Carbon tariffs and the WTO: An evaluation of feasible policies

Journal of International Economic Law

Volumn 12, Issue 3, 2009, Pages 749-800

  Veel, Paul Erik ^a  

^a Supreme Court of Canada ^*  (Canada)

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EID: 70349515148     PISSN: 13693034     EISSN: 14643758     Source Type: Journal    
DOI: 10.1093/jiel/jgp031     Document Type: Article

References (226)

1. For a brief yet broad survey of the possible policy options, see Harro van Asselt and Frank Biermann, 'European Emissions Trading and the International Competitiveness of Energy- Intensive Industries: A Legal and Political Evaluation of Possible Supporting Measures' (2007) 35 Energy Policy 497 [Asselt and Biermann]. For an overview of the WTO-legality of a variety of state measures to fight climate change
2. see Meinhard Doelle, 'Climate Change and the WTO: Opportunities to Motivate State Action on Climate Change Through the World Trade Organization' (2004) 13 RECIEL 85. For a brief yet broad survey of the possible policy options
3. see Harro van Asselt and Frank Biermann, 'European Emissions Trading and the International Competitiveness of Energy- Intensive Industries: A Legal and Political Evaluation of Possible Supporting Measures' (2007) 35 Energy Policy 497 [Asselt and Biermann]. For an overview of the WTO-legality of a variety of state measures to fight climate change
4. see Meinhard Doelle, 'Climate Change and the WTO: Opportunities to Motivate State Action on Climate Change Through the World Trade Organization' (2004) 13 RECIEL 85.
5. See also ZhongXiang Zhang and Lucas Assuncao, 'Domestic Climate Policies and the WTO' (2004) 27 World Econ 359.
6. Reuters, 'China says 'Carbon Tariffs' Breach WTO Rules' New York Times, 3 July 2009, available online at http://www.nytimes.com/reuters/2009/07/03/world/ international-uk-china-climate.html accessed 29 July 2009.
7. See, eg Gavin Goh, "The World Trade Organization, Kyoto, and Energy Tax Adjustments at the Border' (2004) 38 J World Trade 395 [Goh];
8. Frank Biermann and Rainer Brohm, 'Border Tax Adjustments on Energy Taxes: A Possible Tool for European Policymakers in Implementing the Kyoto Protocol?' (2005) 74 Viertelsjahrsheft zur Wirtschaftsforschung 249 [Biermann and Brohm].
9. See, eg Andrew Green, 'Trade Rules and Climate Change Subsidies' (2006) 5 World Trade Rev 377.
10. See, eg Andrew Green, 'Climate Change, Regulatory Policy and the WTO: How Constraining Are Trade Rules?', (2008) 8 JIEL 143.
11. 2 emitting production in jurisdiction Y.
12. 2 emissions in the European cement industry, see Damien Demailly and Philippe Quirion, 'CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation', (2006) 6 Climate Policy 93.
13. See also Mustafa H. Babiker, 'Climate Change Policy, Market Structure, and Carbon Leakage' (2005) 65 J Int Econ 421;
14. Christopher L. Weber and Glen P Peters, 'Climate change policy and international trade: Policy considerations in the US', (2009) 37 Energy Policy 432.
15. See, eg Michael J. Trebilcock and Robert Howse, The Regulation of International Trade (3rd edn Routledge, London 2005) 3 [Trebilcock and Howse].
16. In this respect, the emission of greenhouse gas emissions is different from other forms of comparative advantage stemming from different regulatory regimes, such as lower labour standards or more lax standards for air pollution. While the harms from lower labour stan dards or less restrictive air pollution standards accrue primarily to that country, the harm of global warming stemming from greenhouse gas emissions obviously has impacts beyond the emitting state.
17. This is not to suggest that states will never be able to enact environmental protection measures which impose costs upon domestic manufacturers. Indeed, as Vogel argues, there has not really been a 'race to the bottom' in environmental protection, as many jurisdictions have been enacting more rather than less stringent environmental protection measures in recent years. See David Vogel, 'Environmental Regulation and Economic Integration', (2000) 3 JIEL 265. However, as Vogel himself acknowledges, the fact that states have not been fully dissuaded from enacting more stringent environmental protection measures does not mean that international trade has not to some extent tamed their ability to enact such measures. Indeed, as the following discussion suggests, it seems that concerns about competitiveness and the migration of firms has played a role in dissuading states from adopting stringent measures for dealing with greenhouse gas emissions.
18. In this respect, the abatement of greenhouse gases has the characteristics of a public good. A public good is one which is non-rivalrous and non-excludable. Economic theory has long known that in many cases where rational actors make decisions in their own self-interests, public goods will be under-provided relative to the socially-optimal level of provision of that good. The abatement of greenhouse gas emissions meets the characteristics of a public good, as all states benefit from any particular state's efforts to lower its greenhouse gas emissions. While the literature on public goods is exceptionally large, for the classical starting point in the literature, see Paul A Samuelson, 'The Pure Theory of Public Expenditure' (1954) 36 Rev Econ Stat 387.
