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COP 21 AND THE JUSTIFICATION OF CARBON RELATED BORDER TAX ADJUSTMENTS
MASTERS THESIS
Roshan Babu Jeyakumar
University of Amsterdam
Student No: 11097868
Master Track: LLM Trade and Investment Law
Supervisor: Ms. Ioana Ciobanasu
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ABSTRACT:
Carbon Related Border Tax Adjustments(CRBTA) are perhaps the best and most effective way of dealing with climate change and honouring the principles of COP21 which was signed in November, 2015. Simply seen CRBTAs are essentially the cost imposed upon the carbon emitted at the time of manufacture, production, assembling or otherwise. This tax is mainly a fight against global warming. The obligations created under COP21 are transnational and fragmentaive and thus could be analysed to include CRBTA. The issue of CRBTA is a rather complex one, it can be viewed by traditional trade analysts as trade-restrictive and discriminative in its approach towards trade. The imposition of CRBTA could be a blatant violation of Most favoured nation and National treatment clause. Analysing the perspectives of like products and the restrictions under Article II and Article III it can be viewed that even with cases like Japan-Alcoholic Beverages it would be hard to justify a CRBTA. Thus the final solution would be the use of Article XX of GATT, the main aspect being that CRBTA could be the least trade restrictive measure available to honour COP21. The main perspective being that CRBTA would pass both the necessity and proportionality test. In seeing how extra-territoriality can function the Shrimp Turtle case is viewed and protectionist measures are taken. Brazil-Tyres and EC-Asbestos are other cases which are taken into consideration for this. After determining how CRBTA would pass the necessity test, there is a proper study of how environmental norms and Trade Law are two parallel factors in International Law. These two fields create obligations upon each other and once these obligations can be viewed by panel bodies towards a more liberal interpretation on trade restrictiveness. Thus in seeing the view point as not a single treaty obligation but two parallel treaty obligations which impose and overlap upon each other the conclusion is drawn as to how Panels may construe a CRBTA such that the Trade Restrictions and Environmental Obligations can both co-exist and two field which intersect.
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TABLE OF CONTENTS: PG.Nos
Introduction ……… 4-6 Chapter 1: Multilateral Environmental Agreements, Paris convention and
environmental obligations……….7-12
Chapter 2: Carbon Related Border Tax Adjustments and GATT:
Articles I, II and III………13-19
Chapter 3: CRBTA and Article XX of GATT………..20-31
Chapter 4: Dissecting COP 21 in co-relation to the analysis of Normativity and
fragmentation………32-35
Conclusion ………36-37
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INTRODUCTION:
The Paris climate summit or COP21 has been historic for a number of reasons. The preamble of the agreement explicitly states that the need for mitigation is social economic and environmental.1 The economic costs of climate change are manifold, climate change is not just an impending danger towards the environment, there are huge costs in damage control, prevention and infrastructure which may cost the world well over $130 billion.2 As Joseph Stiglitz wrote almost a decade ago, “Not paying the cost of damage to the environment is a subsidy, just as not paying the full costs of workers would be.” The road towards combating climate change has proven time and again to be one filled with numerous impediments particularly in the field of international trade. There is growing consensus that a market mechanism that puts a price on carbon, such as a cap-and-trade system or a carbon tax, should be at the heart of the most flexible and cost-effective way to address climate change.3 The background to this growing debate is that in a world where different entities move at different speeds in undertaking carbon emission reductions, and do so from different initial standing points, the result will be unequal carbon prices across various countries. 4 Thus in dealing with this the concept of Carbon Related Border Tax Adjustments and what they would encompass will be explored in this paper. Also
Primary Research Question: How can states invoke Article XX of GATT to justify the
imposition of Carbon Related Border Tax Adjustments to fulfil obligations under the Paris Agreement, 2015 and attain sustainable development goal 13, to combat climate change? Secondary research question: Would the imposition of CRBTA discriminate between two like products under GATT?
1 United Nations Framework Convention on Climate Change, Durban Platform for Enhanced Action (decision
1/CP.17) Adoption of a protocol, another legal instrument, or an agreed outcome with legal force under the Convention applicable to all Parties, Conference of the Parties Twenty-first session Paris, 30 November to 11 December 2015 https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf
215The World Bank (2006) puts the cost of “climate-proofing” development investments at $3 billion–$54 billion
a year, and the United Nations Development Program (2007) estimates this cost at $44 billion a year in 2015. An additional $2 billion would be needed for disaster response and $40 billion a year to strengthen social safety nets. By comparison, the Japanese government puts the total cost of building coastal defenses to one meter of sea level rise at $93 billion (Government of Japan, 2002). The United Kingdom also reports high cost estimates for flood prevention—about $1 billion annually and a further $8 billion to strengthen the Thames Barrier (UKCIP, 2007).
3 Jason Furman, Jason Bordoff, Manasi Deshpande, and Pascal Noel, An Economic Strategy to Address Climate
Change and Promote Energy Security (Hamilton Project Strategy Paper: The Brookings Institution October 2007)
4 John Whalley , On the effectiveness of carbon-motivated border tax adjustments, Asia-Pacific Research and
Training Network on Trade Working Paper Series, No 63, March 2009 http://www.unescap.org/sites/default/files/AWP%20No.%2063.pdf
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The research shall use various aspects of present WTO and GATT norms to show how CRBTA can be imposed and justifiable. There would be focus on the necessity test and other aspects which have caused environment norms to fail the test of justification under Article XX of GATT. Instead of focusing on the physical characteristics for assessing the likeness of goods produced in a climate-friendly manner and goods produced in a carbon-intensive manner, A determination of ‘non-likeness’ according to the PPMs distinction could be derived from the criterion of ‘consumer tastes and habits.5
In Brazil–Retreaded Tyres, Brazil justified its import ban on retreaded tyres as a measure necessary to protect ‘human life and health and the environment’.The Appellate Body held that, despite its wording, Article XX(b) GATT could be invoked for the justification of measures deployed for the protection of the ‘environment’ in general.6 By invoking this provision explanations on how CRBTA could be justified will be studied.
In exploring both the primary research question and sub-questions this study is guided by a number of sources. The primary sources shall be Treaties, soft law and agreements, in particular the Vienna Convention on Law of Treaties article 31, GATT Article XX, Article III, II, I and XI with the provisions on COP 21 and sustainable development goals.
Secondary sources comprising of decisions of the WTO Dispute Settlement Body and Appellate body and writings of jurists are used in this research. The research does not attempt to analyse all the judicial decisions and literature relating to the environment and GATT Article XX but focuses on the most relevant decisions tribunals including the decisions such as EC-Asbestos7. Since literature and precedents on imposition of Carbon Border Tax Adjustments is minimal, the research explores the research question by looking at the most relevant perspectives in secondary sources for the and building a framework based on such perspectives for a carbon-based taxation regime.
