WTO Compatibility of «Green
Border Taxes»
Dr. Joëlle de Sépibus
World Trade Institute, Bern
« Green Border Taxes »
• “Green Border Taxes”:
– The obligation to pay border taxes or to
surrender emission allowances imposed on
importers of goods produced under less
stringent climate constraints
Reasons for the adoption of
« Green Border Taxes »
• Stern Report 2006:
– « Climate change… greatest and widest-ranging
market failure »
• Loss of jobs in the EU and increase of overall
carbon emissions (« carbon leakage »)
• Reduction of internal opposition to impose
ambitious carbon cuts
• Incentive for uncapped countries to agree to
carbon cuts
United States
• American Clean Energy and Security Act
2009 (Waxman-Markey bill):
– Obligation to surrender allowances imposed
on importers of goods produced in countries
which have no comparable carbon constraints
• Kerry-Boxer bill proposal 2009:
– Enabling clause for “Green Border Taxes”
European Union
• EU Emission Trading Scheme (Directive
2009/29/EC):
– Carbon Equalisation System
– June 2010, Commission Report
• Conclusions of the European Council of 30th
October 2009:
– Best solution to address carbon leakage is an
ambitious climate deal
– Appropriate measures may be taken to address the
risk of carbon leakage
Main WTO principles
• National Treatment (Art. III GATT)
– A Member shall not discriminate between its
own and like foreign products
• Most favoured nation principle (Art. I
GATT):
– A Member shall not discriminate between like
products from different trading partners
• Exceptions (Art. XX GATT)
Questions of legal classification
• Can the financial burden imposed by a
cap-and-trade system be qualified as an
internal tax on a product in the sense of
Article III: 2 GATT?
• Cap-and-trade is a novelty:
– imposed on installations during production but
aimed at price effects on products
Border Tax Adjustment
• Art. III: 2 GATT
– Taxes or charges on imports should not be
applied “in excess” to taxes levied on like
domestic products or on input articles
«Like» product
• Key question:
– Can a product be distinguished on the basis
of Production and Process Methods (PPMs)?
– Is, for example, steel with a different carbon
footprint a “like” product?
• Answer:
– In generally denied, but see exemptions
below
Calculation of a «green border tax»
• Art. III: 2 GATT :
– Not “in excess” to taxes levied on like
domestic products…
• Calculation of the “green border tax”
– based on average financial burden of the
sector?
– based on best-available technology ?
• How to account for free allocation of allowances ?
Most favoured nation principle
• American Clean Energy and Security Act:
– No “green border tax” for post-Kyoto parties
• with comparable emission cuts
• GHG intensity equal or below US
• Least-developed countries
– Fewer allowances based on climate efforts in country
of origin
• EU ETS:
– Enabling clause:
• Green border tax calculated according to the principle of
common but differentiated responsibilities and respective
capabilities
• Special treatment of least developed countries
Environmental exemptions
• Art. XX (b):
– “related to the conservation of exhaustible
natural resources”
• Art. XX (g):
– “necessary to protect … life or health”
• Application :
– « Chapeau » of Art. XX
• No “arbitrary or unjustifiable discrimination”
• No “disguised restriction of international trade”
Environmental exemptions
• Case law of the Appellate body regarding
the “chapeau”:
– Measures taken in good faith in order to
protect legitimate interests
• Negotiations at international level
• Flexibility of the measure to take into account
different situations in different countries.
– A country may not require another member to
adopt essentially the same regulations
Conclusions
• Compatibility of “Green Border Taxes” with
WTO Law :
– Core questions of legal classification remain
unanswered
– In case of a violation of Article III and I GATT,
possibility of an exemption under Article XX
GATT:
• Efforts to reach an agreement at the international
level
• « Comparable » regulations in the exporting
country must be taken into account