By Daniel J. Dudek

China and the United States on Monday renewed their bilateral agreement for cooperation on environmental protection.

While this event may not take as much front page space as the other issues on the agenda between the two great nations, it is nonetheless a critical achievement of Premier Wen Jiabao's visit to the United States for the future of the planet.

Other issues such as China's currency exchange rate policy, joint efforts to promote peace in the Korean Peninsula, and the Taiwan question will no doubt occupy most of the attention.

However, we should look below the surface to understand the significance of this new environmental agreement.

Traditionally, competitive concerns in the United States have focused on the domestic policies of trading partners as an explanation for unfavorable trade balances. Most recently, the United States has pointed a finger at the valuation of the renminbi, China's low labor costs, and the alleged slow pace of China's implementation of its World Trade Organization obligations.

Although differences in environmental policies have not yet emerged as an added concern from US manufacturers, they have been frequently cited as a reason for their competitors' success. For example, one of the reasons President George W. Bush gave for the change in US policy toward the Kyoto Protocol was the lack of equivalent obligations on developing countries.

We can expect to hear more of this type of scapegoat rationale as the United States approaches its presidential election next year.

The renewed environmental cooperation agreement between the United States and China is an opportunity for both nations to put this issue to rest.

China has come a long way in improving its environmental management system. The government has recognized the importance of environmental issues, not only from the perspective of meeting the expectations of international trading partners but, more importantly, to meet the needs of the Chinese people for a healthy environment.

For example, in 1995, China established the policy known as Total Emissions Control (TEC) in which the total annual emissions of key pollutants such as sulphur dioxide (SO2) are set in fixed amounts. By 2005, the national limit on SO2, a key ingredient of acid rain, has been set at 10 percent below 2000 levels.

This remarkable policy commitment is little known outside China. It took the United States more than 13 years to cap national SO2 emissions in the acid rain program established by the 1990 Clean Air Act Amendments.

When then Premier Zhu Rongji visited the United States in 1999, his administration was faced with the problem of how to accelerate economic reform in China by speeding up the introduction of market forces. It was natural that his interest would be sparked by the innovative acid rain program operating in the United States and a bilateral agreement to assess the feasibility of acid rain emissions trading in China followed shortly.

Environmental Defence, a US-based nonprofit environmental non-governmental organization, developed pilot emissions trading programs in Nantong and Benxi in cooperation with the State Environmental Protection Administration which helped successfully conclude that bilateral agreement with an affirmative answer.

Premier Wen has an embarrassment of riches as he visits the United States this week. China's economic growth is the envy of the world. Yet, this torrid pace of growth brings with it questions about the capacity of the existing environmental management system to respond to this challenge.

Here, some of the hard lessons from the US experience in the importance of integrated management, enforcement, and emissions trading may help China get all of the competing incentives facing enterprises in line.

The goal is to keep all of the horses hitched to the wagon pulling in the same direction.

Some of the elements in focus in the new agreement include air quality management, public health, clean energy and transportation, exactly the set of priorities facing the country's leaders as China prepares to host the Olympic Games in Beijing.

These issues could be addressed by strengthening regional coordination in energy and air pollution management through the application of new policy tools like emissions trading while emphasizing those pollution sources most affecting air quality and citizens' health. If successful, these initiatives would create the foundation for a truly well-off society.

China recently celebrated the technological tour de force of putting a man in space. In the United States, it was that same view of the Earth from men in space that helped us understand that the planet we share is indeed a spaceship of its own. As with any spaceship, it has its limits. What we have learned is that these limits can be effectively and economically managed if we recognize them, provide clear legal responsibilities to the companies on the ship with us, and give them the freedom to develop new solutions to environmental problems.

Our greatest resource in solving environmental problems is human ingenuity. The lesson and the challenge for the United States and China is to harness our respective entrepreneurial energies for the benefit of the environment, rather than against.

The agreement signed Monday is hopeful because it includes a focus on national institutions to unleash powerful market forces for environmental protection as well as legal tools to contain and direct their use for the benefit of society. The new bilateral agreement between the two nations can help build a foundation for environmental security in which companies are free to compete without seeking advantage at a cost to the environment.

(The writer is chief economist at Environmental Defence. He has been working in China since 1990.)

(China Daily December 11, 2003)