Scaling New Heights

13 february 2016

The Power of Ecological Standards in the Global Economy

Igor Makarov, Ph.D. in Economics, is a research fellow with the Center for Comprehensive European and International Studies at the National Research University–Higher School of Economics.

Resume: The global domination in setting ecological standards has been gradually drifting towards the United States. The U.S., in contrast to the EU, is prepared to employ this tool not just to bolster its own image, but also to dictate rules to the global economy.

The strategies of actors who compete globally are changing at an unprecedented rate. In the modern world, war as a foreign policy instrument seems too risky and is employed only as a last resort. It might seem that hard power has given way to soft power; yet soft power has also failed. The West, which employed soft power so successfully over the past decades, has become bogged down in an array of problems and many developing countries no longer look to the West as an example. Andrew Bishop of Eurasia Group is certain that military power is giving way to the power of standards as a new form of domination. Its key feature is the ability of countries to set their own rules in the regulatory space.

 The strength of ecological standards, or the ability to use ecological regulations to achieve economic and political goals, is the major component of this new power. The European Union was the global environmental leader for a long time, but it failed to convert its superiority into something more than just a component of its positive image. Today the United States is emerging as the new leader. Unlike the EU, the U.S. regards ecological standards as part and parcel of the new rules of the game it is creating in the global economy for all other players to follow.

The Power of Ecological Standards

Memories are still fresh about the war between VHS, Betamax, and Video200 standards on the video market in the 1970s and 1980s. VHS eventually gained the upper hand, but not because it boasted better image quality (on the contrary, experts are unanimous that VHS quality was worse than that of its competitors). The ability of JVC, the company that introduced that standard, to consolidate other Japanese producers around itself and the far wider use of videocassettes (including pirated ones) were the key factors for success. As a result, the VHS format and companies that bet on it remained dominant after the technology became outdated.

Competition in the field of technical standards has gone far beyond the consumer electronics market. Jean Tirole, the 2014 Nobel Prize laureate in economics, coined the term ‘economic platform,’ which ensures immediate network contact between two or more groups of clients—advertisers and newspaper readership, manufacturers and users of mobile applications, boutique owners and shoppers, transportation companies and taxicab passengers, etc. Competition among platforms occurs at a higher level than competition among the companies concerned. The winner is capable of instantly toppling the previous leaders, tightly pegged to the loser platform.

The concept of economic platforms propels the importance of standards to a markedly new level. Standards management and the proliferation of standards specific to one country ensures control of the platform-type economy and, consequently, global domination.

In this context the term ‘standard’ has a broader sense than just some technical solution, such as a video format. The closest synonyms to the word ‘standard’ are ‘norm’ and ‘an example to follow.’ Legal norms and even codes of conduct belong here, too. Indeed, when the latter becomes fashionable, it is instantly accepted by a large number of consumers, and manufacturers have to adjust themselves accordingly. Going out of fashion may spell the end of a commodity or an entire company. This logic easily explains why large corporations spend millions on marketing in order to create, proliferate, and maintain specific modes of consumer behavior.

It might seem that ecological norms and standards that begin to play an increasingly greater role in international relations amid worsening environmental problems are found within the same category.

Of course, ecological norms and rules also enjoy enormous influence over consumer-producer interdependence and are capable of redistributing control of the market in virtually no time. The acting governor of Sakhalin Region, Oleg Kozhemyako, cited an excellent example of this at a meeting of the State Council’s presidium, which met in October 2015 to discuss the future of Russian fisheries. Kozhemyako said: “Fifteen years ago we produced 100,000 tons of pollock fillets, holding leading positions on the European market. With the introduction of the international ecological certification U.S. fillet producers were quick to take over that market, though. Now we produce a little more than 30,000 tons.”

The signing of the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer is another example. The U.S. chemical giant Dupont had for a long time argued that there was lack of evidence proving that man-made causes affected the ozone layer. However, in the 1980s Dupont promptly changed its mind and, according to many sources, at a certain point became one of the agreement’s main lobbyists. The reason was that Dupont had developed ozone-safe alternatives to freons outlawed in the Protocol. The new ecological standard gave the company monopoly control of the market.

