Wednesday, 2 May 2012

The new protectionism - EPA

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I met with a client today who is a major shipper of earthmoving, mining and construction machinery. Apart from the usual conversation about freight rates, shipping lines and quarantine compliance, our conversation turned to the EPA(Environmental Protection Authority) rules around diesel engines that powers equipment.


While I think we agree that reducing emissions is desirable and important, the hypocrisy and lack of fairness starts when you have different EPA agencies around the world producing their own rules on what engines will comply for their country. This has resulted in manufacturers building multiple engine types depending on what rules apply in the country the machine is destined for. There are differing "tiers" of engines for various countries.


Most manufacturers have realised that in the name of saving the environment, they can conveniently use this EPA legislation to protect their markets from imported machinery which may be fitted with engines that do not comply. They are building machines so that once exported, they can never come back or be sold into other markets with different EPA compliance requirements.


When I studied as a customs broker and freight forwarder there was a world trade agreement called GATT. The General Agreement on Tariffs and Trade. GATT existed as the World Trade Organisation tried to moderate and control protectionism to keep trade relatively fair. 


Protectionist policy is essentially countries using import duties and tariffs to protect their local manufacturers and markets from cheaper imports. As globalisation and free trade agreements between countries gained momentum GATT was abandoned and protectionism has fallen out of favor and is now considered archaic and politically incorrect. As an aside, try telling that to workers in the western world who are losing their jobs in manufacturing to Asian competitors right now though! This might be a somewhat wild idea but protectionism, in this current tough global economy, might even make a come back as countries try and save whole industries and jobs. It would also raise government revenue to pay down sovereign debt. Anyway perhaps there is a future blog in that topic for another day!  


During the conversation with my client today I said to him that clever manufacturers are leveraging EPA rules as effectively "protectionism" under a different name. He agreed. Therefore EPA rules are already impacting "fair trade" and will gradually and ultimately lead to less global trade of heavy machinery unless something changes. In the old days of GATT, someone would have been shouting "not fair" and the WTO would be stepping in but who would dare do this now and then be seen to not be environmentally responsible? 


So what would be environmentally responsible then? To me there should only be one standard of engine produced. That being the one with the lowest emissions. Why bother even building anything else? Forget the rest. That's what environmental responsibility looks like to me. Now I am just a humble shipping bloke, not an engineer or mechanic, and I suspect differing fuel quality in some places may present a challenge to this idea. I don't know but the whole planet breathes the same air ultimately so this situation seems ridiculous and irresponsible to me.


This reminds me of another absurd situation in the name of protecting the environment in my own country, Australia. Here the Department of Environment and Heritage is wanting to ensure that air conditioning gas in machinery is of a type that is non-ozone depleting. Fair enough but this caused the department to institute an import permit regime on all imported machinery and vehicles that have air conditioners. As yet most countries don't even have any rules on this so consequently many machines air conditioners are still filled with ozone depleting gases. 


To avoid having to apply for import permits nearly all of our clients elect to get their supplier to evacuate the gas overseas before the machine is loaded on the ship to Australia. This takes me back too a point already made in this blog that the whole planet is sharing the same air ultimately so this is stupid. 


My company has pointed out to the department that effectively the import permit system is actually counter-productive not only for Australia, but the ozone layer no matter what country you live in. The response:- "That's okay, here in Australia we are doing the right thing and the rest of the world needs to catch up". Meantime somewhere in the world more ozone depleting gases are getting released into the same atmosphere we all share.


The sooner the whole world converges on truly uniform standards on EPA rules the better off global trade and the environment we live in will be.


All for now,


Brad Skelton


The Shipping Bloke