An Expert Weighs In
On Monday, we ran a piece on the international trade implications of the border adjustment measures of the House’s climate change bill. The article ends with a section questioning the legality of the tariff provision under WTO rules.
China Law & Policy was fortunate to have Henry Gao, Associate Professor of Law at the Singapore Management
University and expert on WTO law comment on our analysis. In his comments below, he questions whether the provisions would in fact violate WTO rules.
If I understand it correctly, this means that the carbon tariff provision is in violation of the national treatment obligation under the WTO. However, this seems to be rather unlikely. The national treatment obligation only applies with regard to domestic taxes and other regulations. The carbon tariff, by definition, is not a domestic tax. Instead, it is a tariff that will be applied before the goods enter the border. Thus, for me, it appears that it’s more accurate to say that this is a violation of the MFN clause (given the assumptions in your article that some foreign firms will qualify while others don’t), or possibly the tariff binding obligation under GATT Article II, assuming that the US might exceed its bound tariff levels by imposing the extra tariff.
Also, legally speaking, while the US will surely have to fight hard to defend its case if the issue is really referred to the WTO, it’s less than certain that the US will win. Indeed, in the very first case that went before the WTO Appellate Body (AB), the US-Gasoline case, the WTO has, contrary to popular belief, affirmed the right for WTO members to take actions to conserve exhaustible natural resources, which has been explicitly interpreted by the AB to include clean air. Of course, this doesn’t give countries an open license to do whatever they want. They will need to demonstrate first, that are no less trade-restrictive measures; second, that their measures do not constitute arbitrary or unjustifiable discrimination. To sum up, it’s OK to take actions to control climate change, but the legality of the measure would depend on how you structure your package. The devil, as always, is in the details.
Professor of Law
Singapore Management University
Editor, WTO & China Blog
As Prof. Gao notes, the devil is most certainly in the details. As of yet, the House bill does not clearly spell out how exactly these tariffs will be applied. Because of this, experts fall on both sides of this issue. Paul Krugman of the New York Times expressed the opinion that the tariff provisions would like be okay under WTO rules. However, attorneys at Akin Gump’s Climate Change practice disagree and offer their assessment that the provisions are a violation of WTO rules.
While there is a call by some moderate Democrats and many Republicans in the Senate to make the provisions stronger, expect at the very least for the provisions to be made a bit clearer.