INTERNATIONAL TRADE LAW AND BORDER TAX ADJUSTMENTS

Citizens’ Climate Lobby Introduction slide Ross Astoria, JD/PhD Chair, Board of Directors Citizens’ Climate Lobby

1 2 3 4 5 Agenda Overview of Trade Agreements Tariff Bindings Most Favored Nation, GATT Article I 4 National Treatment, GATT Article III 5 General Exceptions, GATT Article XX

6 7 8 9 10 Agenda Dispute Resolution and Examples Custom Unions and Free Trade Agreements 8 Technical Aspects of BCAs 9 Exercises 10 Questions

General Agreement on Tariff and Trade, 1947 Marrakesh Agreement, 1994 https://www.wto.org/english/docs_e/legal_e/legal_e.htm

Tariffs HTS of the U.S., Section 1: Live Animals and Animal Products

GATT Article I: Most Favored Nation With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. GATT Article 1, Paragraph1

GATT Article III: National Treatment GATT Article III, paragraph 2 The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.

GATT Article XX: General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: . . . (b) necessary to protect human, animal or plant life or health; (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; GATT Article XX(b) and XX(g)

Process: Consultation and Arbitration Consultation, then arbitration before a panel, then an appellate board, then circulated by the dispute settlement body (DSB) to all member countries. Offending nation-state can then comply with the decision, if it does not, then the other country can implement countervailing measures, which the WTO supervises to make sure they are “equivalent.” Between nation states: for the United States, this is the Department of Commerce, but private parties can petition the Department to initiate a consultation. Ex: United States – Countervailing Measures on Supercalendered Paper from Canada (complainant: Canada) (https://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm)

Supercalendered Paper Alleged Subsidies 1. Province sponsored loan with below market rate for working capital, increased productivity and efficiency 2. Province grants for maintaining hot idle status of equipment. 3. Funds to keep plant’s supply chain solvent 4. Industrial Electricity Rate Program (Rebate per KWh for efficiency) 5. Preferential Electricity Rate from utility, approved by the NS commission

Custom Unions and Free Trade Areas A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories. GATT Article 24:8(b)

Border Carbon Adjustment NT: no tax “in excess” MFN: no less favourable Distinguish between Emission-Intensive Trade-Exposed Products and Fossil Fuels Identify carbon dioxide content of fossil fuels = prospective ghg emissions Identify embodied ghg emissions of EITE = carbon “footprint” Apply same tax rate to the embedded emissions and fossil fuels ghg Credit importing country’s mitigation efforts Go make bilateral and multilateral trade agreements to suspend the BTA

BCA on Fossil Fuels California’s Low Carbon Fuel Standard

BTA on Carbon Intensive Products Identify Carbon Intensive Products https://www3.epa.gov/climatechange/EPAactivities/economics/legislativeanalyses.html#interagencyReport

Credit Other Countries Mitigation Credit other countries mitigation efforts by reducing the BCA Suspend BCA when importing country has at least equivalent mitigation measures Explicit carbon prices v. Non pricing regulatory reform (e.g., a net-zero building code, fiduciary liability for not factoring in climate change in investment decisions) Through international agreement Paris Agreement – requires accounting procedures for ghg, uniformity of measurement and reporting

Three Exercises Use the U.S. Harmonized Tariff Schedule to determine the tariff binding on imported steel, imported petroleum, and aluminum. What, if any, countervailing duties have been placed upon steel or aluminum trade between the U.S., China, and Canada?

Three Exercises 3. The country of Fireland is a member of the GATT. Its Harmonized Tariff Schedule has a binding on “meat, salted” which ranges between 10% and 15% and another on “chicken, frozen” which ranges between 5% and 8%. A company (“Big Chicken”) wants to import frozen, salted chicken breast into Fireland. The customs authority of Fireland has classified Big Chicken’s product as “meat, salted” and imposed a 10% import tariff. Big Chicken claims that its product is “chicken, frozen” and thinks it should be charged a 5% import tariff. Who gets to determine this question?.

Three Exercises Options: Fireland Big Chicken The country in which Big Chicken is incorporated Someone at the WTO God judgeth all tariff bindings

Exercises and Questions Okay. Suppose the border carbon adjustment is trade law compliant – I don’t believe China will follow the trade laws. Do we really have the data? Won’t this start a trade war? What about the BCA and non-fossil fuel emissions from, for example, deforestation? Why isn’t the BCA a tariff? What’s your favorite type of cookie?