Carbon-related border tax adjustment: mitigating climate change or restricting international trade?

Abstract

: Border tax adjustments in the form of carbon taxes on products from countries with lax environmental production standards or in the form of a required participation in an emissions allowances' trading system have become a heavily debated issue under WTO law. Such an adjustment might be permissible if energy taxes as indirect taxes are applied on inputs during the production process. Compliance with the Most Favoured Nation principle has less practical importance than the not-yet settled likeness discussion under the National Treatment principle. Consequently, since the compatibility of carbon-related border tax adjustment measures is partly contested, potential justifications such as the conservation of exhaustible national resources or the protection of health (Art. XX GATT) become relevant. The application of the necessity and proportionality test requires that carbon measures are tailored so as to substantially contribute to the achievement of environmental objectives and do not create any arbitrary or unjustified discrimination.

Border Tax adjustment – legal perspective

“…Article III:2 GATT reads as follows: Bproducts … shall not be subject, directly or indirectly…^which has been interpreted as enabling the adjustment of taxation of inputs in the final product. Generally speaking, however, the differentiation between products according to PPM is controversially debated and existing case law would suggest that discriminatory measures based on PPM are not permitted without reservation under the GATT (Kaufmann and Weber 2011). In the case of US -Tuna (Mexico), the GATT Panel distinguished between measures that Baffect products as such^and measures that do not (DS21/R, 3 September 1991, unadopted, BISD39S/155).…”

“…The Panel's approach has led to the understanding that PPM are only to be considered in the assessment of products' likeness if they manifest themselves in the Bproducts as such^. In other words, product-related PPM-based measures are applied in order to guarantee the quality, safety, and functionality of the product and are usually directly detectable in the end product (Kaufmann and Weber 2011).…”

“…Traditionally, the Appellate Body has interpreted the notion of Blike products^broadly (Kaufmann and Weber 2011;Lay 2012) putting emphasis rather on the first three of the criteria. However, in a case where the AB had to adjudicate upon a French export ban on asbestos, the AB for the first time acknowledged the importance of consumer preferences: It found that products containing asbestos cannot be considered to be like Basbestos-clean^products, due to obvious health reasons (WT/DS135/AB/R of March 12, 2001).…”

“…Article II:2(a) GATT allows the imposition of two types of import charges: (i) BCharges equivalent to an internal tax consistently with Article III:2 GATT^imposed on imported products that are like domestic products and (ii) charges imposed on Barticles from which the imported product has been manufactured or produced in whole or in part^ (Kaufmann and Weber 2011). Therefore, a BTA measure challenged under the first sentence of Article II:2(a) GATT would have to be tested under the same criteria as under Article III:2 GATT (see above) in order to determine whether it was applied Bin excess of^the internal tax .…”

Greenhouse Gas Taxes on Meat Products: A Legal Perspective

“…116 Most authors argue that carbon taxes (and the same must apply to GHG emission taxes) are indirect product taxes, provided there is a 'nexus' between tax and product. 117 There is a close nexus between a meat tax and meat products for two reasons. Firstly, the tax is paid by consumers and not by producers, which is a characteristic of an indirect tax.…”