The secondary question shall deal with the question of whether the imposition of CRBTA could discriminate between two like products.8
5 Quick and Lau (2003), 431–433 with a critical assessment of consumer tastes and habits as a decisive criterion 6 Brazil – Measures Affecting Imports of Retreaded Tyres, Panel Report, WT/DS332/R, 12 June 2007.Para 5.3.7 7 Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing
Products, WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, p. 3.243
8 CHRISTINE KAUFMANN and ROLF H. WEBER (2011). Carbon-related border tax adjustment: mitigating
climate change or restricting international trade?. World Trade Review, 10, pp 497-525 doi:10.1017/S1474745611000292
6 The research is in four parts.
The first part of this thesis shall deal with the obligations which are imposed under the Paris convention and how these can be directly attributable to trade law. This part shall also deal with other Multilateral Environmental Agreements and how they operate to curb the various aspects of Trade Law. It shall finally define Carbon Border Tax Adjustments and what they would mean.
The second part shall deal with the issue of like products and the Most Favoured Nation clause under WTO both of which would impede the imposition of CRTA. The analysis would include Article III and Article II of GATT and the conflict of CRBTA with the provisions of these articles. By thoroughly analysing panel decisions such as Japan Alcoholic Beverages we could examine how carbon emissions of products could be distinguished from each other based on aspects such as consumer tastes.
The third part of the study shall focus Carbon Related Border Tax Adjustments(CRBTA) and their imposition as a method to combat climate change, the study shall detail whether such measures are justifiable under Article XX(b) or Article XX(g) of GATT, the study shall focus on the Panel observations in Brazil-retreaded Tyres and the Shrimp-Turtle case and their interpretation of Article XX and how these interpretations can be posited towards imposition of CRTA. The study shall focus on the necessity test to fulfil conditions under Article XX(b) or XX(g). It shall also deal with the subject of Panels previous reading of the Chapeau of Article XX and how it could be interpreted to justify CRBTA as a necessary measure. Further the study shall also focus on the structure and design of the CRBTA such as that it may not be termed as a disguised restriction on international trade, it shall also focus on the necessity test. Based on the WTO panel’s and AB’s previous decisions the study shall determine the method of imposition of CRBTA would not make it arbitrary or trade restrictive. The necessity test shall be in focus.
The final part of the thesis shall delve into the deeper aspects of COP21 and its binding effect upon trade norms. This shall also address binding norms and fragmentation in short. It would essentially show how the evolution of how environmental law and Trade law would overlap upon each other towards the Panel and Appellate body’s more eased interpretation of Trade restrictive norms.
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Chapter 1- Multilateral Environmental Agreements, Paris convention and environmental obligations.
1.1 Obligations of MEA’s
The obligations created by Multilateral Environmental Agreements and their influence upon international trade have been widely debated by various scholars since the 1990s. The perspective most popularly view taken by scholars is that there are very few measures which can be used to justify trade restrictive measures and the most plausible would be to interpret the abject provisions of a multilateral trade agreement.These environmental treaties are premised around the idea of a global commons9. The idea of this binding effect as far as the Paris convention is concerned could be viewed from the preamble of the agreement in itself.10 Mitigation measures are always undertaken under by the usage of different methods in all environmental treaties. In the Tuna Dolphin case to honour the Marine Mammals act the US commission imposed a ban on all forms of Tuna from being imported to the country which are not fished in the appropriate manner.11
The true relationship between presumptive trade related measures and the GATT/WTO regime has long been an issue which has been widely spoken about concerning trade and the environment for some time. While MEAs may purport trade related measures and sanctions to attain environmental objectives, the increase in scientific and public knowledge of global environmental problems has spurred the rapid growth of recent MEAs containing trade measures. Some MEAs have made use of trade related measures to encourage cooperation amongst the member countries to further the environmental objective contained within these
9 Ibid
10 Ibid
11 Marine Mammal Protection Act of 1972 §§ 101–102, 16 U.S.C. §§ 1371–1372 (2000)
[hereinafter MMPA]. In the early 1990s, the cap for the U.S. ºeet as a whole was 20,500 annual incidental kills. Taking of Marine Mammals Incidental to Commercial Fishing Operations- Permits, 45 Fed. Reg. 72,178 (Oct. 31, 1980). Dolphins are killed in the course of tuna ªshing because schools of yellowªn tuna and herds of dolphins often associate with one another—the dolphins near the surface of the water and the tuna beneath them. Setting and gathering a purse seine around the dolphins will catch the tuna underneath them, but at the cost of killing the dolphins.
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MEAs12. To accomplish these goals, trade measures in MEAs use positive incentive based measures than other negative deterrents.
1.1.2 Trade Measures in MEA’s
The use of trade measures in MEAs is widely recognized to be in potential conflict with the GATT/WTO regime. In particular, trade measures that are specifically directed at non-parties of MEAs may be in violation of GATT/WTO Most Favoured Nation (MFN), national treatment, and the prohibition on quantitative restriction obligations. Multilateral trade measures negotiated in MEAs may encourage transparency and non-discrimination, and can simultaneously discourage alternative unilateral measures that may lead to further trade tensions. However, there is no guarantee that all MEAs achieve these objectives and some have argued that the Basel Convention is particularly weak in these areas. Nevertheless, in general, the negotiation of MEAs and their trade measures in international for a make it increasingly unlikely that they serve protectionist ends.13
MEAs address environmental problems with transboundary effects,traditionally domestic environmental issues that raise extra-jurisdictional concerns, and environmental risks to the global commons. International agreements to protect human health and the environment have used trade measures in varying forms since the 1870's.14 Despite the early examples of employing trade provisions to advance the objectives of environmental agreements, the vast majority of MEAs currently in force have been ratified over the course of over thirty years.15
1.2 Role of the Paris Convention
The Paris convention or COP 21 operates on a similar level which seeks to achieve certain objectives as stipulated in its bare preamble by itself.16 The conventions primary requisites are that there need to be mitigation measures and businesses need to be brought in line with the particular sustainable practices which will help bring about the objectives of the agreement.17 The Paris convention like any other MEA may use trade measures to regulate the flow of the
12 Douglas Jake Caldwell, Multilateral Environmental Agreements and the GATT/WTO Regime.
http://www.iatp.org/files/Multilateral_Environmental_Agreements_and_the_.pdf
13 Ibid
14 Steve Charnovitz, Exploring the Environmental Exceptions in GATT Article XX, 25 J. WORLD TRADE 37, 39
(1991).
15 United States International Trade Commission, International Agreements to Protect the Environment and
Wildlife, USITC Pub. No. 2351, (January 1991)
16 COP21 Supra note 1, preamble. Emphasizing the intrinsic relationship that climate change actions, responses
and impacts have with equitable access to sustainable development and eradication of poverty.
