Trade and climate are on a collision course at the WTO
China, India and others will argue that the real intention of a border carbon tax is not to protect the global environment from carbon leakage, but to ensure the competitiveness of local industries through protectionist measures at the borders. Others will say that the border tax is a thinly disguised way to increase the revenue of the EU government.
Some, like Australia, say they are doing more to reduce emissions with “action on the ground” rather than carbon taxes or emissions trading schemes. In fact, a border carbon tax is simply not applicable for Australia.
However, the biggest challenge for the WTO lies elsewhere. The carbon border tax strikes at the heart of its most fundamental principle of the WTO: non-discrimination between “like products”.
The term “like products” appears 19 times in WTO agreements. It ensures that governments do not discriminate against imports that are physically “like” domestic products but produced elsewhere to different standards.
This concept prevents the WTO from judging whether trade restrictions based on non-trade standards (eg labor, environment, human rights, carbon emissions) can be enforced through trade barriers. This means that for the WTO, Australian aluminum and steel are “like” those of other countries, regardless of how the energy to produce them is generated.
Instead of confrontational unilateralism, there are much more acceptable ways to move forward through a multilateral agreement. Ideally, there would be an accompanying agreement indicating which carbon reduction measures are acceptable even if they violate their rights under the WTO.
Is it realistic? The answer is yes and there are precedents.
More than 20 of the 250 existing multilateral environmental agreements contain trade provisions that violate WTO rules. The Montreal Protocol restricts trade in chlorofluorocarbons and the Convention on International Trade in Endangered Species prohibits international trade in threatened animal and plant species. In all cases, WTO members have agreed to waive specific rights.
Another example is the Free Trade Agreement between the United States, Mexico and Canada, which states that “the parties shall adopt … the measures necessary to fulfill their respective obligations under specific multilateral agreements on the environment “. Specific agreements include the Montreal Protocol and the Endangered Species Treaty. The Paris climate agreement is conspicuous by its absence.
Other options include countries acting collectively and granting a “waiver” (as provided for in WTO rules) for agreed carbon reduction measures. WTO rules also provide “exceptions” for non-conforming measures such as those aimed at protecting non-renewable natural resources. This could be used with a few modifications.
There could be an extension to other countries of the Australia-Singapore Memorandum of Understanding on the development and adoption of new and emerging low-emission technologies.
All of these options, based on collaboration between governments, are preferable to a single WTO member acting as a “master of tasks” unilaterally determining which countries “are not doing enough” and therefore justify a carbon tax at borders.
To achieve the goals of the Paris Agreement, each country is required to submit a nationally determined contribution – a national goal to contribute to those goals. There are no constraints on the measures that can be adopted to achieve the goals.
Countries submitted their first targets in 2015 and were asked to submit improved targets by the end of 2020. According to the World Resources Institute, less than half of Paris Agreement signatories, accounting for 44% of emissions global, have submitted their updated NDCs containing measures contrary to international obligations. The carbon tax at borders is one of them.
This would suggest that governments should focus on determining and monitoring at the national level the effectiveness of measures adopted to reduce carbon emissions and their compliance with other international obligations. Focusing on the measures adopted today is better than arguing on objectives to be achieved in 29 years (or 39 for China).
According to Prime Minister Scott Morrison, Australia’s path to net zero emissions does not go through carbon taxes or tradable emission permits: “Our goal is to reach net zero as soon as possible through technology… not taxes, ”he says. No border carbon tax is required, just measures compatible with WTO rules.
In the absence of a revised approach, carbon leakage will remain the Achilles heel of carbon reduction negotiations for years to come, if not longer.