Carbon ‘compensation’ tariffs—a real prospect?

The ques­tion whether a WTO Mem­ber may levy a duty for ‘excep­tion­al’ rea­sons relat­ed to the envi­ron­ment is still part­ly unset­tled. It has a jurispru­dence dat­ing back to the GATT’s noto­ri­ous ‘Dol­phin-Tuna’ Arti­cle XX case.

In this case, which was nev­er adopt­ed, the Pan­el rec­om­men­da­tions appeared to deny Mem­bers any oppor­tu­ni­ty to use the GATT rules to enforce nation­al envi­ron­men­tal legislation—overturning the US tuna embar­go. How­ev­er the Pan­el report was still ‘pend­ing’ before the Coun­cil when GATT was replaced by WTO and all cas­es lapsed.

Mex­i­co launched the case in 1991, object­ing to US laws that banned imports of Mex­i­can tuna that the US said had been caught in nets that did not pro­tect dol­phins. Under the US Marine Pro­tec­tion Act, if a coun­try export­ing tuna to the Unit­ed States can­not prove to US author­i­ties that it meets the dol­phin pro­tec­tion stan­dards set out in US law, the US gov­ern­ment must embar­go all imports of the fish from that country.

The WTO web­site pro­vides a good sum­ma­ry of the case. The key rec­om­mend­ed deci­sions (nev­er adopt­ed) are:

  • A Mem­ber may deter­mine the duty applic­a­ble to an import only on the basis of the ‘like prod­uct’ rule that refers to its use, not the means by which it was pro­duced. This means, in effect, that steel pro­duced with coal-fired elec­tric­i­ty and steel pro­duced using non-car­bonif­er­ous nuclear pow­er must be dutiable at the same rates
  • A Mem­ber may not enforce its own leg­is­la­tion ‘extra-ter­ri­to­ri­al­ly’ by means of a trade mea­sure. The Arti­cle XX excep­tion does not allow per­mit the export of autonomous stan­dards, even where the pro­tec­tion of ’exhaustible nat­ur­al resources’ (inter­pret­ed to mean ‘the envi­ron­ment’) is concerned. 

In sub­se­quent cas­es, how­ev­er, the sec­ond Tuna-Dol­phin prin­ci­ple has been reversed. The Appel­late Body in a wide­ly-mis­un­der­stood rul­ing (Shrimp-Tur­tle I) held that Mem­bers do have the right to enforce envi­ron­men­tal stan­dards, includ­ing through trade mea­sures, if this is done in a non-dis­crim­i­na­to­ry fash­ion and meets oth­er require­ments of the excep­tion in Arti­cle XX(g) of GATT.

The pre­con­di­tion of non-dis­crim­i­na­to­ry action was re-inforced in the adverse rul­ing against the USA in the ”Refor­mu­lat­ed Gaso­line” case.

The cru­cial ques­tion of Like Prod­uct remains open to fur­ther def­i­n­i­tion. In ”EC Asb­ses­tos”, the Pan­el more or less endorsed the Tuna-Dol­phin approach (above) but the Appel­late Body mod­i­fied this rec­om­men­da­tion with­out, how­ev­er, revers­ing it.

So would the EC—if it accept­ed the Sarkozy ‘com­pen­sa­tion’ idea—get away with an addi­tion­al duty on pro­duc­tion from coun­tries that did not meet cer­tain stan­dards of green­house gas emis­sion con­trols? In my view, it’s very like­ly; espe­cial­ly if the EC could point to some inter­na­tion­al stan­dard that its actions upheld. The guid­ance from the Appel­late Body sug­gests that an inter­na­tion­al stan­dard would be pri­ma facie non-dis­crim­i­na­to­ry. Of course, there are no such stan­dards that apply, at present, to Chi­na and it may be ques­tion­able whether even the Kyoto Pro­to­col cre­ates a ‘stan­dard’ (Annex I coun­tries have such vari­able ‘tar­gets’).  

Of course, the for­eign pol­i­cy con­se­quences of claim­ing the com­pen­sa­tion are far from triv­ial. Pos­si­bly the rea­son the Com­mis­sion has giv­en Sarkozy’s idea no encour­age­ment in the past. 

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