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carbon among parties and non-parties. These products directly contribute to the environmental degradation that COP21 seeks to curtail. Thus the need is to bring certain regulations without curtailing free-trade and thus it is where measures including taxes come into play. In other MEAs, these products or substances may include, endangered species of fauna and flora, ozone depleting substances, and waste shipments. To facilitate analysis, examples can be drawn from the trade measures employed in CITES, the Basel Convention, and the Montreal Protocol.18 The role of taxes towards a more environmental friendly regime has always been weaponry for environmentalists and an issue which has plagued free trade advocates. As Charmovitz has stated: the agenda of taxes and environmental charges has been at the centre of the WTO Committee on Trade and Environment since 1994.19
1.2.2Trade Restrictions and specific Basis in COP21
Creating trade restrictive methods and enforcing it upon third countries is not an easy solution and needs to be introspected at various levels of the analysis, found in the Paris convention (or COP21 as it is referred to as)through a number of specific references. Article 2(2) of COP21 emphasizes the principle of common but differentiated responsibilities and capabilities. According to this principle, developed countries ‘should take the lead in combating climate change and the adverse effects thereof’.
In studying the various aspects of the Paris Agreement certain striking aspects could be seen which would help justify trade measures if not directly referring to them. These as referred to by Astoria20 could be seen as ‘mitigation targets’.The Paris Agreement deals extensively with capacity-building, technology development and transfer, finance, loss and damage, and adaptation. The mitigation standard set forth is a 2C target while urging nations “to pursue efforts to limit the temperature increase to 1.5C above pre-industrial levels.”21 The Paris Agreement further bears the unique distinction of imposing obligations upon signing nations to speed up their successive intended nationally determined contribution (INDCs), as the compilation of INDCs hitherto submitted falls well short of the 2C target, much less a 1.5C target. Article 4:2 says that:
18 Supra note 14, Charnovitz
19 See Steve Charnovitz, “The Law of Environmental ‘PPMs’ in the WTO: Debunking the Myth of Illegality” 27
Yale J. Int’l L 59 (2002)
20 Design of an International Trade Law Compliant Carbon Border Tax Adjustment Ross Astoria*, JD/PhD 21 Supra Note 1, COP21 Art. 2:1(a)
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“Each party shall prepare, communicate and maintain successive national determined contributions that it intends to achieve. Parties shall pursue domestic mitigation measures with the aim of achieving the objectives of such contribution.”22
Further, “Each Party’s successive nationally determined contribution will represent a progression beyond the Party’s then current nationally determined contribution and reflect its highest possible ambition, reflecting its common but differentiated responsibility and respective capabilities, in the light of different national circumstances.”23
With regard to parties and their openness about mitigation measures the Agreement requires all Parties “to communicate a nationally determined contribution every five years”24
Another aspect is the flexibility within the framework, rather than create a rigid system and deter signatories the treaty allows parties to: “at any time to adjust existing nationally determined contribution with a view to enhancing its level of ambition.”25
With regard to trade, while Cop21 is silent there can be a direct concurrence Article 3.5 of the UNFCCC could be read which states that :‘measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade’. Thus while there can be no serious imposition of measures curbing free trade there can be certain less trade restrictive measures to obtain the objective as sort forth in COP21.
Normativity as an agenda which is enshrined within COP 21 or subsequent treaties has never been widely discussed, the idea is that norms can be made binding by turning them into proper legislative acts through soft-law such as COP21.
1.3 Role of Border Taxes in environmental regimes
In ultimately achieving the objectives set out in the Paris Convention the role of various trade restrictive measures cannot be denied at any level. Thus border tax adjustments come into play primarily to meet the challenges of violation of the MFN and non-discrimination principles as can be seen from the next chapters. Thus it can be viewed from the next chapter how CRBTA could be effective in meeting a WTO challenge and the next chapter how it could be sustained in judicial processes. A prime factor in why CRBTA would be effective is that a measure such as taxes and tariffs are generally deemed as preferable to quantitative controls of imports or
22 Ibid, Art. 4:2. 23 Ibid, Art. 4:3. 24 Ibid, Art. 4:9.ff 25 Ibid
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other form of extreme trade restrictions. The problem arises becomes there is a phenomenon known as ‘Carbon Leakage’ the problem of products manufactured abroad not complying with the same norms on carbon control imposed by the state.
1.4 Understanding CRBTA and its meaning
On a basic level Carbon-related border tax adjustments (“CRBTA ”) are adjustments of the taxes imposed domestically when the foreign goods are imported. They remain most viable and least trade-restrictive response under the current GATT regulations to the immediate threat of climate change and to mandate compliance with the Paris convention would be the imposition of Carbon Related border tax adjustment( CRBTA). As explained in the previous chapter about how the Paris Convention has created a direct obligation upon states to follow up on compliance this chapter will elucidate how this compliance can be effectively dealt with through CRBTA and how the measures induced can be fully understood from a broader perspective. Various environmental policies of various countries have often been successfully challenged before WTO Tribunals on the main grounds that the measures which have been imposed are trade restrictive. Objectively speaking Carbon border Tax Adjustments are necessary to fulfil treaty obligations under the The Paris Agreement26 of December 2015 and also to fulfil sustainable development goal 13 to combat climate change. This chapter will examine in detail all justifications of CRBTA’s under Article XX.
Border tax adjustments in general can be classified into two different set of measures:
(i)Taxes imposed at the point of import or added to the value of export known as Import Taxes or (ii)Taxes imposed at the point of export which the actual cost would be refunded after compliance known as Export Tax. Already in 1970, the GATT Working Party on Border Tax Adjustments proposed a very broad notion of border tax adjustments.27
There is also a main difference between Border Taxes and Border tax Adjustments in the primary sense that it is the time of imposition which makes both of these distinct from the other. While Border Taxes are ordinary customs duties imposed upon the product, border tax adjustments are imposed at the time of importation with a specific purpose.28
In the case of a Carbon Related Border Tax Adjustment the intent would be to price all of the carbon emissions associated with making of the product in the place of origin and the emissions
26Supra Note 1. COP21
27 Working Party Report, Border Tax Adjustments, adopted 2 December 1970, BISD 18S/97, 100–101, para. 14
(emphasis added).
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due to the consumption levying jurisdiction. This phenomenon is known as carbon leakage, the determination of actual emissions during the manufacture period are known as carbon intensity of the product. The tax would be applied on the emissions embodied in goods and services consumed locally, where embodied emissions refer to releases of carbon dioxide based emissions during any stage of a good’s production chain or final consumption. The CRBTA would be applied by the jurisdiction in which the goods and services are consumed and would be applied as a tax on a product.29 With this there is a broader more objective definition of what a CRBTA would encompass and how it would operate, with this being concluded it is essential to move on the relationship of the CRBTA with other aspects of GATT and WTO.
29 Carol Mcausland* and Nouri Najjar†, The WTO Consistency of Carbon Footprint Taxes, Georgetown Journal
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Chapter – 2- Carbon Related Border Tax Adjustments and GATT: Articles I, II and III
2.1.1 MFN and CRBTA
If the CRBTA is applied distinctly to different states due to their carbon regimes, or because products of different WTO member states reflected different carbon intensities, it would in all certainty violate the MFN obligation of Article I. The MFN antidiscrimination discipline expressed in Article I of GATT applies not only to ordinary customs duties but also to the matters referenced in Article III:2 and III:4, including internal taxes. 30 The MFN principle is considered a constitutional principle in GATT. It is what creates the obligation of equality between all parties and signatories and is essential in the governance in the manner in which any form of Tax or Tariff is imposed.
