Feb. 20 (Bloomberg) -- President Barack Obama’s plans to limit greenhouse-gas emissions may be stymied by the specter of an international trade war.

U.S. Steel Corp., American Electric Power Co. and the AFL- CIO, the largest U.S. federation of labor unions, are all pressing lawmakers for protection against imports from countries that won’t have to bear the costs of any new measures to curb global warming.

The companies say fees might be needed to prevent price- undercutting by manufacturers in countries that won’t match U.S. climate-change standards. Lobbying groups for exporters such as Microsoft Corp. counter that imposing penalties on imports may violate World Trade Organization rules and spark retaliation by China and other nations.

“Climate change is going to be the big issue of the next year, and no one has really grappled with the trade aspects,” said Jake Colvin, vice president at the Washington-based National Foreign Trade Council, whose members include Caterpillar Inc., Exxon Mobil Corp. and Microsoft. The idea of assessing fees on imports is “alarming,” he said.

Obama says he wants to cut carbon-dioxide emissions, which contribute to global warming, by 80 percent from 1990 levels by 2050. “This is a worldwide issue that we are going to have to confront,” Obama said in Ottawa yesterday.

The cap-and-trade program favored by the president would set limits on greenhouse-gas emissions and let companies trade pollution allowances on a market.

Kyoto Protocol

The international trade implications may trip up efforts to pass legislation this year, just as they helped scuttle U.S. acceptance of the Kyoto accord on global warming, said Kevin Dempsey, a lawyer at Dewey & LeBoeuf LLP in Washington.

“This is the heart of the debate that stopped the Kyoto Protocol,” Dempsey said in an interview. Even if Congress decides it wants to impose import fees, figuring out how to calculate them would be complicated, he said.

The U.S. didn’t join the Kyoto Protocol, the only international agreement to stem climate change, after the Senate in 1997 unanimously passed a resolution expressing opposition because it didn’t include requirements on developing countries.

China and India so far have resisted international limits, as did the U.S. under President George W. Bush. If China and India don’t agree to pollution-reduction targets, their companies would have a pricing advantage over U.S. manufacturers that take on the added costs of emissions targets, said Tom Conway, vice president of the United Steelworkers union.

‘Huge’ Issue

New greenhouse-gas limits might also prompt U.S. manufacturers to move operations to China and continue emitting pollution, hurting the American economy and “undermining the purpose of the legislation,” he said.

Without levying fees on carbon-intensive imports, the U.S. might lose 1 million factory jobs, said John Surma, chief executive officer of Pittsburgh-based U.S. Steel.

“The issue of global competition is huge,” Surma told the Congressional Steel Caucus on Feb. 4. “If you don’t take care of the international aspect, you put us out of business.”

Dan DiMicco, CEO of Charlotte, North Carolina-based steelmaker Nucor Corp., told the same panel that his company had planned to build a $3 billion iron-making plant in Louisiana. The weak U.S. economy and potential limits on greenhouse-gas emissions “put that investment in doubt,” DiMicco said.

The U.S. Chamber of Commerce, the largest lobbying group for American business, says charges on imports, termed border adjustments, may hurt U.S. producers by raising the price for foreign-made components and creating a backlash against American exports.

‘Border Adjustments’

“We’re skeptical,” said Christopher Wenk, the top trade lobbyist for the chamber. “There is a domino effect here; it will have an impact on importers and exporters.”

Meeting the demands of U.S. steelmakers and unions may prompt objections from the European Union and Canada, which lobbied against a “Buy American” provision in the stimulus legislation that says U.S. goods must be used for infrastructure projects.

“I don’t see border adjustments or tariffs as one of the things we should be contemplating,” said John Bruton, the European Commission’s ambassador to the U.S.

Ten Democratic senators sent a letter to Majority Leader Harry Reid of Nevada last year citing the need to protect U.S. manufacturers among their concerns with climate-change legislation that was then under consideration.

“The cost of cleaning up the environment can’t be borne only by Americans and have the Chinese not have to bear those costs,” Senator Sherrod Brown of Ohio, who signed the letter, said in an interview. “If there’s not a border adjustment, I don’t know how we pass climate change.”

Incentive for Limits

Climate-change legislation sponsored last year by Senator Joe Lieberman, a Connecticut independent, and former Senator John Warner, a Virginia Republican, included a provision that required importers of carbon-intensive products made in countries without similar regulations to buy allowances at the border after a period of negotiations. The bill failed in the full Senate.

In addition to protecting U.S. industry, such provisions are designed to use access to the American market, the world’s largest, as an incentive for other countries to limit emissions, said Andrew Shoyer, a lawyer at Sidley Austin LLP in Washington.

Democrat Mike Doyle of Pennsylvania, a member of the House Energy and Commerce Committee, told steelmakers this month that he would set up private meetings with that panel’s chairman, Democrat Henry Waxman of California, to make sure climate legislation doesn’t harm them.

“If the actions we take simply transfer manufacturing to Brazil and China, then we haven’t accomplished much,” Doyle said.

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Catherine Dodge in Washington, at Cdodge1@bloomberg.net.

Last Updated: February 20, 2009 00:00 EST