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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