19. On the concept of global public goods, see generally Inge Kaul, Isabelle Grunberg and Marc A Stern (eds) Global Public Goods: International Cooperation in the 21st Century (OUP, New York 1999).
20. Joost Pauwelyn, 'U.S. Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law' Working Paper, Nicolas Institute for Environmental Policy Solutions, Duke University, [Pauwelyn] accessed 29 July 2009.
21. In 1997, the US Senate passed the Byrd-Hagel Resolution by a vote of 95-0, which stated that, in the opinion of the Senate, the USA should not sign any protocol that 'mandate [s] new commitments to limit or reduce greenhouse gas emissions for the Annex I Parties, unless the protocol or other agreement also mandates new specific scheduled commitments to limit or reduce greenhouse gas emissions for Developing Country Parties within the same compliance period.' S. Res. 98, 105th Cong. (1997) (enacted)
22. Political rhetoric rejecting Kyoto because of its failure to include developing has also been evident through the Bush administration. For example, in a 2001 speech discussing climate change, President Bush noted that '[global warming] is a challenge that requires a 100 percent effort; ours, and the rest of the world's. The world's second-largest emitter of greenhouse gases is China. Yet, China was entirely exempted from the requirements of the Kyoto Protocol.' White House Press Release (11 June 2001) http://www.whitehouse.gov/news/ releases/2001/06/20010611-2.html http://www.whitehouse.gov/news/releases/2001/ 06/2001061%20l-2.html.
23. 2 emissions, 78% of respondents were against a gasoline tax, while 60% of respondents were against a business energy tax. The population was evenly split 40%/40% on an emissions trading scheme, with 18% undecided. See Anthony Leiserowitz, 'Climate Change Risk Perception and Policy Preferences: The Role of Affect, Imagery, and Values', (2006) 77 Climate Policy 45.
24. 2 emissions reduction schemes is negative correlated with the belief that such policies will lead to job loss and hurt economic growth. Robert E O'Connor and others, 'Who Wants to Reduce Greenhouse Gas Emissions?' (2002) 83 Soc Sci Quart 1. Indeed, the political problems of creating a scheme disadvantaging domestic manufacturers are especially pronounced in the USA, where the manufacturers and workers who have the most to lose from the increased costs of a carbon tax or cap-and-trade scheme hold disproportionate political power, because they are located largely in traditional US electoral 'swing states' such as Michigan, Ohio, Pennsylvania and Indiana. This makes it unlikely that any President seeking re-election would sign legislation which would be perceived by the public as a government-imposed handicap on US manufactured goods.
25. Testimony of Robert C Baugh, Executive Director AFL-CIO Industrial Council, Before the Subcommittee on Energy and Air Quality of the House Energy and Commerce Committee (19 June 2008) accessed 29 July 2009.
26. Given the significant costs associated with anthropogenic climate, the economics gains asso ciated from a politically viable way to reduce greenhouse gas emissions in the present may ultimately yield immense long-term savings. For an overview of the relative costs of preventa tive action versus dealing with the effects of climate change after it occurs, see NH Stern, The Economics of Climate Change: The Stern Review (Cambridge: CUP 2007).
27. 2 and other greenhouse gas emissions. In 2000, the European Commission released a discussion paper on the creation of a European emissions trading scheme. See 'Green Paper on greenhouse gas emissions trading within the European Union' Com (2000) 87 Final [Green Paper].
28. Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, [2003] OJ L275/32 [Directive 2003/87/EC].
29. Questions and Answers on the Commission's proposal to revise the EU Emissions Trading System, MEMO/08/35, http://europa.eu/rapid/ pressReleasesAction.do?reference=MEMO/?08/35&%20format=HTML&%20aged= 0&%20language=EN&%20guiLanguage=en accessed 29 July 2009.
30. Directive 2003/87/EC (n 17) at Article 4.
31. Installations covered under this category are 'combustion installations with a rated thermal input exceeding 20MW (except hazardous or municipal waste installations)', 'mineral oil refineries', and 'coke ovens'. Ibid, at Annex I.
32. Installations covered under this category are 'metal ore (including sulphide ore) roasting or sintering installations' and 'installations for the production of pig iron or steel (primary or secondary fusion) including continuous casting, with a capacity exceeding 2.5 tonnes per hour'. Ibid, at Annex I.
33. Installations covered under this category are 'installations for the production of cement clin ker in rotary kilns with a production capacity exceeding 500 tonnes per day or lime in rotary kilns with a production capacity exceeding 50 tonnes per day or in other furnaces with a production capacity exceeding 50 tonnes per day', 'installations for the manufacture of glass including glass fibre with a melting capacity exceeding 20 tonnes per day', and 'installations for the manufacture of ceramic products by firing, in particular roofing tiles, bricks, refractory bricks, tiles, stoneware or porcelain, with a production capacity exceeding 75 tonnes per day, and/or with a kiln capacity exceeding 4 m3 and with a setting density per kiln exceeding 300kg/m3.' Ibid, at Annex I.