And yet it is not quite appropriate to compare technical standards and modes of behavior, on the one hand, and ecological norms, on the other. Changes in ecological norms always take place in one direction; they invariably turn harsher. There is no competition among ecological norms; they invariably move to new heights. The factors for this are objective, such as the worsening environment. The history of the Montreal Protocol does not start with Dupont’s innovations, but with the discovery of the hazardous effects of chloroflurocarbons on the ozone layer in 1973. In the meantime, the certification of fish products is a natural and sensible measure aimed at preventing the depletion of fishing resources, which may occur as early as the middle of the 21st century if all controls are lifted.

Climate change, depletion of the ozone layer, water, air, and soil pollution, desertification, depletion of fishing resources, loss of biodiversity—all of these problems require strong environmental legislation, which must and will be tightened as the situation worsens. Dupont may be accused of campaigning for regulations that played into its hands, but it may also be thanked for its key contribution to reducing the production of chemicals that damage the ozone layer. The accompanying benefits the U.S. concern has derived can be seen as remuneration for saving humanity from one of the most serious global problems (the ozone hole has stopped growing) or as an award for being the first to have grasped an urgent need of society. Regardless of interpretation, the redistribution of market power and profit moves along well-predicted lines from less ecology-friendly companies to more ecology-friendly ones.

Proceeding from the same logic, World Wildlife Fund ecologists Yevgeny Shvarts and Konstantin Zgurovsky have addressed Russian fish producers with the question: Should Russia’s “U.S. partners” really be blamed for inventing the certification by the Marine Stewardship Council, which they allegedly did just for the sake of cutting Russia’s share of the world pollock market? Or should criticism (however heretical it may sound) be directed against the fish producers and departments of the then equivalent of today’s Fisheries Agency (Rosrybolovstvo), which amid the global crisis in bio-resources proved unable to predict the requirements of the global market and processing industries and follow them on time, which resulted in the loss of two-thirds of the market?

The lack of competition among ecological norms does not mean that they cannot be regarded as a foreign policy tool in order for a country to secure its dominance. The upward trend of ecological norms cannot be reversed, but the speed of their proliferation around the globe is controllable. The protocol that outlawed chemicals depleting the ozone layer was destined to be signed and the corresponding ecological norm would firmly establish itself in all world countries. And it happened at the most beneficial time for the U.S. company. Here lies the real strength of ecological standards.

Competition between economic platforms is multi-faceted and unpredictable. According to a widely-spread story, one of the key reasons why the VHS format outperformed all others was that its developers maintained active cooperation with the porn industry, while the producers of alternative formats refrained from that and eventually had to pay for being so pious. Ecological standards are fairer. They take away benefits from environmentally dirty companies to redistribute them in favor of ecologically clean enterprises. They encourage those whose operation yields positive external effects. Such companies are found mostly in industrialized Western countries. This explains why European and U.S. companies have always paid the greatest attention to promoting ecological norms and rules.

Europe As a Global Ecological Leader

A global environmental leader since the 1970s, Europe is particularly noteworthy in this respect. Firstly, the European countries took a proactive stance within the framework of multilateral ecological initiatives; secondly, they adhered to an ambitious and comprehensive ecological policy within the European Union as an association and inside individual countries.

The EU or some of its members played a key role in drafting most international agreements that constitute the basis of modern global environmental control, such as the Convention on International Trade in Endangered Species of Wild Fauna and Flora of 1973, the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal of 1989, the Rio de Janeiro Declaration on Environment and Development, the UN Framework Convention on Climate Change, the UN Convention on Biological Diversity, the UN Convention on the Protection and Use of Transboundary Watercourses and International Lakes (all in 1992), the Kyoto Protocol of 1997, the Stockholm Convention on Persistent Organic Pollutants of 2001, the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits of 2010, etc. As for the Kyoto Protocol, it was the European Union that persuaded Russia to ratify it, thereby paving the way for its enactment in 2005. Lastly, the European Union is one of the major donors providing ecological assistance to poor countries.

The very nature of European integration as the most ambitious-ever collective project for generating public welfare ideally matches the paradigm of international environmental cooperation in addressing the very same tasks of coordinating the efforts of individual countries to address global issues. The success of the European integration project was an inspiring example for international ecological cooperation participants to follow.