2.1.2 Approach of Panels in various cases
There have been no real precedents on the basis of CRBTA and MFN’s but the approach of various panels in other instances would give us a rough perspective on what a challenge before a WTO Panel would present. In the Belgium- Family Allowances case31 the GATT Panel stated that:
“The consistency or otherwise of the system of family allowances in force in the territory of a given contracting party with the requirements of the Belgian law would be irrelevant in this respect [the requirement that advantages be granted unconditionally], and the Belgian legislation would have to be amended insofar as it introduced a discrimination between countries having a given system of family allowances and those which had a different system or no system at all, and made the granting of the exemption dependent on certain conditions”. In the Canada—Autos case, the panel rejected Japan’s argument that Article I does allow less favourable treatment based on criteria unrelated to the product itself.32 The case had explicitly made the practice of discrimination on the basis of origin an unfair practice. This would essentially be the problem when imposing a CRBTA also as it would operate on a similar level of discrimination.
The appellate body’s approach towards similar taxes would not show a very favourable approach towards the imposition of CRBTAs. An option for states is to defend the imposition
30 Joel P. Trachtman, WTO Law Constraints on Border Tax Adjustment and Tax Credit Mechanisms to Reduce
the Competitive Effects of Carbon Taxes Considering a US Carbon Tax: Economic Analysis and Dialogue on Carbon Pricing Options www.rff.org/carbontax
31 GATT Panel Report, Belgian Family Allowances, adopted 7 November 1952 (G/32–1S/59), Para 10 32 Panel Report, Canada—Certain Measures Affecting the Automotive Industry (Canada—Autos), Appellate
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of CRBTAs is mutual recognition of one another’s carbon regime and to apply CRBTA only to products coming from states for which do not follow the standardised regime system.33 However, any bilateral or multilateral recognition agreement program should be structured so that there is no discrimination in the qualification requirements for such an agreement. This agreement may in a number of ways fall within the purviews of COP21 in the manner in which involve joint cooperation as envisaged in Article 7 of COP 21(discussed in the final chapter), But any form of agreement between states would not change the fact that the strict reading of Article I would not justify such a regime and would create direct obligations upon states to treat all products alike.34 The fact remains that the MFN obligation is one which has essential penetrative powers to disaccord any regime which may be considered to be discriminative in any sense. European Communities–Bananas35 case, stating that the differing rules on imports did constitute an advantage, even though competition policy considerations may have been the basis for the EC rules. Any regime which requires this even with the obligation created by the Paris Convention would have to be under scrutiny and the strongest defence towards such measures lies in Article XX.
2.2.1 Artice II: Import Taxes and CRBTA
As per Article II of GATT, Member States have certain negotiable tariff limits with other member states. The major impediment of this rule is that there can be no fresh imposition of any kind of Tariff without a fresh set of negotiations under Article II:1(b). GATT states that products are primarily governed by the Tariff schedules as specified and negotiated and they cannot be overlooked and fresh tariffs on a differential basis cannot by law be thrust upon a product.
Article II:2(a) states that: ‘imposing at any time on the importation of any product.. Makes for an exception based on the destination principle as set out in GATT36. The destination principle which forms the basis of CRBTA is essentially a feature under this particular article. The primary difference is that while the destination based taxation is a consumer targeted system the origin based taxation is more a producer targeted system.37
33 Supra note 30 Trachtman. 34 Ibid.
35 European Communities – Regime for the Importation, Sale, and Distribution of Bananas,Appellate Body
Report, WT/DS27/AB/R, 25 September 1997, 7.188–7.193, 7.251–7.256, 7.235–7.241
36Snape, John and De Souza, Jeremy (2006) Environmental taxation law : policy, contexts and
practice. Aldershot: Ashgate. ISBN 9780754680413, Pg 65-66(1)
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The concept of applying Article II: 2(a) is a not a more viable choice as in the case of
India-Export Duties(2008)38- the panel held that import charges beyond the nominal rates which are
charged as part of VAT, customs and regular import duties are excessive and unjustified.39 The next dwelling upon this aspect shall be if CRBTA is a concept of a direct or indirect tax which needs to explored.
2.2.2CRBTA- An Indirect form of Taxation:
The primary monetary principle is that with the case of indirect taxes it is always reflected in the price of the product as the consumer is the end bearer of the particular burden. As per GATT Article III:2 the wording ‘applied, directly or indirectly, to like imported and domestic products’ which is directly related to the form of taxes which are imposed on the particular user.40 CRBTA could be stated as the best form of indirect tax as in this case there is no unfair subsidy or blanket ban and there is no unfair trade advantage which is granted to any particular set of corporations or businesses.41 The Working Party strongly pointed out that in a convergence of views that taxes ‘levied directly on products’ were eligible for CRBTA or other forms of tax adjustments.42
The consensus shared by most authors is that CRBTA is more an indirect form of Taxation which would have a direct cascading effect upon the overall price of the particular product is one which is to be viewed as the best interpretation of it. Thus the tax would be one which is directly imposed on the carbon and not the final like product which is manufactured.43 The end result is that CRBTA would be one which create a more expensive product which could cause consumers to go for products which are priced lower with a smaller carbon content or leakage it functions more as a consumer deterrent. But this may not pass the test under GATT.
2.2.3 Can CRBTA be justified under Article II?
Canada–Periodicals case, the Argument put forth that excise tax on magazines and periodicals, which distinguished between editions based on their advertising content, regulated trade in services (advertising) and did not indirectly affect the product (periodical). This argument was
38 India – Additional and Extra-Additional Duties on Imports from the United States, Appellate Body Report,
WT/DS360/AB/R, 17 November 2008. Para 160
39 Ibid
40 Demaret, Paul and Raoul Stewardson (1994), ‘Border Tax Adjustments under GATT and EC Law and
General Implications for Environmental Taxes’, Journal of World Trade, 28(4): 5–66. Pg 14
41 Gavin (2004), ‘The World Trade Organization, Kyoto and Energy Tax Adjustments at the Border’,
Journal of World Trade, 38(3): 395–423(6)
42 Ibid
43 Joost Pauwelyn, “Carbon Leakage Measures and Border Tax Adjustments under WTO Law,” Geert Van
Calster and Denise Prévost (eds.), Research Handbook on Environment, Health and the WTO (Edward Elgar, 2013), at 448-506
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rejected strongly by the Appellate body and followed up that it was an indirect case of taxation. This approach of the AB is the most supportive of the indirect taxation principle in the case of a CRBTA.44 The panels view that the end resultant product could cause consumer taste to vary when the product competes with other similar or ‘like products’ could prove to be a major impediment in the imposition of CRBTAs on products.