34. Installations covered under this category are 'Industrial plants for the production of (a) pulp from timber or other fibruous materials [and] (b) paper and board with a production capacity exceeding 20 tonnes per day' Ibid, at Annex I.
35. Additionally, as per paragraph 1 of Annex I, 'Installations or parts of installations used for research, development and testing of new products and processes are not covered by [the] Directive.' Ibid, at Annex I. Moreover, Article 27 gave Member States the ability to apply to the Commission to have certain facilities excluded until 31 December 2007, though the criteria listed under that Article were fairly strict. There have been some proposals to expand the scope of the ETS. See, eg Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community, COM (2006) 818 final.
36. Directive 2003/87/EC (n 17) at Article 5.
37. Ibid, at Article 6.
38. Ibid, at Articles 5 and 6. In Article I, 'allowance' is defined as 'an allowance to emit one tone of carbon dioxide equivalent during a specified period, which shall be valid only for the purposes of meeting the requirements of this Directive and shall be transferable in accordance with the provisions of this Directive.
39. Article 12 specifies that 'Member states shall ensure that allowances can be transferred between: (a) persons within the Community; (b) persons within the Community and persons in third countries, where such allowances are recognized in accordance with the procedure referred to in Article 25 without restrictions other than those contained in, or adopted pur suant to, this Directive.' Ibid, at Article 12.
40. Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms, L 338/18.
41. Directive 2003/87/EC (n 17) at Article 9, Annex III, above note 17, at Article 9, Annex III. Annex III contains 11 criteria for the National Allocation Plans. Perhaps most importantly, the first criterion is that 'the total quantity of allowances to be allocated for the relevant period shall be consistent with the Member State's obligation to limit its emissions pursuant to Decision 2002/358/EC and the Kyoto Protocol.
42. Ibid, at Article 10.
43. Green Paper (n 16) at 7.
44. Reuters, 'French Plan Would Tax Imports From Non-Signers of Kyoto Pact', New York Times, 14 November 2006 http://www.nytimes.com/2006/ll/14/world/europe/ 14france.html accessed 29 July 2009.
45. Jose Manuel Durao Barroso, 'Europe's Climate Change Opportunity' Speech/08/26.
46. Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community, COM (2008) 16 final [Proposal for a Directive, 2008].
47. Ibid, at 8.
48. Ibid, at 8.
49. Ibid, at Article 10.
50. Ibid, at Article 10.
51. While the federal government has not yet enacted an emissions trading scheme, certain states have explored or implemented state-based or regional emissions trading schemes. For a con cise overview of these programs, see David Harrison Jr, Per Klevnas, Albert L Nichols, and Daniel Radov, 'Using Emissions Trading to Combat Climate Change: Programs and Key Issues' 38 ELR 10367, 10374-10375
52. For a more detailed look at the various programs undertaken by different sub-national jurisdictions within the USA, see John Byrne, Kristen Hughes, Wilson Rickerson and Lado Kurdgelashvili, 'American Policy Conflict in the Greenhouse: Divergent Trends in Federal, Regional, State, and Local Green Energy and Climate Change Policy' (2007) 35 Energy Policy 4555.
53. Climate Stewardship Act of 2003, S. 139, 108th Cong. (2003). For a summary of the bill, see 'Summary of the Lieberman-McCain Climate Stewardship Act'. Pew Centre on Global Climate Change http://www.pewclimate.org/policy- center/analyses/s-l%2039-summary.cfm accessed 29 July 2009 accessed 29 July 2009. The bill was revised and reintroduced in the Senate in 2005 and again in 2007. Both times it failed to attract the requisite support from Senate
54. See Climate Stewardship and Innovation Act of 2005, S. 1151, 109th Cong. (2005)
55. Climate Stewardship and Innovation Act of 2007, S. 280, 110th Cong. (2007)
56. 2 emissions trading system in the United States. See, eg Barack Obama, Real Leadership for a Clean Future (8 October 2007) (transcript available online athttp://www.barackobama.com/2007/10/08/obama-to-announce-new-plan-to. php).
57. More recently, following his election as President he indicated that he has no intention of backing down from strong measures to control greenhouse gas emissions. See John M Broder, 'Obama Affirms Climate Change Goals', New York Times, 18 November 2008 http://www.nytimes.com/2008/ll/19/us/politics/ 19climate.html accessed 29 July 2009.
58. American Clean Energy and Security Act of 2009, H.R. 2454, 111th Cong. (2009).
59. Ibid, at 767-8.
60. Lieberman-Warner Climate Security Act of 2007, S. 2191, 110th Cong. (2007) [Lieberman- Warner, 2007].
61. Lieberman-Warner Climate Security Act of 2008, S. 3036, 110th Cong. (2008), Amendment in the Nature of a Substitute Intended to be Proposed by Mrs. Boxer [Lieberman-Warner, 2008].