The European Union has achieved excellent results in coping with ecological problems on its continent. European countries (Nordic countries in particular) place high in all environment quality rankings. Critics argue that this has been achieved primarily by exporting dirty industries to developing countries since the 1980s. This is true, but European ecological policies should by no means be underestimated. Europe was the first to actively use ecological taxes and subsidies, which are far more effective than traditional administrative methods in managing environmental issues. The European greenhouse gas emissions trading scheme has been in effect since 2005, while Europe has remained a major hydrocarbons market to this day.

Europe began the practice of adopting long-term “green” strategies with clearly identified benchmarks. The 20-20-20 program, the most important of these projects, aims to cut greenhouse gas emissions by 20 percent by 2020 to the 1990 level, increase the share of renewable energy sources in energy consumption to 20 percent, and downscale the consumption of primary fuel to 20 percent. Some countries have more ambitious plans. Denmark and Sweden have announced they will stop using fossil fuels by 2050. Germany expanded the vocabulary of other countries with the newly-coined term Energiewende, or “energy turn”—the name of Germany’s energy program envisioning a drastic reduction in greenhouse gas emissions and the domination of renewable energy sources in the national energy balance by 2050.

Europe has long been an ecological standards trendsetter. The European standards of motor fuel consumption are the most well known of all. In 1988 the first standards were introduced to restrict the maximum permissible emissions of carbon monoxide (CO), hydrocarbons (HC), and nitrogen oxides (NOx) for all heavy trucks, to be eventually dubbed Euro-0. Transition from Euro-0 to Euro-6 (introduced in 2015) largely determined automotive industry trends in Europe and the world.

The 2009 Renewable Energy Directive was another example of how the European Union establishes and spreads ecological standards. For the first time the directive formulated ecological criteria to be observed in the manufacturing of biological fuels. The directive concerned EU countries only. It implied no ban on the import of unecological fuel from third countries, but it sounded a strong message to biofuel producers around the world. In the longer term the European Union used bilateral consultations with trading partners to convert its norms into an unofficial international standard. And in 2012 the EU issued another directive encouraging the development of second-generation fuel. Its role is likely to be the same.

New Obstructions

Climate change is the number one global problem today. Climate summits are capable of bringing together more than a hundred heads of state and government. It is small wonder, therefore, that the leading role in the promotion of an international climate regime was a key component of Europe’s global “green” leadership. And it is in this sphere that Europe’s foothold has loosened in recent years.

The 2009 climate summit in Copenhagen rang the first bell of alarm. The conference had been expected to adopt another agreement that would replace the Kyoto Protocol. That did not happened. The leading developing countries (mainly China and India) refused to assume considerable commitments to cut greenhouse gas emissions. Despite Denmark’s presidency, European countries for the first time found themselves on the sidelines of climate change talks. The basic provisions of the final document, which postponed the agreement’s adoption for years, emerged from negotiations between China, India, and the United States.

The next failure was the climate conference held in Warsaw in 2013. That conference will be remembered mostly for the lack of any significant results and by demarches by a number of developing countries (whose delegations at a certain point walked out) and by representatives of ecological organizations. It was an unprecedented case in the history of climate talks. The blame for the conference’s failure was placed squarely on the host country. Poland was reproached for organizing a parallel coal summit, which annoyed most participants. While the talks were still in progress, the presiding environment minister was dismissed. His resignation came as another illustration of failure.

The fiascos in Copenhagen and Warsaw upset the European leadership at the climate talks. Europe had a chance to regain some of its positions in 2015, when Paris hosted another climate conference that had a special significance. The delegations were to complete what they had failed to accomplish in Copenhagen—adopting the post-Kyoto agreement. Most participants appreciated France’s efforts to organize the event. The summit was successful, but Europe’s own dividends were insignificant. On the one hand, all key arrangements that would eventually be adopted had been achieved at bilateral talks between the U.S. and China and the U.S. and India. On the other hand, the terrorist attacks in Paris just two weeks before the conference considerably spoiled the climate agenda. The leaders of all major states who gathered in Paris were far more concerned about the prospects for creating an anti-terrorist coalition than about climate change.

