Border Tax adjustment – legal perspective

Abstract

Border tax adjustment is a second-best solution for improving climate mitigation measures as long as international cooperation does not function to a satisfactory degree. However, the implementation of such measures can legally be problematic under the angle of the legal framework of the World Trade Organization (WTO) which aims at liberalizing international trade and at avoiding trade barriers. In particular, border tax adjustment might come into conflict with the National Treatment principle and the discipline on subsidies. These legal problems can only be overcome if the specific legal justification reasons provided for in WTO law for the promotion of climate sustainability (such as conservation of exhaustible resources and protection of human, animal or plant health) are interpreted in a broad way.

Advancing the interdisciplinary dialogue on climate justice

“…Unilateral action in turn makes border tax adjustments a relevant issue and this is the topic of the pair of papers by Weber (2015) and Brooks (2015) (both in this issue). They examine the legal and ethical issues implied by this policy instrument.…”

“…They examine the legal and ethical issues implied by this policy instrument. Weber (2015) considers border tax adjustments to be a second-best solution for making progress on climate mitigation measures but the big challenge is the question whether these measures can be implemented such that they do not conflict with the legal framework of the World Trade Organization (WTO). He shows how this is difficult but not impossible, depending on the exact design of the measure and the interpretation of the relevant WTO law.…”

Climate change justice through taxation?

“…He argues that implementing standards necessarily leads to added costs and so 'measures attempting to limit greenhouse gas emissions have an impact on the international competitiveness of firms' (Weber 2014a). If a country decides to raise its legal standards to improve environmental outcomes, this runs the risks of making businesses less competitive by raising their costs-costs that businesses located in different countries, but competing in the same marketplace do not possess.…”

“…The first is through the levy of a tax on products from states with 'lower production standards' or the refund of domestic taxes where these products are exported. The second is 'the requirement to obtain emission allowances and to participate in an Emission Trading System (ETS)' (Kaufmann and Weber 2011;Weber 2014a).…”

“…Weber argues that BTA measures should be designed 'as indirect product taxes within the scope of Article II GATT' where these 'taxes aim at creating a level playing field between Blike products^in the country of destination' (Weber this issue). He adds: 'If the carbon tax cannot be linked to the goods directly, but only to the production of the goods, it is important to design the tax in a way that it has an internal or incorporated nature, similar to charges on fuels or energy inputs on fossil fuels used in the production process' (Weber 2014a).…”