62. Lieberman-Warner, 2007 (n 45) at §1202
63. Lieberman-Warner, 2008 (n 46) at §202.
64. Under the 2007 bill, all 'covered facilities' are required to submit emissions allowances. Lieberman-Warner, 2007 (n 45) at §1202. 'Covered facilities' are defined in section 4(7) as: (A) any facility within the electric power sector that contains fossil fuel-fired electricity generating units that together emit more than 10,000 carbon dioxide equivalents of greenhouse gas in any year; (B) any facility within the industrial sector that emits more than 10,000 carbon dioxide equivalents of greenhouse gas in any year; (C) any facility that in any year produces, or any entity that in any year imports, petroleum- or coal-based transportation fuel, the use of which will emit more than 10,000 carbon dioxide equivalents of green house gas, assuming no capture and permanent sequestration of that gas; or (D) any facility that in any year produces, or any entity that in any year imports, nonfuel chemicals that will emit more than 10,000 carbon dioxide equivalents of greenhouse gas, assuming no capture and destruction or permanent sequestration of that gas. Under the 2008 bill, all 'covered entities' are required to submit emissions allowances. Lieberman-Warner, 2008 (n 46) at §202. 'Covered entities' are defined in section 4(16) as: '(A) any entity that, during a 1-year period, uses more than 5,000 metric tons of coal in the USA; (B) any entity that is a natural gas processing plant in the USA (other than in the State of Alaska); (C) any entity that produces natural gas in the State of Alaska or the Federal waters of the Alaska Outer Continental Shelf; (D) any entity that holds title to natural gas, including liquefied natural gas, at the time the natural gas is imported into the USA; (E) any entity that manufactures in the USA petroleum-based liquid or gaseous fuel, petroleum coke, or coal-based liquid or gaseous fuel, the combustion of which will, assuming no sequestration, emit a non-HFC greenhouse gas; (F) any entity that holds title, at the time of importation into the USA, to petroleum-based liquid or gaseous fuel, petroleum coke, or coal-based liquid or gaseous fuel, the combustion of which will, assuming no sequestration, emit a non-HFC greenhouse gas; (G) any entity that, during a 1-year period, manufactures more than 10,000 carbon dioxide equivalents of non-HFC greenhouse gas in the USA; (H) any entity that, during any 1-year period, holds title, at the time of importation into the USA, to more than 10,000 carbon dioxide equivalents of non-HFC greenhouse gas; or (I) any entity that manufactures any hydrochlorofluorocarbon in the USA.
65. Lieberman-Warner, 2007 (n 45) at 1201
66. Lieberman-Warner, 2008 (n 46) at 201.
67. Both bills specify that emissions allowances may be sold, exchanged, or transferred, and that 'the privilege of purchasing, holding, selling, exchanging, and retiring emission allowances shall not be restricted to owners and operators' of covered entities or facilities. Lieberman- Warner, 2007 (n 45) 2101;
68. Lieberman-Warner, 2008 (n 46) at 401.
69. CRS Report for Congress, 'Climate Change: Comparison of S. 2191 as Reported (now S. 3036) with Proposed Boxer Amendment' (30 May 2008) http://ncseonline.org/NLE/CRSreports/08Jun/RL34515.pdf accessed 29 July 2009.
70. Lieberman-Warner, 2007 (n 45) §2301
71. Lieberman-Warner, 2008 (n 46) at §511.
72. Lieberman-Warner, 2007 (n 45), §2303;
73. Lieberman-Warner, 2008 (n 46), at §513
74. Under the 2008 bill, for example, there is an effective annual compound rate of interest of 10% on the emissions allowances, in that when the emissions allowances are repaid, the number of emissions allowances returned must be equal to (1.1)nx, where n is the number of the years for which the allowances were borrowed and x is the number of allowances borrowed.
75. Lieberman-Warner, 2007 (n 45) at §2402
76. Lieberman-Warner, 2008 (n 46) at §302.
77. Lieberman-Warner, 2007 (n 45) at §2401-11.
78. Lieberman-Warner, 2008 (n 46) at Title III.
79. Lieberman-Warner, 2007 (n 45) at §2501
80. Lieberman-Warner, 2008 (n 46) at §322
81. Under the 2007 bill, international allowances could only be submitted to cover 15% of a covered entity's compliance obligation. This 15% restriction was removed in the 2008 version of the bill.
82. Lieberman-Warner, 2007 (n 45) at §6006(c)
83. Lieberman-Warner, 2008 (n 46) at §1306(c).
84. The definition of 'covered good' in the 2007 bill can be found at Lieberman-Warner, 2007 (n 45) at §6001(5) of that bill.