There are many reasons why Europe has lost its status as the leader of climate change talks. Some of them are objective: the EU’s share in the overall amount of emissions is steadily declining and its ability to influence global trends of greenhouse gas emissions shrinks accordingly. The weaknesses of European policies are quite obvious, such as specific political failures (like the one in Warsaw) and the growing divergence of member-countries’ interests. Unanimity has long been the EU’s special strength, but as its membership has expanded and internal problems multiplied, consensus has vanished. Poland plays a growing role in the European Union. Its energy industry is heavily dependent on coal and Poland is far from moving along the “green” track. The Fukushima nuclear power plant disaster in Japan caused another major rift. While the French president dismissed all nuclear power-related fears as “irrational,” Germany hurried to end its own nuclear power generation, while continuing to import NPP-generated electricity from other countries, including France. Whereas previously Europe’s leading nations had a common vision of the continent’s energy industry, now their opinions have drifted apart, mostly for ideological reasons and not technical ones.

The European system of trade in gas emission quotas is growing increasingly more sluggish. Once considered an impeccable ecological policy tool, the emissions trade has failed to cope with the economic crisis. Decline in production volumes has resulted in an oversupply of emission quotas and a slump in prices. By the end of 2012 prices sank to five euros a ton, a level so low that the system stopped influencing business behavior in any way.

Low prices for emission quotas encouraged European companies to increase imports of relatively inexpensive coal from the United States, where it was losing competition on the local market to still cheaper shale gas. The situation looked quite remarkable: Europe (including its leader Germany), which had for many years kept talking about the gradual decarbonization of the economy, suddenly developed a reverse trend towards “carbonization.” The Coal-fired power generation boom did not last more than several years, but it greatly harmed the European Union’s prestige as the number one “green” crusader. Moreover, nobody would swear this will not happen again: the United States has adopted very harsh legislation for its coal power plants. This means that coal will continue to be phased out from U.S. domestic market and part of it will most likely go to Europe.

Europe stumbled again in its ecological policies in June 2012, when an attempt was made to spread the quotas trading system to foreign air carriers operating flights to Europe. Some of the quotas were to be auctioned off. In fact, foreign companies would have had to pay for them. The United States, China, Russia, Japan refused, along with 27 other countries. The demand to apply quotas to the entire route, and not just over EU territory, drew the angriest protests. The measure was eventually revised, but that did not help. The restrictions on air carriers were first postponed for twelve months, then—after corresponding discussions inside the International Civil Aviation Organization—to 2020.

However, the Volkswagen emissions scandal dealt the strongest blow to the European Union’s reputation in the global ecological arena. In September 2015, the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board said that Volkswagen had equipped its diesel engines with special software that misleads specialists. The software showed levels of nitrogen oxide emissions that matched EPA requirements only during test drives, while during actual driving the toxicity was much higher. At least 11 million Volkswagen vehicles producing nitrogen oxide emissions in amounts far exceeding permissible levels had been sold around the world before the company was exposed. The scandal proceeded in November when Volkswagen officials said that CO2 emissions from the engines of 800,000 vehicles were above the declared parameters. In the latter case the scandal involved not just diesel cars, but those with gasoline engines, too.

The consequences may be catastrophic for Volkswagen. Not only will the company have to pay billions of dollars in fines, but it has already sustained a tremendous loss to its reputation and now may face a long line of lawsuits from its customers. The company has already paid compensation to some customers. Also, Volkswagen may be forced to compensate for the extra taxes the owners of Volkswagen vehicles will be forced to pay for extra CO2 emissions.

The Volkswagen scandal has shaken Europe’s entire automotive industry. Other manufacturers will have to brace for harsher tests. In addition, standards will be revised again. About half of all motor vehicles in Germany are diesel-powered, while the share of diesel cars in the United States is a mere one percent. Diesel engines have long been a matter of special pride for Europeans. They consume far less fuel and emit far less carbon dioxide. However, several years ago their environmental friendliness was called in question because nitrogen oxide emissions are far higher in diesel engines. That is precisely what is addressed in the Euro-6 standard. However, the extra exhaust cleaning technologies needed to match the new rules reduce the diesel fuel consumption advantage virtually to nothing. Apparently, Volkswagen tried to circumvent this problem with fraud, thereby killing the diesel engine altogether.

