A WTO ‘code’ on carbon tariffs

Using somewhat fashionable terms (‘green policy space’) Hufbauer et. al. describe a plurilateral agreement whose membership would be voluntary (like the present Government Procurement Code, for example.). It would create a set of general exceptions additional to those found Article XX ofGATT. The exceptions would pretend to permit the members of the Code to take actions restricting goods trade, for example, that might otherwise be prohibited by GATT and not covered by an existing Article XX exception. The measures covered would be defined pretty broadly to include most measures associated with defining, enforcing (e.g. at the border) a GHG tax or emissions quota and with subsidies related to the reduction of GHG emissions. “Like products” would also be very broadly—perhaps too rigidly—defined by reference to 4-digit Harmonized System classifications.

I use the terms “pretend to permit” only because the question whether a Code really could except these actions from the normal GATT rules would have to be determined by the GATT disputes settlement procedures on a case-by-case basis (that’s how dispute settlement always works). The authors speculate that the Code could be negotiated ‘outside‘ the WTO, presumably like the obscure ACTA negotiations. The reason for doing this—although the provisions of the Code would concern WTO obligations—seems to be that WTO members hostile to the idea of creating new exceptions might prevent the adoption of a new WTO plurilateral agreement. But a violation of e.g. MFN obligations on market access barriers is subject to WTO adjudication (and possibly to WTO sanctions) whatever the rationale for the barrier. Sooner or later, WTO dispute settlement will come into play whether the Code is a WTO plurilateral agreement or not. The Appellate Body has indicated that it would take note of obligations imposed as a consequence of external (environmental) agreements when considering the application of a WTO exceptions provision to a measure otherwise inconsistent with WTO obligations. But that’s no guarantee.

Indeed, at one point, discussing climate subsidies the authors recommend trying to keep the determination of disputes out of the adjudication system because of the damage it could do to the system

“In general, we believe that relegating these matters to the WTO dispute system is not the best course. If the Appellate Body is too strict on trade-related climate measures, that could inspire greater criticism of the already-fragile WTO system. If the Appellate Body is too lenient on trade-related climate measures, by according users of unilateral measures excessive deference, that could open the door to widespread opportunistic protectionism and rent-seeking behavior.”

Hmm… I agree with the idea of avoiding the adjudication disputes where possible (including for this reason). But it seems impossible to do that where the dispute is about the application of exceptions procedures such as those proposed by this Code.

There is, incidentally, an interesting Appendix to the book that contains a review of ‘Four Big Uncertainties’ in the debate on climate change. The authors evaluate the uncertainties in the science and conclude that the risks in the ‘tail’ of a risk distribution still merit mitigation. Their moderate recommendation, however, is that any WTO Code (and even any UNEP agreement from Copenhagen) allow for the possibility that alarm about climate have a very different aspect in 2019 than it has in 2009.

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