85. Lieberman-Warner, 2008 (n 46) at §1301(7).
86. 'Primary product' means: (A) iron, steel, steel mill products (including pipe and tube), aluminum, cement, glass (including flat, container, and specialty glass and fiberglass), pulp, paper, chemicals, or industrial ceramics; and (B) any other manufactured product that- (i) is sold in bulk for purposes of further manufacture or inclusion in a finished product; and (ii) generates, in the course of the manufacture of the product, direct green house gas emissions or indirect greenhouse gas emissions that are comparable (on an emis-sions-per-output basis) to emissions generated in the manufacture of products by covered entities in the industrial sector. 'Manufacturing item for consumption' is defined as 'any good or product:' (A) that is not a primary product; (B) that generates, in the course of the manufacture, a substantial quantity of direct green house gas emissions or indirect greenhouse gas emissions, including emissions attributable to the inclusion of a primary product in the manufactured item for consumption; and (C) for which the Commission, in consultation with the Administrator, determines that the application of an international reserve allowance requirement under section 1306 to the particular category of goods or products is administratively feasible and necessary to achieve the purposes of this subtitle.
87. Ibid, at §4(16)(G).
88. Ibid, at §1306(b)(3)(B).
89. Ibid, at §1306(b)(2).
90. Ibid, at §1304(a).
91. Ibid, at §1305(a).
92. Ibid, at §1301(4).
93. Lieberman-Warner, 2007 (n 45) at §6001(2).
94. Lieberman-Warner, 2008 (n 46) at §1306(a)(4)(B)(ii).
95. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(a)(4)(B)(i).
96. Lieberman-Warner, 2008 (n 46) Ibid, at §202.
97. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(c)(3)(D).
98. Lieberman-Warner, 2008 (n 46) Ibid, at §511.
99. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(2).
100. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(3).
101. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(4).
102. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(5).
103. General Agreement on Tariffs and Trade, 30 October 1947, at Articles II:2 and III:3 [GATT 1947]. While the GATT 1947 was incorporated into the General Agreement on Tariffs and Trade 1994, footnotes below will continue to refer to the GATT 1947.
104. Report of the Working Party on Border Tax Adjustments, L/3463 (adopted 2 December 1970), at para 4 [Working Party Report].
105. GATT 1947 (n 77) at Article II:2. The additional requirement in Article 11:2 that the charges be consistent with Article III:2 places few restrictions on the taxes which are amenable to border tax adjustments, as Article III:2 deals with 'internal taxes or other internal charges of any kind.
106. Working Party Report (n 78).
107. See, eg GATT Panel Report, United States - Taxes on Petroleum and Certain Imported Substances, IV6175 - 34S/136, adopted 17June 1987 [United States - Superfund];
108. Panel Report, Argentina - Measures Affecting the Export of Bovine Hides and the Imported of Finished Leather, WT/DS155/R, adopted 16February 2001 [Argentina - Bovine Hides].
109. Working Party Report (n 78) at para 14.
110. Ibid, at para 14.
111. Ibid, at para 15.
112. Ibid, at para 15.
113. United States - Superfund (n 81) at paras 2.3 and 2.4.
114. Ibid, at para 2.5.
115. Panel Report, Argentina - Measures Affecting the Export of Bovine Hides and the Imported of Finished Leather, Ibid.
116. Biermann and Brohm (n 3) at 252.
117. For a more detailed discussion of the amenability of taxes on energy to border tax adjustment under WTO rules, see Christian Pitschas, 'GATT/WTO Rules for Border Tax Adjustments and the Proposed European Directive Introducing a Tax on Carbon Dioxide Emissions and Energy' (1994) 24 Georgia J Int Comp L 479.
118. Biermann and Brohm (n 3) at 252.
119. Agreement on Subsidies and Countervailing Measures, Annex II, para 1 [SCM Agreement].
120. The definition of the terms used in that phrase are provided in footnote 57 of the SCM Agreement: 'The term 'direct taxes' shall mean taxes on wages, profits, interests, rents, royalties, and all other forms of income, and taxes on the ownership of real property.... The term 'indirect taxes' shall mean sales, excise, turnover, value added, franchise, stamp, transfer, inventory and equipment taxes, border taxes and all taxes other than direct taxes and import charges; 'Prior-stage' indirect taxes are those levied on goods or services used directly or indirectly in making the product; 'Cumulative' indirect taxes are multi-staged taxes levied where there is no mechanism for subsequent crediting of the tax if the goods or services subject to tax at one stage of production are used in a succeeding stage of production.' Ibid.
121. Ibid, at footnote 61. In Article 11:3 of Annex II of the SCM Agreement, the definitions of 'inputs physically incorporated' limited to those that 'are used in the production process and are physically present in the product exported,' though it also specifies 'that an input need not be present in the final product in the same form in which it entered the production process.
122. 2 emissions generated in the course of their production.
