the World Trade Organization’s Doha round of global trade liberalization, remain stalled. President Obama takes credit for signing trade agreements with South Korea, Colombia, and Panama, but each of those agreements was initiated and negotiated by the Bush administration.

Worse than inaction, President Obama has proposed protectionist regulations against important U.S. trading partners, a practice that encourages retaliation in the form of barriers targeting U.S. companies. Recent moves by the Environmental Protection Agency (EPA) reflect the current administration’s misguided trade policy.

In January, the EPA announced that palm oil should not qualify for inclusion in federal renewable fuel standards. According to the EPA, biodiesel and renewable diesel produced from palm oil do not contribute to sufficient reduction in greenhouse gas emissions and thus should not be counted as renewable fuels.

The precise motive behind the EPA’s announcement is shrouded in mystery. The EPA’s decision to block palm oil from qualifying for inclusion in renewable fuel standards rests on the unreliable inclusion of “indirect land use change,” without which palm oil would easily qualify as a renewable fuel—just like similar fuels from corn, sugarcane, or animal fat. Further distancing Presidents Clinton and Obama, the economist Robert Shapiro, a prominent Democrat and top Commerce Department official under Clinton, called the EPA’s analysis “highly speculative.” Shapiro further argued that it may in fact have the opposite effect: the policy will “increase emissions” from expanded production of corn, soybean, and sugarcane—biofuels that produce substantially more greenhouse gas emissions than palm oil–based fuels if analyzed scientifically based on actual land use.

It’s worth noting that in the first dispute settlement case the United States lost in the World Trade Organization, Venezuela successfully challenged U.S. policies related to reformulated gasoline. The rules were not based on sound science and a level playing field, but instead were designed to protect U.S. refiners from foreign competition.

Once again, it appears that regulators are acting to slant the playing field. If the EPA assessment is implemented, it will result in discriminatory treatment of palm oil and undermine trade relations with two leading U.S. allies in Asia. The world’s two largest producers of palm oil are Indonesia and Malaysia. The United States imported $361 million worth of tropical oils from Indonesia in 2010 (palm oil accounts for much of this) and $1.7 billion worth of palm oil from Malaysia in 2011.

A leading palm oil trade association harshly criticized the decision. “U.S. efforts to increase access to South-East Asian markets cannot be achieved by imposing arbitrary barriers to our exports,” said the CEO of the Malaysian Palm Oil Council in April. “Ongoing negotiations must be built on trust and mutually beneficial market access. Unfortunately, the EPA’s first step sets a dangerous precedent.”

The governments of Malaysia and Indonesia have remained mum about the EPA assessment, but they’ve taken their own steps to address the pitch of the playing field. In September, Malaysia indicated it would not agree to intellectual property protections requested by the United States in the Trans-Pacific Partnership. In mid-October, Indonesia issued compulsory licenses to squash the patents of four U.S.-based drug companies who collectively employ more than 70,000 Americans.

U.S. presidents may think protectionism is good politics, but as this example shows, when a major trading nation restricts trade it encourages others to pursue their own ill-advised measures. And at a time when the U.S. economy is sputtering, the president’s focus should be on eliminating trade barriers—not creating new ones.

Scott Miller is a senior adviser and holds the William M. Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2012 by the Center for Strategic and International Studies. All rights reserved.

Scott Miller
Senior Mentor (Non-resident), Executive Education