The harm caused to the reputation of European environmental regulators is enormous. Much criticism has been directed at the German authorities and the European commission not only for failing to expose this kind of fraud earlier, but also for being too hesitant when the scandal broke. Whereas in the United States Volkswagen was instantly charged a mammoth fine and half a million of its vehicles were pulled from the market, so far Europe has confined itself to developing a new system of tests. In a situation like this many people have been asking whether the EU’s ecological standards system is trustworthy at all.

The U.S. Is the New Global Climate Policy Leader

Under President Barack Obama the United States has come close to snatching away Europe’s status as the number one “green” policy champion. The U.S. not only managed to spearhead international cooperation on the most important problem of climate change, but also demonstrated its ability to promote the ecological standards it finds most advantageous, which was most graphically seen against the background of EU setbacks over the past few years.

Former U.S. President George W. Bush was one of the least popular public figures in the eyes of the “green” community around the world. His policy, which was confined to ignoring ecological issues, followed the interests of the fuel and energy sector. Under Bush, the United States was in fact absent from international cooperation on ecological issues. For instance, the U.S. did not ratify the Kyoto Protocol.

During his first election campaign Obama proclaimed his ambition to put the United States on the “green” track of development. He also promised to turn the country into a global leader in the struggle against climate change. The timing of the “green” turn was perfect. Firstly, during the financial and economic crisis most industries were undergoing structural reorganization anyway, which contributed to the relatively painless introduction of clean technologies. Secondly, the U.S. experienced a shale revolution. The share of natural gas in the energy balance soared and began to replace coal. This made it possible to drastically cut greenhouse gas emissions starting in 2007, thus laying the groundwork for the struggle against coal-fired power plants, the worse sources of environmental pollution.

At the same time, the bipartisan system proved a major hindrance to the United States’ quest for a “green” economy. The Republicans, who traditionally have tight links with the energy businesses, emphatically dismissed any ecological initiatives. Their resistance prevented Congress from adopting an energy act in 2010 that envisaged ambitious goals in the field of renewable power sources. Moreover, the proposed energy act would have introduced a national system of greenhouse gas trading quotas identical to the program already existing in Europe.

The obstructions to stepping up international cooperation were still worse. In order to get Senate approval, any international commitment has to garner 67 votes (out of 100 total votes), which is practically impossible, especially considering the Republicans’ adamant stance. As a result, contrary to Obama’s initial promises, the United States has not ratified the Kyoto Protocol. Nor did it furnish any assistance to adopting a new binding agreement that was to be signed in Copenhagen in 2009. The United States and Obama himself found themselves in the position of lobbyists expected to persuade China and India to pledge significant greenhouse gas emission cuts. But the mission proved impossible. In that sense, the Copenhagen failure hit both the EU’s “green” leadership and the U.S. ambition to become the leader.

The Obama administration’s solution to the legislative stalemate was elegant. In 2009 EPA Director Lisa Jackson declared that greenhouse gases were a threat to the public health (which is rather doubtful from the scientific viewpoint). Therefore, greenhouse emissions fall under the Clean Air Act of 1990 and are subject to direct EPA control. That means that a number of climate control instruments (with the exception of taxes and a quota trading system) can be launched without Congressional approval.

In 2011 the U.S. adopted new and extremely ambitious fuel consumption standards mandatory for cars and light commercial vehicles. Power production is another, and still more important, sphere of activity to control. The U.S. Clean Power Plan (the final version was adopted in August 2015) envisages that each state will implement plans to reduce emissions. This can be achieved in a number of ways, such as investing in renewable energy sources, increasing energy effectiveness, developing the nuclear power industry and gas extraction, and reducing coal consumption. Coal-fired electric power plants were the hardest-hit industry.

Transition to a pro-active climate policy in the United States gave the Americans an advantage over their key partners at climate talks. In 2014 the leaders of the United States and China came out with a joint statement in which the United States pledged it was prepared to cut emissions by 26 to 28 percent to the 2005 level by 2025, while China promised to stop emissions growth by 2030 and build up the share of renewable power sources in its energy balance to 20 percent by 2030. That agreement proved a major landmark before the Paris conference. In fact, it was tantamount to China’s consent to participate in a yet-to-be concluded agreement. Around the same time it became evident that the agreement would not be legally binding in regards to the emissions cuts. That contradicted Brussels’ expectations, but at the same time fully suited the White House, because it did not require Congressional approval. In January 2015 it was agreed to expand U.S.-Indian climate cooperation, while the dialogue with the leading European counties was conducted within the G7. It would not be an exaggeration to say that the Obama administration eventually managed to propel the United States to become the indisputable leader in international climate control cooperation.