123. GATT 1947 (n 77) at Article XX(g). While the argument that carbon tariffs are permitted under Article XX(g) might be a feasible solution, one threshold problem that could arise is that Article XX only provides exceptions to the substantive provisions of the GATT 1947, while the prohibition on applying border tax adjustments to certain types of taxes stems from the Report on the Working Party on Border Tax Adjustments. However, this problem would be overcome if the Working Party Report is viewed as an interpretation of the substantive provisions of the GATT.
124. GATT 1947 (n 77) at Article XX.
125. Appellate Body Report, United States - Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996 [US - Gasoline, AB];
126. Appellate Body Report, United States - Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998 [US - Shrimp].
127. For a useful introduction to WTO decisions relating to environmental protection measures, see Steve Charnovitz, 'The WTO's Environmental Progress' (2007) 10 JIEL 685.
128. US - Gasoline, AB, ibid.
129. US - Shrimp (n 97), at para 129.
130. US - Shrimp (n 97) Ibid, at para 135.
131. US - Shrimp (n 97) Ibid, at paras 138 and 140.
132. US - Gasoline, AB (n 97) at 21
133. US - Shrimp, ibid, at paras 143-144.
134. GATT 1947 (n 77) at Article xx
135. US- Shrimp,1947 (n 77) ibid, at para 150
136. The text of Article III:2, first sentence, is as follows: 'The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.
137. GATT 1947 (n 77) at Article III:2.
138. GATT 1947 (n 77) at Article III:2. Ibid.
139. The phrase 'in excess of in this sentence has been consistently interpreted by the Appellate Body entailing any difference whatsoever in taxation. Thus, even if the tax burden on imported products is only slightly in excess of the tax burden on 'like' domestic products, a violation of the first sentence of Article III:2 will be made out. See, eg Appellate Body Report, Japan - Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/ AB/R, adopted 1 November 1996 [Japan -Alcoholic Beverages}.
140. See Goh (n 3) at 409. See also the response to Goh's argument (n 113).
141. Pauwelyn (n 12). Pauwelyn refers in his example to 'high-carbon steel' and 'low-carbon steel', but this paper instead labels them 'high-CO2 steel' and 'low-CO2 steel' in order to clarify that this paper is not referring to high-carbon steel and low-carbon steel in the sense of different types of steel with different chemical compositions which serve different functions.
142. Japan -Alcoholic Beverages (n 106).
143. Pauwelyn (n 12).
144. It is unclear whether process and production methods can be considered in the Article 111:2 analysis, as cases dealing with this issue have thus far not touched in Article III:2. In the second/Dolphin case, the GATT panel held that for the purpose of Article 111:4, tuna caught using dolphin-friendly methods was 'like' that caught in ways which resulted in the deaths of dolphins. Using rather strong language to dismiss the relevance of production methods, the panel noted that differences in tuna harvesting practices could not 'have any impact on the inherent character of tuna as a product.' GATT Panel Report, United States -Restrictions on the Import of Tuna, DS29/R, 16 June 1994, unadopted, para 5.9.
145. 2 emissions, as in that case, the physical properties of the end product and all incorporated products might be identical. Thus, applicability of EC - Asbestos may be limited
146. United States - Superfund (n 81) at para 5.2.9.
147. Goh disagrees with this analysis, arguing that 'For the purposes of Article III:2... the rele vant basis of comparison is... the level of taxes applied to the "final" goods as opposed to the taxes applied to inputs used in their production. Nor is the basis of comparison the overall "fiscal burden" borne by producers in the importing and exporting country in terms of all taxes that might be borne in their economic activities.' Goh (n 3) at 409. This argu ment seems to fly in the face of the GATT panel's reasoning in the Superfund case. In that case, certain imported final goods were subject to a tax which was not levied on domestically produced final goods. There was no violation of Article 111:2 because the tax on the imported final good equaled the taxes that would have been levied on intermediate products used in the production of the final good had the production of the goods occurred in the USA. The comparison in that case thus seemed to be a comparison of the overall tax burdens that would be borne by domestic and foreign producers in producing a particular, assuming equality in their uses of the inputs which were subject to the tax.
148. Pauwelyn, in analyzing the Superfund case, reaches a similar conclusion as this paper with respect to the requirements of Article III:2, in that he notes that 'it would be rather odd for the WTO to intervene in this question of differentiating between types of steel depending on their carbon footprint, once the WTO has earlier accepted that carbon taxes or regulations can be adjusted at the border' Pauwelyn (n 12) at 28.
149. Lieberman-Warner, 2008 (n 46) at §1306(a)(4)(B)(ii).
150. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(4).
151. Lieberman-Warner, 2008 (n 46) Ibid, at §202.
152. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(3).
153. Panel Report, United States - Standards for Conventional and Reformulated Gasoline, WT/DS2/ R, adopted 20 May 1996, as modified by Appellate Body Report WT/DS2/AB/R [US - Gasoline, Panel]. While the USA did bring an appeal before the Appellate Body, it chose not to appeal this particular conclusion
154. See US - Gasoline, AB (n 97).
155. United States - Superfund (n 81).
156. Roland Ismer and Karsten Neuhoff, 'Border tax adjustment: a feasible way to support stringent emission trading', 24 Eur J L Econ 137.