Thus upon addressing this issue it is highly doubtful whether CRBTA would be justified under the said provisions. The problem is creating a basis for the said distinction and determining the basis of imposition. Upon a cursive reading of the language of Article II:2(a) GATT seems to allow a tax adjustment to be based on an ‘ article from which the imported product has been manufactured or produced in whole or in part’. Consequently, according to recent scholarly work, ‘the parallel application of a product-specific carbon tax to domestic and imported products does not inevitably lead to a conflict with GATT rules ’.45
2.3.1National Treatment and GATT
Article III of GATT creates the National Treatment (NT) obligation, there are two main issues to be addressed with regard to this
(i) Whether the domestic and the competing imported products ‘like ’ and, if
(ii) whether the imported products treated less favourably than the domestic products?46 This would be a prime impediment to the imposition of CRBTA since this would warrant the likeness test and thus this would be essential in determining the end product. The likeness of products and the chances a successful conflict with Article III are almost directly proportional to each other in many respects.
2.3.2The ‘Likeness ’ criterion in assessing CRBTA
The likeness test is one which is not very concrete yet to a large extent determined in GATT for it to be successful it varies with regard to the context and circumstances of a given case,47 The Appellate body in the case of Japan-Alcoholic Beverages has gone to examine the degree of what likeness is and how it would operate at the level of a WTO challenge. The Panel has stated that: ‘The accordion of ‘‘likeness ’’ stretches and squeezes in different places as
44 Canada – Certain Measures Concerning Periodicals, Appellate Body Report, WT/DS31/AB/R, 30 July 1997.
Pg.14.
45 Supra Note 30, Trachtman. 46 Supra note 32- Canada Autos
47 William J. and Joost Pauwelyn (2000), ‘MFN-Unconditionality: A Legal Analysis of the Concept in View of
Its Evolution in the GATT/WTO Jurisprudence with Particular Reference of the Issue of ‘‘Like Product’’ ’, in Thomas Cottier and Petros C.Mavroidis (eds.), Regulatory Barriers and the Principle of Non-Discrimination in the World Trade Law: Past, Present, and Future, Ann Arbor: University of Michigan Press. pp. 13–50.
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different provisions of the WTO Agreement are applied.’48 The fundamental prerequisites necessary for determining likeness have been framed by the GATT Working Party on Border Tax Adjustments49 as encompassing: (i) physical characteristics, such as the products’ properties, nature, and quality; (ii) consumers’ tastes and habits; (iii) the products’ end-uses in a given market ; and (iv) the products’ tariff classification. ‘Likeness’ requires that the products are in a competitive relation to each other. According to methods of market demarcation, this is the case where the products in question are related to each other as substitutes.
The primary issue concerning the question of likeness is the prima facie differences which exist between the two thus justifying a differential or discriminatory treatment. In short it requires a reason for discrimination. As stated by Howse:
‘regulatory distinctions must have a rational relation to some non-protectionist regulatory purpose; and therefore products must be treated the same if and only if they do not differ in any respect relevant to an actual non-protectionist regulatory policy’.50
One case which is to be carefully studied is the Philippines—Distilled Spirits51 where the differential taxation based on different raw materials used in production were held unjustifiable. The end idea is that the regulatory taxation must not be applicable to products which are considered as competitors in a common market. In short it is the consumer who determines what the like product is.
2.3.3 Products must be in direct competition
The main criteria is that two products that are in direct competition with each other, are determined to be like products even if they differ in other physical characteristics. This principle of competiveness is applicable for any particular regulation or taxation under GATT.52 This approach which primarily distinguishes between products based on their carbon intensity and the manufacturing ability Article III:2 . What could be concluded from this idea is that two products with different carbon contents can be termed like if they play within the same market as the other. Competition is as equal a principle as physical characteristics.
48 Japan – Taxes on Alcoholic Beverages, Appellate Body Report, WT/DS8/AB/R,WT/DS10/AB/R,
WT/DS11/AB/R, 4 October 1996 pp.27-31.
49 Supra Note 27 Working Party Report, Border Tax Adjustments,
50 Howse, Robert and Donald H. Regan (2000), ‘The Product/Process Distinction – an Illusory Basis for
Disciplining ‘‘Unilateralism’’ in Trade Policy’, European Journal of International Law, 11(2): 249–289.
51 Appellate Body Reports, Philippines—Taxes on Distilled Spirits, WT/DS396/AB/R, WT/DS403/AB/R,
adopted 20 January 2012. Para 125, 132-133.
18
Therefore the urgent need is to prevent trade barriers and unnecessary impediments and discrimination within the system, while at the same time ensuring that the necessary distinctions are possible.53 This distinction in most case scenario can be with regard to a process production method or the finished product and the overall calculation of the emissions in distinguishing the carbon intensity of the said products, however two products could not be fully termed unlike merely on the principle of carbon emissions. Carbon emissions are yet to obtain a general character in consumer interests. While some may state that a Japan-Alcoholic Beverages, type distinction may be used to distinguish products this cannot fully be the case for carbon intensity.
To sum up the overall differences, the Appellate Body has taken the position that the determination of like products is basically determining if the products are in competition with one another. This is seen as a definitive approach by the AB and a threshold part of the determination. But when defining a treaty term of the WTO such as like products it is almost not plausible to constrict its inner meanings and definitions but would always warrant a more expansive reading. 54
In essence, the primary question of whether products have a sufficient competitive relationship is a market-based determination, based on consumer perceptions. But consumers are, by definition, not experts to determine methods of manufacture and the internal and external regulations and other legal questions. In economic sense drawing a distinction between consumers on the basis of this particular reasoning is difficult. The solution would not be one which is very simple under any circumstance.
The essence of CRBTA is that it establishes a regime of a certain closed group of carbon-intensive products, under these four criteria, a challenger will able to identify two products which are like in every respect except their embedded emissions.55 The next issue to be considered if the embedded or estimated carbon emissions can be used as a system to dissociate the two products as unlike one and another.56
2.3.3 Determining carbon intensity of products:
What is most essential in the determination of the CRBTA is to ascertain the carbon intensity or amount of greenhouse gases produced during the making of the product. Those greenhouse gas emissions leave no physical trace in that product, but they play a primary role during the
53 Supra note 48, Japan-Beverages pp 27-31 54 Supra Note 43, Paulweyn.
55 Supra Note 20 Ross Astoria*, JD/PhD 56 Ibid
19
manufacture and other accompanying processes.57 The properties, nature, and qualities as some domestic product on the list could be compared to other products outside the standardised regime to determine carbon intensity of the products. Further, it can be concluded that the products have the same end use, especially since most or all of the prospective carbon-intensive products are wholesale products. Under these conditions, it is also likely that the two products shall fall under the same tariff classification.58
Thus scholars can find the distinction between products based on their carbon intensiveness which would create more room for distinction but it could not simply be stated that they would not be like products and differential taxation would
2.3.4.US-Superfund case distinction
In the US—Superfund59 decision, the GATT panel accepted that BTAs could be applied in respect of chemical inputs used in the production process also based on their presence in the end product after the completion of the manufacturing process.60 While this is different from the end based PPM method, Panel decisions have clearly shown that this would not invite a reason to show any form of environment based distinction.61 Applying principles of the Paris convention which would be based on Article 6 or 7 would not be a solid argument.