Megaregional Agreements and the Environment

The climate crusade was not the only battle the United States launched on the ecological front. The possibility to impose sanctions on the abuser is critical for using environmental legislation as an instrument of domination. In international relations this possibility is rather limited. International trade is the sole sphere where sanctions are applicable in practice. This is precisely why in the 1990s the United States lobbied to peg the solution of ecological disputes to the WTO mechanism. For a long time the United States suffered failure after failure. Although ecological problems may serve as the basis for restricting access to the market, in practice this is practically impossible to achieve. Until recently an overwhelming number of conflicts between free trade and the prevention of ecological damage were resolved in the former’s favor. The United States holds the record in the number of environment-related disputes within the GATT/WTO format. In all cases it eventually lost. The arbitration agency declared that the U.S.-imposed restrictions ran counter to the agreement.

Attempts to enhance the ecological factor in trade control in the 2000s slowed alongside the Doha round, while the WTO plunged into crisis. The United States, which initially positioned itself as a champion of global trading regime, refocused on the creation of two mega-regional trade agreements—the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trading and Investment Partnership (TTIP). Formally, neither contradicts WTO rules, but in fact both make these rules meaningless as universal standards for the simple reason that both the TPP and TTIP encompass more than half of international trade. The same applies to ecological issues.

The Trans-Pacific Partnership united 12 countries, which account for about 40 percent of the world’s GDP and up to one-third of the international trade turnout. Concluded on October 5, 2015, the TPP agreement contains an entire chapter devoted to the environment. The objectives of this chapter are “to promote mutually supportive trade and environmental policies; promote high levels of environmental protection and effective enforcement of environmental laws; and enhance the capacities of the Parties to address trade-related environmental issues, including through cooperation.” Among the chapter’s main provisions is a ban on subsidies on fishing that lead to the depletion of fishing resources, except for cases in which such subsidies are essential for maintaining food security. The agreement covers eight of the 20 countries with the largest catches, while the level of international cooperation in protecting fishing resources is low. Naturally, the agreement is to serve as an important tool in easing the problem. Also, the TPP agreement stipulates the obligation of its signatories to abide by a number of ecological agreements, such as the Montreal Protocol, the International Convention for the Prevention of Pollution from Ships, and the Convention of International Trade in Endangered Species of Wild Fauna and Flora.

By and large, the environment chapter in the TPP is a framework one. Many environmental organizations have criticized the published text for lacking specifics, for admitting too many loose interpretations, and for failing to mention some important ecological problems (including climate change). To a far greater extent environmentalists are concerned about the agreement’s chapter devoted to investment, which is probably more important for the condition of the environment than the subject matter section. The chapter describes a mechanism to settle issues between the investor and the state—the International Centre for Settlement of Investment Disputes (ICSID), which in fact empowers companies to demand from the corresponding government compensation for any change in the rules of ecological policy control.

The North American Free Trade Agreement (NAFTA), where a similar mechanism is operational, provides an example of how this may work. For instance, the government of the Canadian province of Quebec was forced to pay the American company U.S. Lone Pine $250 million for banning the production of shale gas in the region’s territory for environmental reasons. The ICSID mechanism enabled Nobel Prize winner, economist Joseph Stiglitz and his co-author Adam Hersh to describe the TPP as an agreement on controlled, rather than free, trade.  One that is controlled by large multinationals.

It is too early to judge how correct their assessments are. Generally speaking, whenever a conflict occurs between free trade and protection of the environment, the TPP agreement follows the same principles as the WTO. This means that there is a large list of exceptions giving the government a free hand to use the new environmental controls even if they run counter to investors’ interests. Thus, the question remains just how exactly decisions will be made in controversial situations. A major TPP innovation in this respect is the establishment of a special environmental board involving representatives from all countries, who would get together for consultations on any disputed issue before the standard machinery of settling trade disputes is set in motion. Anyway, it would be appropriate to recall once again that within the WTO the United States mostly suffered defeats in disputes concerning the environment. Within the TPP its chances in such cases are going to be much better.

