U.S. Climate Change Policy v. International Trade Rules: Complying with GATT
| Author | Tina R. Goel |
| Position | J.D. candidate, May 2011, at American University Washington College of Law |
| Pages | 48-48 |
48WINTER 2010
U.S. CLIMATE CHANGE POLICY V. INTERNATIONAL
TRADE RULES: COMPLYING WITH GATT
by Tina R. Goel*
* Tina R. Goel is a J.D. candidate, May 2011, at American University Washing-
ton College of Law.
The Copenhagen negotiations did not result in the global
environmental treaty desired by many, but, instead, in
plans to reduce greenhouse gas (“GHG”) emissions or
carbon intensity from fifty-five nations, including China, India,
and the United States.1 The U.S. pledge, to reduce emission s
by seventeen percent, came with a catch: Congressional action.2
Enacting federal climate change legislation in the United States
has been difficult because policymakers fear that increased regu-
lation may place domestic industry at a competitive disadvantage,
and that production facilities will relocate, thereby causing carbon
leakage—the movement of emissions to a less regulated coun-
try—and associated U.S. job losses.3 Manifesting these fears, the
Senate resolved, in 1997, that the United States should not consent
to an international agreement that does not limit emissions from
developing countries.4
Monumentally, in June 2009, the U.S. House of Representa-
tives passed H.R. 2454, the American Clean Energy and Security
Act (“ACES”):5 legislation designed, in part, to reduce GHG emis-
sions by placing a cap on emissions and issuing a certain number
of permits, or allowances, for the release of the emissions.6 One
measure, intended to alleviate carbon leakage, grants to eligible
domestic sectors allowance rebates, and another, the International
Reserve Allowance Program (“IRAP”) requires importers of for-
eign goods to submit international reserve allowances (“IRA”).7
Although Congress is unlikely to enact ACES, due in part to a
similar Senate bill, future legislation is likely to contain compa-
rable language.8
Domestic rebates and importer allowance requirements, such
as those in ACES, are likely to violate U.S. obligations under the
General Agreement on Tariffs and Trade (“GATT”).9 GATT pro-
hibits the use of trade-restrictive measures, i.e., taxes, laws and
regulations, to protect domestic industry, but it allows their use to
achieve legitimate environmental goals.10 In particular, Article I
prohibits discrimination by member nations between “like” prod-
ucts from different nations, and Article III prohibits discrimination
between “like” imported and U.S. goods.11 These rules are tem-
pered by the Article XX General Exceptions, pursuant to which
member nations may employ measures violating substantive pro-
visions for the achievement of limited policy goals, including the
“conservation of exhaustible natural resources.”12
The importer allowance requirement in ACES is likely to
violate GATT Articles I and III because it treats “like” products
dissimilarly. IRAP requires importers to submit IRAs based upon
a “general [calculation] methodology” to ensure that imported
and U.S. goods are subject to similar GHG emissions require-
ments.13 The calculation is likely to violate Article I if it treats
“like” foreign goods from two countries dissimilarly based upon
non-product specific factors such as sector or economy-wide GHG
emissions.14 Five exceptions to IRAP largely exclude imported
goods from the program based upon factors that indirectly indi-
cate if the imported goods are regulated similarly to “like” U.S.
goods, e.g., whether the imported goods originate in countries
with a binding emissions agreement, rather than whether fewer
emissions were actually released during the manufacture of the
product.15 These exceptions are also likely to treat “like” domestic
and imported products differently, violating Article III.
ACES is also likely to violate Article III by failing to provide
equality of competitive conditions for “like” U.S. and imported
goods by providing domestic actors avenues to lower compliance
costs unavailable to foreign producers. Domestic actors may dem-
onstrate compliance by holding international and domestic allow-
ances, offset credits, and compensatory allowances; banking and
borrowing allowances; submitting allowances received for “free;”
or paying a penalty for non-compliance, while importers may
only submit and bank IRAs.16 As a result, only domestic actors
may determine whether it is cost-effective to violate ACES and
pay a penalty or invest in forestry projects to earn offsets rather
than buy allowances, while importers do not have such options.17
Nonetheless, GATT Article XX permits certain trade-restric-
tive environmental measures and arguably should permit the use
of measures that “accurately assess carbon leakage and competi-
tiveness losses” and impose a “fair” price upon imported prod-
ucts.18 To ensure that U.S. legislation is covered by the Article
XX exception, IRAP and its implementing regulations should
require importers to submit allowances based upon a methodol-
ogy that accurately accounts for emissions. To avoid disparate
treatment between “like” products of two countries or between
“like” imported and domestic products, IRAP should calculate
allowance requirements based upon product-specific GHG emis-
sions rather than economy-wide or sector-specific emissions. In
addition, importers should be permitted to submit offset credits, as
well as other allowances, and borrow allowances to equalize com-
petitive conditions between “like” domestic and imported prod-
ucts. Moreover, to further the goals of ACES, exceptions should
only be granted when an imported product is manufactured with
fewer emissions than a “like” U.S. product, thereby challenging
domestic actors to reduce emissions.
Endnotes: U.S. Climate Change Policy v. International Trade
Rules: Complying with GATT continued on page 64