157. Argentina - Bovine Hides (n 81).
158. Argentina - Bovine Hides (n 81) Ibid, at para 11.174 and subsequent paragraphs.
159. Argentina - Bovine Hides (n 81) Ibid, at para 11.183.
160. Argentina - Bovine Hides (n 81) Ibid, at para 11.187-11.188.
161. Additionally, the ability of domestic producers to borrow emission allowances directly from the Commission while denying this ability to importers might also violate Article III:2, as it provides a benefit to domestic producers which is unavailable to foreign producers. However, this situation is not quite as clear as the other violations of Article III:2 discussed above, as this difference does not necessarily result in a greater tax burden on foreign producers than on domestic producers. Rather, it in essence makes credit available to domestic producers which is unavailable to foreign producers, and this does not necessarily result in a higher tax burden on foreign producers. However, it would result in a higher tax burden on foreign producers if (1.1)&z.ast;rat
162. GATT 1947 (n 77) at Article I:1.
163. That Article I:1 prohibits discriminatory internal taxes was confirmed by the GATT panel in the Belgian Family Allowances case. Report of the Panel, Belgian Family Allowances, G/32 - IS/59, adopted 7 November 1952 [Belgian Family Allowances].
164. Panel Report, Indonesia - Certain Measures Affecting the Automotive Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, adopted 23July 1998, para 14.143.
165. See also Belgian Family Allowances, ibid.
166. Panel Report, Canada - Certain Measures Affecting the Automotive Industry, WT/DS139/R, WT/DS142/R adopted 19 June 2000, as modified by Appellate Body Report WT/DS139/AB/ R, WT/DS142/AB/R, para 10.22 and 10.23.
167. Although the Panel's decision was appealed, its interpretation of 'unconditionally' was not appealed. Additionally, the Appellate Body upheld the panel's overall with respect to Article I:1. See Appellate Body Report, Canada - Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19June 2000 [Canada -Autos, AB].
168. See also the interpretation provided by Trebilcock and Howse (n 8) at 65 of Appellate Body Report, United States - Import Measures on Certain Products from the European Communities, WT/DS165/AB/R, adopted 10 January 2001.
169. Canada - Autos, AB, ibid, at paras 64-86.
170. Lieberman-Warner, 2008 (n 46) at §1306(b)(2)(c).
171. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(b)(2)(a).
172. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(5).
173. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(b)(2)(b).
174. Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, L/4903.
175. Appellate Body Report, European Communities - Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS246/AB/R, adopted 20 April 2004, para 163 [EC - Tariff Preferences].
176. Ibid, at para 163.
177. Lieberman-Warner, 2008 (n 46) at §1306(e)(l)(A).
178. Indeed, if emission allowances from jurisdiction X can be used to satisfy obligations in jurisdiction Y and vice versa, then one would expect prices of emission allowances to be equal in both jurisdictions, as an inequality of prices would lead to profitable arbitrage opportunities.
179. Directive 2003/87/EC (n 17) at Article 12.
180. US - Shrimp (n 97).
181. See also Appellate Body Report, Brazil - Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, para 215 [Brazil - Retreaded Tyres].
182. US- Shrimp, 2007 ibid.
183. US- Shrimp, Ibid, at para 160.
184. US- Shrimp, Ibid, at paras 163-164
185. See also of the discussion on this point this in Appellate Body Report, United States - Import Prohibition of Certain Shrimp and Shrimp Products, Recourse to Article 21.5 of the DSU by Malaysia, WT/DS58/AB/RW, adopted 21 November 2001 [US - Shrimp 21.5].
186. More generally, the discrimination must rationally relate to the objective being pursued. Where the reason for the discrimination does not relate to the objective in pursuit of which the measure was provisionally justified, it will be unjustifiable
187. See Brazil -Retreaded Tyres (n 141) at para 227.
188. US - Shrimp, (n 141) ibid, at para 166.
189. US- Shrimp 21.5 (n 144).
190. US - Shrimp (n 97) at para 180-183
191. Lieberman-Warner, 2008 (n 46) at §1306(b)(2).
192. Lieberman-Warner, 2008 (n 46) Ibid, at §1306(d)(2).
193. Lieberman-Warner, 2008 (n 46) Ibid, at §1303.
194. US - Gasoline, Panel (n 118) at para 6.26.
195. US- Gasoline, AB (n 97) at 26-28
196. Ibid, at 28-29
197. The Act specifies general guidelines for the establishment of regulations for calculating the number of international reserve allowances required where covered goods were manufac tured or process in multiple countries