In the near future, the Trans-Atlantic Trade and Investment Partnership will complement the TPP as part of the new architecture for controlling world trade that the United States is building. The TTIP incorporates the United States and the EU countries and accounts for 60 percent of global GDP and more than one-third of international trade. The TTIP agreement has not been signed yet, and outsiders have not seen the draft. However, according to available leaks, the environment-related scheme will be similar to that of the TPP: soft obligations regarding the implementation of key environmental agreements plus the dispute settlement mechanism that allows investors to sue those countries that tighten environmental legislation.

The TTIP envisages the convergence of standards—up to the creation of a common space where the same rules for all would be in effect. This makes Europe’s Greens suspicious, because environmental control in Europe has been traditionally tighter. The EU follows a precautionary principle: before any substance can be used the manufacturer must prove it is safe. In the United States it is the other way round—it can be used until its hazardous effects are proven. For this reason genetically modified ingredients are essentially absent from European products, while they are present in 70 percent of finished foods in the United States. In the European Union 1,200 substances are prohibited from use in cosmetics, in contrast to just twelve outlawed in the United States.

Contrary to the apocalyptic expectations of some environmental organizations, it is very unlikely that the European Union will soften its own ecological rules. But there is no doubt that the signing of the TPP will slow the climb to new heights. As a result of U.S. pressure at the TTIP talks, there have already been reports that European legislators have postponed, at least until 2016, a ban on 31 pesticides, while the original intention had been to implement it in 2014. Of no smaller concern is the perspectives for using the mechanism of settling disputes between the state and investors. According to the non-governmental organization Friends of the Earth Europe, about 60 percent of such disputes launched against EU countries within the framework of the existing free trade agreements involve ecological issues. As a result, the Europeans had to pay $3.5 billion to private companies. Should U.S. corporations be plugged into this process, the figure may soar immeasurably.

Whatever the case, the U.S. will be able to use the TTIP as a leverage to put pressure on the European Union in terms of setting new ecological standards. How strong such pressure can get will be seen after the talks are over. Because of the Volkswagen scandal, which erupted precisely at the moment when the talks entered the decisive phase (and it is important that the violations were exposed in the United States), it is easy to predict that the European Union will not have very many arguments to defend its positions. Europe’s status of the world leader in setting environmental standards may be irretrievably lost.

*  *  *

Environmental standards are bound to be the focus of public debate increasingly often in the next several years. And not just because environmentally conscious consumers in industrialized countries will pose increasingly stricter requirements on the ecological safety of the products they consume and manufacturers will have to cater to public demand. Another reason is the global domination in setting ecological standards has been gradually drifting towards the United States. At the same time, the U.S., in contrast to the EU, is prepared to employ this tool not just to bolster its own image, but also to dictate rules to the global economy. The TPP and the TTIP are not the only two resources. For instance, the United States has been persuading its allies not to join the Asian Infrastructure Investment Bank in view of China’s inability to guarantee the ecological safety of projects to be carried out under its auspices. It is hard to imagine that European countries might mention environmental problems in such a context.

Russia’s largest companies have been gradually developing an awareness of the strength of ecological standards. Just a couple of years ago it was hard to imagine RUSAL’s owner, Oleg Deripaska, would urge world leaders to tighten climate control and ask the economy-related segment of the Cabinet of Ministers to introduce a domestic market of quotas for greenhouse gas emissions. This is already happening today, as RUSAL, which uses mostly hydropower, is ecologically far cleaner than its Chinese competitors, who depend on coal-fired power generation. RUSAL’s goal is to cash in this advantage.

And yet Russian businesses are not in the habit of paying much attention to environmental matters and remain extremely vulnerable to the gradual tightening of ecological rules. Government economic regulation in Russia has been used over the past decade as a weapon against undesirable investors (recall the Sakhalin-2 project) rather than as a means of generating competitiveness. The time is ripe for Russia to brace for new realities and to start by tightening environmental standards within its national borders. Otherwise, Russian producers will have nothing left to do but complain once again about a lost market niche, just like the pollock fisheries.

} Page 1 of 5