Republican Proposal for Carbon Import Tax Violates WTO Rules, Former WTO Official Says

A recently introduced Senate bill that would impose an import pollution fee likely violates World Trade Organization rules, Simon Lester, former legal affairs officer at the WTO Appellate Body Secretariat, said in a blog post.

The fee, which would be collected at the border and doesn't have a domestic equivalent, would fall under the General Agreement on Tariffs and Trade Article II and most likely "classified as an 'other duty or charge' (as opposed to an 'ordinary customs duty')," Lester noted. As such, it would violate Article II:1(a) and (b), unless it was recorded in the U.S. Schedule, which it was not. These two subsections exempt WTO members' imports from all duties imposed by legislation.

The bill, introduced Nov. 2, proposes to add the fee to imports of aluminum, batteries, biofuels, cement, crude, glass, hydrogen, iron/steel, minerals, natural gas, petrochemicals, plastics, pulp/paper, refined petroleum products, solar cells and wind turbines (see 2311030006).

Lester anticipated that the legislation's authors -- Republican Sens. Bill Cassidy of Louisiana, Lindsey Graham of South Carolina and Roger Wicker of Mississippi -- would say the duty falls under the Article XX(g) exception, which relates to the "conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption."

However, there "doesn't seem to be a domestic restriction component here," given that the bill doesn't put a fee on any U.S. producers, Lester said, adding that something would need to be tacked onto the bill to constitute "restrictions on domestic production or consumption" to satisfy the exception. "As things stand now, the equalization is only going in one direction: Imports are penalized when they are dirtier, but domestic products are not penalized when they are dirtier," the post said.

It's "very likely China and India (and maybe others too) would retaliate against fees being imposed on their imports on this basis" and likely bring a WTO complaint," Lester said. However, given the state of the Appellate Body and WTO dispute settlement writ large, "I'm not sure they would wait for the result before retaliating."