From Trucks to ‘Low-Carbon’ Fuel, Trade Barriers

By April 24, 2009Energy, Trade

Missing from U.S. Trade Rep Ron Kirk’s admirable speech Thursday (see posts here and here) expressing the Obama Administration support of expanded trade was any mention of the Mexican truck controversy, i.e., the NAFTA-violating provision in the stimulus bill that effectively ended a cross-border trucking program. In response, Mexico slapped duties on 90-plus U.S. products, especially consumer and agricultural products. Here’s the latest consequence, as reported in the Green Bay Press-Gazette, “Mexican tariffs impede paper company exports.”

You can only address so many issues in a speech, and in any case, Kirk’s remarks emphasizing the importance of enforcing trade agreements were relevant. The United States should indeed aggressively address violations of trade agreements through established processes and authorities. As a country that generally embraces trade, those procedures will tend to favor the United States.

But not always. We see that California Gov. Arnold Schwarzenegger is trumpeting yet another market-distorting, cost-adding environmental regulation, the low-carbon fuels standard. As AP reports, the Governor expressed utopiangastic pleasure at the California Air Resources Board’s decision:

Gov. Arnold Schwarzenegger said the rule would “reward innovation, expand consumer choice and encourage the private investment we need to transform our energy infrastructure.”

Sure. Just like all the other excessive environmental rules adopted over the past decade in California. And how’s California doing?

Then there is the trade angle. The state regulations have an obvious and disproportionate impact on fuels derived from Alberta’s oilsands, which require additional energy to process. From The Los Angeles Times: “Canada’s consul general in San Francisco charged that the rule discriminates against oil from Alberta tar sands. ”

Canada is the No. 1 supplier of foreign crude to the United States, and now California is declaring its own (non-tariff) trade (barrier) war against those imports. But just because they’re not tariffs or quotas doesn’t make the regulations any less a servant of the protectionist cause — especially since they represent unilateral state action.

And what form might retaliation take, a year or two down the road? The new Mexican tariffs hammered California farm products. That could look like a smart strategy to the Canadians.

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