Adjusting carbon tax at the border GATT compatibility

Transcription

1 Adjusting carbon tax at the border GATT compatibility Sadeq Z. Bigdeli World Trade Institute, Berne Model WTO 2008, University of St. Gallen 06/05/2008 1

2 Outline What is Border Tax Adjustment (BTA)? Why BTA? (Offensive v. defensive objectives) PPM-based BTA under GATT US context 2

3 Basic BTA BTA: a common tool in trade policy regulation BTA in Value added tax (VAT) according to the destination principle exports get rebates and imports get taxed perfectly compatible under GATT (II.2) as long as it is imposed on products not producers (indirect v. direct tax) 3

4 Article II:2 (a) Nothing in this Article shall prevent any contracting party from imposing at any time on the importation of any product: (a) a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III* in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part; Thus sales tax is adjustable but e.g. income tax is not! 4

5 BTA for environmental purposes why? Environmental taxes differ across borders The higher the environmental taxes, the more companies competitiveness is affected Not taxing pollutants is not a subsidy according to the ASCM [US FSC] BTA seems to be the only viable option! 5

6 Use BTA as a stick? Highly controversial Imposing a Kyoto tax or a tariff on non- Kyoto Members? Clear violation of MFN Justifiable under GATT XX? 6

7 BTA on foreign emitted CO2 A defensive approach for acting countries to address competitiveness concerns To what extent is the competitiveness of a whole economy at stake? A tax rate consistent with domestic rates but on carbon emissions occurring abroad Discrimination? (NT violation) 7

8 Article II: 2 (a) compatibility Is a carbon equalization levy an indirect tax adjustable under II:2 (a)? ASCM footnote 61 on export-side BTA allows for energy content adjustment? GATT superfund in principle allowed for an adjustment for a tax on certain chemicals used in the process of producing products the polluting effect of which happened abroad (a PPM-based tax?) 8

9 Article III and PPMs-based BTA PPMs: product-related v. non-product related Like product and the PPM issue: Japan Alcohol case: rejects aims and effect (adopted in CAFE) Adopts 4 criteria for likeness EC Asbestos: consumer preferences leading to unlikeness? [Baghwati& Mavroidis v. Howse) Dominican Republic Cigarettes (P. 96) Not related the foreign origin of the product. 9

10 PPM-based measures under XX No doubt that PPM-based measures could well be consistent with GATT XX Shift in jurisprudence from Tuna-Dolphin to Shrimp- Turtle! Basic condition laid down in Shrimp 21.5 avoid unilateral approach (Good Faith efforts) take into account carbon curbing efforts already taken by countries with a view to developing countries due to a lack of similar conditions (Pauwelyn) Fair process in calculations (US Gasoline) 10

11 BTA in context: the US Example Pre-Bush CC policy: Clinton/Gore administration signed (only symbolically) but not ratified Kyoto. Bush CC policy: until almost a year a go was in denial! Now it advocates a technology-centric approach It apparently opposes an emissions target approach especially one that does not include China and India. on 16 April this year Bush announced that he wants US emissions to peak by 2025 while Europe proposes a reduction of at least 20% by 2020 relative to 1990 levels (EurActive) 11

12 Post-Bush CC policies All three presidential hopefuls have CC policies more in line with the EU (Stephen BOUCHER--Notre Europe) Presidential hopeful Obama 96 Clinton 90 McCain 26 Environmental record according to LCV (out of 100) Position on Climate Change - Proposes a global energy forum - Proposes much more money than Clinton for RES proposes the establishment of an E8 Appears genuinely strong on climate change, less so on broader environmental issues. Supported CC Bill in the US Congress Sanders-Boxer (80% below 1990 levels by 2050 with 100% auctioning) Sanders-Boxer McCain-Lieberman (does not achieve the above-mentioned level) 12

13 BTA in current US Bills Two Bills contain border offsetting measures (Bingaman & Specter, Lieberman & Warner) There is much political support for some kind of a border measure provision in CC legislation that includes a mandatory cap& trade system (Brewer 2008) 13

14 Border Bills core similarity U.S. importers must buy international reserve allowances to offset lower energy costs of manufacturing covered goods coming from covered countries (Brewer 2008) 14

15 Covered foreign countries Countries are excluded from coverage if they (virtually identical): have taken comparable action to U.S. are least-developed have GHG emissions below de minimis level (0.5% of world emissions) (Brewer 2008) 15

16 Covered goods Identified by President/EPA Admin., by rule, as GHG intensive good (primary products: Iron, steel, aluminum, cement, bulk glass, or paper; or other manufactured product sold in bulk for a further manufacture and manufacture of which generates GHG emissions comparable, on emissions-per-dollar basis, to those produced in U.S. (Brewer 2008) 16

17 Question Are the border measures included in these two compatible with WTO law??? 17

18 End of BTA presentation Sadeq Z. Bigdeli 18