The European Union wants to impose carbon tariffs on Australian exports. Is that legal?

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Felicity Deane, Queensland University of TechnologyWhat Australian politicians call carbon tariffs, the European Union labels a carbon border adjustment mechanism.

While one sounds bad (the World Trade Organisation has rules that restrict tariffs) the other sounds understandable — if the European Union is imposing a carbon tax on its own products as Australia once did, surely it is reasonable to impose it on products from overseas.

The argument is that if a German steel manufacturer has to pay a tax of, say, $77 a tonne for the carbon it emits while making the steel, an Australian manufacturer should be charged the same when its product enters the country, unless it has already paid the same tax here.

To do otherwise would give the Australian product an unfair price advantage — it would create “carbon leakage” of the kind Australian businesses used to warn about in the leadup to Australia’s carbon price.

The European Union approved the idea in principle on March 10.

The details are less than clear, in part because it is possible that carbon tariffs are not permitted under the rules of the World Trade Organisation to which European nations and most other nations belong.

WTO rules might help Australia…

The rules say taxes or “charges of any kind” can only be imposed on imported products the same way as they are domestically.

That appears to mean that they can be imposed on importers but not on producers, which isn’t quite what the European Union has in mind.

Ideally the World Trade Organisation would be able to provide guidance, but (in part because of the actions of the US Trump administration) it isn’t really in a position to do.

…if only they were enforceable

New World Trade Organisation director general Ngozi Okonjo-Iweala.
Fabrice Coffrini/AP

The WTO has a new director general in Ngozi Okonjo-Iweala who took office this month, but it will remain in an “induced coma” for as long as its appellate body is unable to hear disputes.

Under Trump, the US kept vetoing appointments to the appellate body until the expiration of terms of its existing members meant it no longer had a quorum.

Disputes can still be initiated by countries such as Australia, forcing consultations, but without final determinations.

Although the European Union says it wants to ensure that its adjustment mechanism complies with the WTO’s rules, it hasn’t ruled out the possibility of relying on provisions that allow exceptions.

Both sides could make a case

Exceptions are allowed for the protection of human, animal or plant life or health or the protection of an exhaustible natural resource.

The catch is these exceptions are not allowed to discriminate between countries and must not be disguised restrictions on trade.

It is arguable that an adjustment mechanism designed to protect the competitiveness of European industries will breach these provisions.

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No point complaining about it, Australia will face carbon levies unless it changes course

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The European Union has suggested that border adjustments will be unnecessary when the rest of the world has matched it in committing to achieve net zero emissions by 2050, so long as these commitments are back up by real actions.

But that hasn’t happened yet, and despite talk by Prime Minister Scott Morrison of his “hope” that Australia can get to net zero by 2050, Australia hasn’t made a commitment, and hasn’t backed it with tax-like instrument.

With any World Trade Organisation determination uncertain and perhaps impossible, apart from complaining about carbon tariffs or border adjustments, there may be little Australia can do.

Felicity Deane, Associate Professor, Queensland University of Technology

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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No point complaining about it, Australia will face carbon levies unless it changes course

John Quiggin, The University of Queensland

Reports that Britain’s prime minister Boris Johnson is considering calling for carbon border levies at the G7 summit to be held in London in June have produced a predictable reaction from the Australian government.

The levies would impose tariffs on carbon-intensive goods from countries such as Australia that haven’t adopted a carbon price or a 2050 net-zero emissions target.

Appearing to be shocked by the news, Energy Minister Angus Taylor declared that Australia is “dead against” carbon tariffs.

They were a “new form of protectionism designed to shield local industries from free trade”.

In fact they are already the policy of the European Union and the US, where President Joe Biden calls them a “carbon adjustment fee against countries that are failing to meet their climate and environmental obligations”. Canada, which has an economy-wide price on carbon, isn’t worried.

Saying you’re dead against something doesn’t stop it, and nor does asserting that it is anti free trade, when it is just as arguable that it is pro fair trade because it denies exporters from countries that aren’t taking action against climate change an unfair advantage.

Australia not the primary target

The mining industry itself made this point during the Gillard government’s introduction of Australia’s short-lived carbon price.

It would leave Australian exporters at a “disadvantage compared with international competitors”.

Australia isn’t the primary target in any event. The main aim of carbon tariffs would be to encourage China’s leader Xi Jinping to shift his country’s zero emissions date from 2060 to 2050, benefiting the rest of the world.

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If Xi Jinping does it, he’ll be on a level playing field with much of the world, although not with Australia, whose fate, like that of Britain’s Admiral Byng in 1757 would be used “to encourage the others”.

Complaining won’t much help. The International Monetary Fund has endorsed the idea, saying

in the absence of an agreement on carbon pricing – which would be by far preferable – applying the same carbon prices on the same products irrespective of where they are produced could help avoid shifting emissions out of the EU to countries with different standards

The World Trade Organisation, which has in the past has pushed back against environmental considerations in trade, is neutered.

World Trade Organisation powerless

In the late 1990s the WTO struck down a range of environmental restrictions imposed by the United States that required imported tuna to be labelled “dolphin safe” and required shrimp catchers to take action to protect turtles.

These decisions proved disastrous for the WTO, producing bitter hostility from the environmental movement and contributing to mass protests at the 1999 WTO meeting, which became known as the Battle of Seattle and ultimately killed the Doha round of trade negotiations.

Right now the WTO is in the organisational equivalent of an induced coma. By refusing to fill vacancies as they arose, the Trump Administration denied its appellate panel a quorum, forcing it to stop hearing cases.

President Donald Trump, neutered the World Trade Organisation.
AP

The result is that any appeal to the WTO against carbon border tariffs would be left in limbo. US President Joe Biden has agreed to the appointment of a new WTO director general, stalled by Trump, but is in no hurry to re-establish the appellate body.

Instead, he will first try to refashion the WTO into an organisation that supports his own policies, among them stronger environmental measures, carbon tariffs and “Buy American” provisions. When reformed, the appellate body will give complaints from Australia’s government short shrift.

Prime Minister Scott Morrison has shown some signs of recognising these realities, making baby steps towards announcing a 2050 zero emissions target.

But time is short. Morrison will have to either face down the denialists and do-nothingists on his own side of politics, or set himself, and Australia, up for a series of humiliations on the international stage, with real and damaging consequences.

John Quiggin, Professor, School of Economics, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.