Therefore, in order for it to clearly succeed it would be a safer option to tax the final finished product rather than processing method.62
On a wider scope it is clear that there may be a large chance that the imposition of CRBTA would be a violation of the provisions of GATT and thus the need is to justify the measure under GATT. For this Article XX is the apt method, there would be numerous problems in the way that panels would refuse to accept CRBTAs in the manner of imposition. WTO Panels have always been insistent on the least interference to free trade principle. A CRBTA would always prove an impediment to the provisions of free trade and it is here that Article XX must be adopted to justify the measure.
57 Appellate Body Report, United States – Measures concerning the Importation, Marketing and Sale of Tuna
and Tuna Products, ¶¶ 194-95, WTO Doc. WT/DS381/AB/R (June 12, 2012). Para 2.5 and 5.2.4
58 Supra Astoria note 20
59United States – Taxes on Petroleum and Certain Imported Substances, GATT Panel Report (Superfund),
L/6175 BISD, 34S/136, adopted 17 June 1987.
60 Supra Astoria Note 20 61 Ibid
20
Chapter 3: CRBTA and Article XX of GATT
3.1.1 CRBTA, the Least Trade Restrictive Measure Available:
A major risk of trade restrictive measures is the WTO challenge which may cause it to be termed as restrictive and discriminatory. It is in this aspect that a CRBTA would succeed at many levels primarily because this tax ultimately63 succeeds in not imposing a blanket ban or an unwarranted impediment towards the free flow of goods. The idea is that a CRBTA woud operate to achieve the principles set forth towards taxation on a carbon scale.64 In this case Border Tax adjustments are not just towards mitigating climate change but also towards treaty based obligations under Paris convention and the greater welfare in general, as the preamble of COP21 itself refers to the same. This argument would strengthen their enforcement basing it on the preamble of the Paris convention. A unique aspect of a CRBTA is the manner in which it imposes charges upon importers. The prime objective is balancing and equivalence between both foreign and domestic products in the amount of carbon consumption in their production and manufacture. This balancing would overlap with the obligations created by COP21 in a manner which would fall within the limits explained by WTO panels and Appellate bodies.65
3.1.2 Pigovian Taxation system
Considering the adverse effects of carbon related activities upon the environment it could and the honour to constrict the same as per COP21. It could only be fairly stated that a carbon related border tax adjustment when levied would amount to a Pigovian Tax. A Pigouvian Tax simply stated could be held as on which forces the market participants to pay the mitigation cost for certain damage or social cost which is caused due to the manufacturing of the product. This social cost is often not part of the market price and hence is charged separately. 66 This tax could also be justified as a means to honour the treaty obligations of both the imposing
63 Gros, Daniel and Christian Egenhofer, in collaboration with Noriko Fujiwara, Selen Sarisoy Guerin and
Anton Georgiev (2009), Climate Change and Trade: Taxing Carbon at the Border?, Centre for European Policy Studies
64 Supra Note 30, Trachtman
65 Genasci, Matthew (2008), ‘Border Tax Adjustments and Emissions Trading: The Implications of International
Trade Law for Policy Design’, Carbon Climate Law Review, 1: 33–42.
66 Shi-ling Hsu, a case for the carbon tax: getting past our hang-ups to effective climate policy (2011); see
generally, implementing a US carbon tax: Challenges and Debates (Ian Parry, Adele Morris, & Roberton c. Williams iii eds., 2015)
21
country and the producer of the same. In a final principle however CRBTA remains a consumer centric tax.
3.1.3 Export and import CRBTA: The more applicable form
A question which would perplex all would be whether CRBTA would be more suitable as an Export or import form. Since an export CRBTA would be likely to actually undermine the environmental policy objective under Article XX(b) or (g), its discrimination between goods consumed at home and goods consumed abroad, the question of whether an import CRBTA would be eligible for the same exception has not obtained clarity. In viewing the taxation system from the perspective of the Chapeau it would be clear that the words “same conditions” are viewed when deciding on a more discriminatory provision. This idea when viewed would help see that when it is imposed the end purpose would be to deter consumers to go in for a higher priced product due to the fact that it is taxed. These higher prices and lower consumer preferences would force states to initiate compliance merely to enable greater access to the market. Harmonising this system will be more difficult when it is an export tax thus as stated earlier import CRBTA would be a smoother system.67
3.2 Article XX of GATT and CRBTA:
Considering a CRBTA prima facie violates Article I, II and III of GATT it would be justifiable under the provisions of Article XX of GATT. The imposition of CRBTA is something which needs to be understood as a measure which is necessary primarily as a means of fulfilling obligations under the Paris Convention and sustainable development goals. The goals and the justification under this article would not be restricted to just merely the provisions68
A state may argue that a CRBTA measure is necessary not just to fulfil obligations under the Paris convention but also to protect its citizen’s plant and animal life from the adverse ramifications of climate changes. 69Studies have shown a direct nexus between climate change and certain other forms of natural calamities such as flooding, typhoons, spread of diseases and extinction of specific forms of animal and plant life.70 Proving a direct nexus between a carbon-intensive product and the identified specific risks and the obligations to mitigate the same under
67 Supra Note 30, Trachtman 68 Supra Note 20, Astoria 69 Ibid
70 Global Ecolabelling Network (GEN) (2003), ‘Trade as an Environmental Policy Tool? Environment as
a Trade Policy Tool?’, Ecolabelling and Trade, Global Ecolabelling Network, June 2003, http://www.gen.gr.jp.
22
the Paris Convention would be essential towards the purported use of Article XX71. In line with the link previously proved between accumulation of waste tyres and mosquito-borne disease and toxic emissions from tyre fires in the Brazil-Retreaded Tyre72 case, the chronic and sophisticated nature of global warming and climate change and mitigation measures under the Paris convention can also be said to be linked to carbon intense activities in this sense73. The importance of honouring the Paris Agreement and the battle against climate change is indisputable, the contribution of a CRBTA to the ultimate goal of combating global warming is not easily measurable quantitatively or qualitatively74. Since global effort and international cooperation is required for the Paris convention to be complete, considering aspects such as emission leakage and forced climate based migration, it shall be disputed as to the extent of effectiveness of a carbon related border tax adjustment shall play in the process towards mitigation measures. The current jurisprudence of WTO must be dealt with in such a manner that XX(b) could bear a direct nexus with the obligations created by Article 7 & and 8 of the Paris Convention75.
3.2.1. Policy Decisions and CRBTA
Article XX GATT justifies a violation of the GATT purely on the basis of certain policy goals towards greater public good and interests, provided these interests are in line with the basic GATT objective of free trade. The Appellate body has used a fine balance test to dissect if the restriction is towards a genuine public good or interest.76 The test which is used is a two-tiered analysis: first, in order for Article XX GATT to be applicable, the measures taken by a Member State in violation of the GATT must fit under one of the specific exceptions in Article XX (a)–
71 Supra Note 20, Astoria. 72 Supra Note. 6 Brazil – Tyres.
73Bown, Chad P. and Joel P. Trachtman (2009), ‘Brazil – Measures Affecting Imports of Retreated Tyres:
A Balancing Act’, World Trade Review, 8(1): 85–135
1. 74 Joost Pauwelyn, “Carbon Leakage Measures and Border Tax Adjustments under WTO Law,” Geert Van Calster
and Denise Prévost (eds.), Research Handbook on Environment, Health and the WTO (Edward Elgar, 2013), at 448-506.