198. Lieberman-Warner, 2008 (n 46 ) at §1306(d)(8)(A) and (B).
199. However, an importer is permitted to use an alternative method for calculating the number of allowances required if they can 'demonstrate[] in an administrative hearing by a preponderance of the evidence that the alternate method will establish an international reserve allowance requirement that is more representative' than the default provision
200. Ibid, at §1306(d)(8)(C).
201. Ibid, at §1306(d)(8).
202. Pauwelyn (n 12) at 39.
203. US - Shrimp (n 97) at 164.
204. Kyoto Protocol to the United Nations Framework Convention on Climate Change, Article 3, para 1 [Kyoto].
205. Ibid, at Article 3, para 14.
206. United Nations Framework Convention on Climate Change, 9 May 1992, 1771 UNTS 107. The full text of those provisions is as follows: '1. The Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof.' '2. The specific needs and special circumstances of developing country Parties, especially those that are particularly vulnerable to the adverse effects of climate change, and of those Parties, especially developing country Parties, that would have to bear a disproportionate or abnormal burden under the Convention, should be given full consideration.
207. This provision states as follows: 'Environmental standards, management objectives and prio rities should reflect the environmental and development context to which they apply. Standards applied by some countries may be inappropriate and of unwarranted economic and social cost to other countries, in particular developing countries.' Rio Declaration on Environment and Development, A/CONF.151/26 (Vol. I) (1992). The Rio Declaration may carry particular weight in WTO law, as it was noted in the Ministerial Decision on Trade and Environment and was cited by the Appellate Body in the US - Shrimp case
208. See US - Shrimp (n 97) at para 168.
209. World Trade Organization, Ministerial Decision on Trade and Environment, 15 April 1994. That Ministerial Decision decide that included in the terms of reference of a Committee on Trade and Environment was an obligation on the Committee to make recommendations regarding 'the need for rules to enhance positive interaction between trade and environmental measures, for the promotion of sustainable development, with special consideration to the needs of developing countries, in particular those of the least developed among them.' See also World Trade Organization, Ministerial Declaration of 14 November 2001, WT/MIN(01)/DEC/1 [Doha Declaration]. In Article 32 of the Doha Declaration, the WTO directed the Committee on Trade and Environment 'to give particular attention to... the effect of environmental measures on market access, especially in relation to developing countries, in particular the least-developed among them, and those situations in which the elimination or reduction of trade restrictions and distortions would benefit trade, the environment and development.'
210. See, eg US - Shrimp (n 97) at para 129-132
211. Lieberman-Warner, 2007 (n 45) at §6006 (d) (2) (B) (ii).
212. Lieberman-Warner, 2008 (n 46) at §1306.
213. Trevor Houser and others, Leveling the Carbon Playing Field (Washington, DC: Peterson Institute for International Economics, 2008) 47-51.
214. Lieberman-Warner, 2008 (n 46) at §1306(b)(2)(A)(iii).
215. In his testimony before the Environment and Public Works Committee, Robert Baugh, an AFL-CIO representative urged the international aspects of the Lieberman-Warner Bill to take effect earlier than 2020
216. See Testimony of Robert C. Baugh, R.C. 13 November 2007, http://www.aflcio.org/issues/jobseconomy/manufacturing/upload/ robert-baugh-energy-l%2010307.pdf accessed 29 July 2009
217. Indeed, popular concerns about the loss of jobs due to free trade negotiations led both leading contenders for the Democratic Party's nomination for the Presidency to suggest renegotiating NAFTA at a debate in Cleveland on 26 February 2008.
218. See the discussion and materials (n 12) and (n 13).
219. The existence of this political constraint is consistent with the absence of any special treatment for non-LDDC developing countries in the 2008 version of the Lieberman-Warner BUI.
220. Proposal for a Directive, 2008 (n 35) at 8.
221. The rules relating the border tax adjustments on exports are governed by the SCM Agreement (n 91). In contrast, there is no similarly comprehensive framework for governing border tax adjustments on imports, other than the rules in Articles II and III of the GATT, 1947 (n 77) and the Working Party Report (n 78). While there ought logically to be a symmetry between the rules, there is nothing in WTO treaties or jurisprudence which has confirmed this. Consequently, most academic discussions of border tax adjustments in the context of greenhouse gas reduction have discussed the issues of border tax adjustments for imports and exports separately.
222. See, eg Javier De Cendra, 'Can Emissions Trading Schemes be Coupled with Border Tax Adjustments? An Analysis vis-a-vis WTO Law' (2006) 15 RECIEL 131, at 139-45;
223. Biermann and Brohm (n 3) at 251-254
224. Such administrative costs could be minimized through multilateral harmonization of the rules governing emissions allowances and information-sharing between jurisdictions. However, it is unclear whether jurisdictions such as the USA and the EU would be able to agree on a common framework to allow such harmonization to occur.
225. Lieberman-Warner, 2008 (n 46) at §1301(4).
226. Jagdish Bhagwati and Petros C Mavroidis, 'Is Actions Against US Exports for Failure to Sign Kyoto Protocol WTO-Legal?' (2007) 6 World Trade Rev 299.