Analysts: Carbon border fees can be compatible with WTO rules
Inside U.S. Trade | September 20, 2023 | By Hannah Monicken
While World Trade Organization rules do not provide explicitly for carbon-related border fee arrangements such as a carbon border adjustment mechanism, various provisions in those rules should provide enough flexibility to allow for them, analysts argued on Wednesday.
During an event hosted by the Climate Leadership Council, two former WTO Appellate Body members, building on a new CLC report titled “Carbon Import Fees and the WTO,” said that while existing rules offer opportunities for various climate-related efforts, tweaking those rules or launching new negotiations could be even more effective.
The report, written by CLC Vice President for Policy and Research Matt Porterfield, outlines a series of “WTO defenses” for “carbon import fees,” the CLC’s catch-all term for duties imposed at the border based on carbon emissions. Some border tax adjustments – considered “indirect” carbon taxes – “would likely be found permissible under the WTO’s rules on border tax adjustments,” the report’s executive summary says.
However, other policies – such as the European Union’s CBAM, because it is based on the EU’s cap-and-trade system – if challenged could be defended by relying on WTO exceptions, the report says. In particular, it cites General Agreement on Tariffs and Trade Articles XX and XXI, the environmental and national security exceptions, respectively.
CLC is a corporate-backed nonprofit that says it is devoted to finding equitable and “politically viable” climate policies, according to its website.
Jennifer Hillman, a professor at Georgetown Law Center, and James Bacchus, a global affairs professor at the University of Central Florida, agreed with the report’s analysis that the existing WTO rules provide some flexibility for such policies. But they also advocated for changes to the rules and new initiatives to foster policies that combat climate change. Both are former Appellate Body members; Bacchus also is a former member of Congress.
“Negotiating the solution is always preferable to litigating it,” he said. However, he added, “as the world is evolving, we'll probably see the issue litigated.”
Specifically, Bacchus called for WTO members to relaunch the Environmental Goods Agreement negotiations, which stalled in 2016, to ease trade in environmental goods and services. The Biden administration should be championing this type of negotiation, Bacchus argued. Several U.S. lawmakers also have called on the administration to support revived EGA talks.
He also cited the WTO’s Trade and Environmental Sustainability Structured Discussions, a plurilateral initiative through which a group of WTO members is assessing a variety of issues at the nexus of trade and climate. He said he and several other stakeholders are pushing TESSD participants to issue a ministerial statement at the upcoming 13th ministerial conference – set for February in Abu Dhabi, United Arab Emirates – that outlines an eventual move to negotiations rather than solely discussions.
Hillman noted that existing tools at the WTO such as waivers, formal interpretations and amendments could be used to speed up adoption of trade policies that combat climate change. For instance, she said members could adopt a formal interpretation that GATT Article XX (the environmental exception) applies to the Agreement on Subsidies and Countervailing Measures, an issue of legal discussion. Or they could agree to a waiver under the Agreement on Trade-Related Aspects of Intellectual Property Rights that would apply to patents of certain green technologies.
But such efforts would require consensus at the WTO, which Hillman noted has been “increasingly difficult to come by.