75 Supra Note 1, COP21, Article 7(1) Parties hereby establish the global goal on adaptation of enhancing adaptive
capacity, strengthening resilience and reducing vulnerability to climate change, with a view to contributing to sustainable development and ensuring an adequate adaptation response in the context of the temperature goal referred to in Article 2.
Article 7 (2). Parties recognize that adaptation is a global challenge faced by all with local, subnational, national, regional and international dimensions, and that it is a key component of and makes a contribution to the long-term global response to climate change to protect people, livelihoods and ecosystems, taking into account the urgent and immediate needs of those developing country Parties that are particularly vulnerable to the adverse effects of climate change.
23
(j) GATT. If measures fall under one of these provisions, they still have to be necessary and proportional. Second, the scheme in question must also be applied so as not to create arbitrary or unjustified discrimination; it thus has to comply with the Chapeau of Article XX GATT.77 No Appellate Body or Panel reports has questioned the basic purpose of environmental or health policies of governments. In fact, Article XX GATT main purpose is to permit the consideration of important state interests. Member States therefore have a significant degree of autonomy in determining their own policies. Their policy choices have and will be subject to a necessity or proportionality test.78
These points would help to justify its imposition under Article XX to a much greater extent. To prevent double taxation, a country would impose a CRBTA measure only to imports from countries that do not possess a standardised emission mitigation system to follow the obligations mechanism to full, for example, a standardised carbon regime79. Thus by this if it can be proved that without a double taxation system there could be a proper universal system on standardised emission based principles, then CRBTAs can be imposed on a wider scale. What is always important is that while this system of taxation maybe against the MFN principle and prove to be discriminatory against two like products this system would ensure that there is a harmonied regime that could be enforced. Unless such a regime exists then designing a Border Tax is next to impossible.80
3.3 Test of Necessity under XX(b)
The level of WTO Panels to justify various measures has varied greatly across the evolution of GATT and WTO jurisprudence. While the period before 1995 was less environment friendly the post 1995 period has been different. The 2001 EC-Asbestos81 case changed the opinion of various Tribunals there were broader interpretations of how XX could be applied. It created more scope for protectionism and also for measures to be imposed for the greater good of citizens. In particular welfare measures for the greater good of citizens. These measures would
77 CHRISTINE KAUFMANN and ROLF H. WEBER (2011). Carbon-related border tax adjustment:
mitigating climate change or restricting international trade?. World Trade Review, 10, pp 497-525 doi:10.1017/S1474745611000292
78 US – Standards for Reformulated and Conventional Gasoline, Appellate Body Report,
WT/DS2/AB/R, 29 April 1996. Pg. 30 Conclusions.
79 Supra Note 74. Pauwelyn, US Federal.
80Joost Pauwelyn, “Carbon Leakage Measures and Border Tax Adjustments under WTO Law,” Geert Van Calster
and Denise Prévost (eds.), Research Handbook on Environment, Health and the WTO (Edward Elgar, 2013), at 448-506
24
be essential for any form of trade restriction, this also addressed the relationship between trade restrictions and the protection of human safety as a direct bearing.
It could be categorically stated that WTO members have the right to determine the level of protection and enforcement of their domestic laws, the Appellate Body called for an authentic balancing test to determine the same under the following context:82 “The more vital or important those common interests or values are, the easier it would be to accept as ‘necessary’ a measure designed as an enforcement instrument”; “the greater the contribution to the realization of the end pursued], the more easily a measure might be considered to be ‘necessary’”;83 and “a measure with a relatively slight impact upon imported products might more easily be considered as ‘necessary’ than a measure with intense or broader restrictive effects.”84
The Appellate Body in EC Asbestos had also tried a new balancing test which had different perspective for a wider base of interpretation. The Appellate body’s main perspective in the
Korea-Beef85 was to consider if there was any viable less trade restrictive more WTO compliant
method to impose.86 France had used a similar line of defence of absolute necessity to preserve human life, health and safety and thus the AB conclusively held that: “the remaining question, then, is whether there is an alternative measure that would achieve the same end and that is less restrictive of trade than a prohibition.”87 In going with this particular principle it would be Working on this same principle it could be most certainly viewed that the obligations created by COP21 would require immediate action upon all parties in controlling emissions.88 The measures on similar lines of human health and safety
In US—Gambling89, interpreting the similar provisions of the General Agreement on Trade in Services, the Appellate Body created a newer angle towards the interpretation of a necessary
82 Supra note 14, UN commission trade 83 Ibid
84 Ibid
85 Appellate Body Report, Korea – Various Measures on Beef, ¶ 133WTO Doc. WT/DS161/AB/R
WT/DS169/AB/R (adopted Jan. 9, 2001) para 165-170
86 Ibid
87 Supra Note 7, EC- Asbestos. 3.42 88 Supra note 1, COP21
89 US – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, Appellate Body Report,
25
measure. This was sent to a litmus test as held by the AB in Korea- Beef90 to determine the level of necessity and whether this necessity would be absolute or alternative.
3.3.1Necessity: Absolute or Alternative
In the case of a challenge before a panel or an AB, if the complainant could successfully prove that there was a less restrictive alternative measure which the respondent could have taken, it is for the respondent to refute and disprove this. The Respondent must show that the proposed alternative does not achieve the regulatory goal which is envisaged or the alternative is an ardent impossibility or has limited availability.91
The nature of what must be necessary has also evolved under recent WTO jurisprudence. The text of GATT Article XX clearly indicates that what must be necessary under GATT Article XX(a), (b), or (d) are “measures” taken for the reasons under those subparagraphs.92 However, in the Thailand—Cigarettes (Philippines) case, the Appellate Body found that: “what must be shown to be ‘necessary’ is the treatment giving rise to the finding of less favourable treatment.”93 This essentially means that there is also a necessity to show why the particular discrimination is meted out and if it is necessary. In the case of a CRBTA the reason for such a discrimination would be the improper implementation of a carbon regime in the countries from which the taxed products originate. In EC-Seals the AB took a similar view towards discriminatory measures against countries.94
3.3.2. Usage of Article XX (g) towards CRBTAs
Alternatively, states may use Article XX (g), arguing that the measure in question is related to the conservation of the plant’s climate, arable land, livable oceans, the protection of certain plant and animal species. The idea behind this is to assume that the battle against global warming created as a direct obligation by virtue of the Paris Agreement. Three conditions must be satisfied under this paragraph: 1) the measure must involve the conservation of “exhaustible natural resources; 2) the measure must “relate to” the conservation of exhaustible natural
90 Supra note 85, Korea-Beef
91 CHRISTINE KAUFMANN and ROLF H. WEBER (2011). Carbon-related border tax adjustment:
mitigating climate change or restricting international trade?. World Trade Review, 10, pp 497-525 doi:10.1017/S1474745611000292
92 Ibid
93 Appellate Body Report, Thailand—Customs and Fiscal Measures on Cigarettes from the Philippines
(Thailand—Cigarettes (Philippines)), WT/DS371/AB/R, adopted 17 June 2011, para. 177 (emphasis added).
