Competitiveness Border Adjustments in U.S. Climate Change Proposals Violate GATT: Suggestions to Utilize GATT's Environmental Exceptions

摘要

Current and recent federal climate change cap-and-trade bills propose to use border adjustments to address economic competitiveness and emissions leakage concerns. These domestic trade measures impose costs on imported products in order to maintain a level playing field in the U.S. market for domestic products that may face unusually high climate change compliance costs. Energy-intensive U.S. industries are susceptible to loss of output, market share, investment, or firms, if regulation drastically increases their energy costs, as compared to unregulated, foreign competitors. Emissions leakage, which dilutes the effectiveness of federal regulation and can increase net global emissions, may also result, if output or firms move to unregulated, foreign nations. In order to address these competitiveness and leakage concerns, lawmakers plan to raise the cost of imports by an amount comparable to the costs of domestic regulation, using border adjustments.rnHowever, as the border adjustments are currently structured, they violate the General Agreement on Tariffs and Trade ("GATT") non-discrimination principles. The border adjustments raise the costs of imported products based on the amount of greenhouse gas emissions occurring abroad during the manufacture of each product. In international trade, this type of regulation is a process and production method ("PPM") measure and cannot be used to distinguish between like products, either between U.S. and foreign goods or between foreign goods from different nations. As the amount of the border adjustment varies for each nation and product according to a PPM, the border adjustment violates GATT principles. Further, because domestic manufacturers may use the market-based cap-and-trade program while importers cannot, PPM-based border adjustments violate the National Treatment principle by favoring domestic products. Finally, by using national baselines in the PPM-based border adjustment calculations, the measure violates the Most Favored Nation principle by levying a different charge on like products that originate in different foreign nations.rnThe border adjustments will only survive a World Trade Organization ("WTO") challenge if they successfully invoke one of the GATT Article XX environmental exceptions. This will be difficult because, although federal climate change regulation has an environmental goal, the proposed border adjustments are targeted more toward preventing economic competitiveness losses than preventing leakage. For example, the border adjustments may only apply to WTO nations, or they may exempt least developed nations or nations with de minimis emissions. This limitation in scope not only fails to prevent leakage, it may increase emissions leakage to exempt nations. This article flags several provisions that may prevent use of the GATT's environmental exceptions, suggests alterations to help qualify for the exceptions, and also presents alternative channels for legitimizing the use of PPM-based border adjustments.