94 European Communities—Measures Prohibiting the Importation and Marketing of Seal Products (EC—Seals),
26
resources; and 3) it must be made “effective in conjunction with” the restrictions on domestic production or consumption. WTO precedents find clean air and endangered sea turtles, as well as non-endangering species, such as herring, salmon and dolphin, to be exhaustible natural resources. Adding to this the creation of direct obligations by the Paris agreement under the perspective of 7(9)95 would directly add to this jurisprudence. Professor Joost Pauwelyn96 states that: “considering the international importance given today to the problem of climate change – and the catastrophic consequences that are linked to it for all forms of life on earth – it would be surprising if the WTO would not accept that the plant’s atmosphere (that is, the layer of gases around the earth that regulates the plant’s climate) is an ‘exhaustible natural resource’.”One of the most important concerns with respect to this “a sufficient nexus” between carbon emissions in one country and the consequences of climate change that such carbon emission would have for the country imposing CRBTA s.97 The nexus which has been shown as one which could be directly attributable to the adverse affects of climate change would require a direct action towards mitigation under the Paris agreement. In effect the Paris Agreement would only give teeth to this argument to strengthen these measures of mitigation and allow their justification under the existing GATT provisions.98
In U.S.-Shrimp99, the U.S. was permitted to protect turtles not within its territorial jurisdiction mainly because the turtle are highly migratory animals that are known to go across U.S. waters. For the aspect of climate change it is a similar global danger whose ramifications have negative consequences on all countries and carbon emission requires collective action by all states, further the Paris Agreement can directly creates a binding obligation upon signatories to honour these principles. The agreement has directly addressed the issues of The “relate to” element requires “a close and real relationship” in its preamble100 of means and end between the measure and the conservation of the atmosphere and related climate, which examines whether the domestic legislature is primarily designed to aim at carbon reduction. WTO/GATT
95 Supra Note 19, Cop 21
96 Davey, William J. and Joost Pauwelyn (2000), ‘MFN-Unconditionality: A Legal Analysis of the Concept in
View of Its Evolution in the GATT/WTO Jurisprudence with Particular Reference of the Issue of 522 CHR I STINE KAUFMANN AND ROLF H. WEBER ‘‘Like Product’’ ’, in Thomas Cottier and Petros C. Mavroidis (eds.), Regulatory Barriers and the Principle of Non-Discrimination in the World Trade Law: Past, Present, and Future, Ann Arbor: University of Michigan Press. pp. 13–50.
97 Appellate Body report on US – Shrimp, WT/DS58/AB/R, paras. 127-134. 98 Supra note 41
99 Ibid
27
precedents suggest that this test is easy to pass unless there are “blatant inconsistencies or protectionist features” in the domestic legislature. The final element of the measure is the equal treatment of domestic producers, the Appellate Body in the U.S.-Gasoline101 case stated that as the treatment can be seen as “even-handed” the restrictiveness would not come into question. Since the idea of a CRBTA would require standardised regimes creating a common obligation upon both domestic and foreign products the level of equality would be fulfilled. Therefore, as long as the measure as a whole also imposes any degree of restrictions on domestic products, the third element of Article XX (g) should not be difficult to meet. This being said article XX(g) remains the strongest point towards the justification of a CRBTA.102
3.3.3 Compliance with WTO Law
A prime requirement is to check if a particular measure is compliant with fixed WTO norms. Appellate Body has through precedents, developed a double-edged necessity test that applies to the measure, the first test would be if the measure is an indispensable in achieving the end goal. This means that there must be a direct nexus to achieve the protection set forth in Article XX in reading its deeper purpose. This would essentially mean showing the direct necessity between curbing climate change and the protection measures envisaged in Article. In the light of the Brazil–Retreaded Tyres decision, it seems likely that a panel would accept the argument that measures aiming at reducing carbon emissions contribute to the protection of human health or the environment. While proving indispensability is debatable the second test on proportionality when combined with the first test would together show the plausibility of a CRBTA. Therefore, in a second step, under the proportionality test, the public policy interest of protecting human health and the environment needs to be balanced against the interest of free trade and the restrictiveness caused by a CRBTA. Given the binding effect of the Paris agreement and its perspective as not just a binding document but also one on general welfare of people in various nations establishing the proportionality of CRBTA measures seems feasible.103 The proportionality of measures when measured against other weighed options such as blanket bans of forced subsidies would only show that CRBTA is fully compliant with all WTO norms.
101Supra Note 27, Canada-Auto(1996)
.
102 Supra Note 43 Kaufmann
103 Wiers, Jochem (2002), Trade and Environment in the EC and the WTO, A Legal Analysis, Groningen:
28
3.3.4. The Chapeau question in GATT
General exceptions to the GATT principles ultimately have to be in compliance with the requirements of the introductory clause or ‘chapeau’ of Article XX GATT. The chapeau refers to the application of the measures taken by a Member State and reflects the principle of good faith. It reiterates non-discrimination as a ‘constitutional’ principle of WTO law. It was introduced as a reply to the concerns that the specific exceptions may be abused for protectionist motives.104 The test so necessitated would check the equilibrium in balancing interests and rights of various Member states. What is important is that while checking for compliance there needs to be a certainty that there is no unreasonable or blatant violation or imposition of a measure in a way that it would defeat the very purpose of the chapeau, this test is always the litmus test of how trade restrictive a measure is.
3.4 Flexibility of CRBTA imposition
The CRBTA is not a concept which is completely rigid. Under the rate equivalency CRBTA principle , importing nations which show compliance have to be specifically rewarded for their due efforts their attempts at mitigation and the attempts made to honour COP21 to a large extent.105 This would be in furtherance of the principles set forth in COP21 to a large extent particularly with regard to breaks in the carbon taxes. There is no import ban and unlike in US – Shrimp/Turtles. Based on Article 31 VCLT, WTO dispute settlement organs may further consider international environmental law and agreements which operate on similar lines as COP 21.106 As stated in Article 3.5 UNFCC: ‘Measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. ’ Thus the basis of the Paris Agreement could be taken as a derivative of this clause. The basis of COP 21 would by itself go into the myriad aspects of mitigation and the way that they are imposed would always exhume their trade restrictiveness.
3.4.1. No Arbitrary or unjustified discrimination:
104 Davies, Arwel (2009), ‘Interpreting the Chapeau of GATT Article XX in Light of the ‘‘New’’ Approach in
Brazil-Tyres’, Journal of World Trade, 43(3): 507–539.
105 Ibid
106Supra note 26
