The Potential Clash of Climate Change Policy and International Trade Law, Tulane University School of Law
| Author | Matthew Nicely, Valerie Ellis |
| Position | Graduate of Oberlin College and the American University Washington College of Law. |
| Pages | 04 |
Page 4
Matthew Nicely,is a partner at Thompson Hine LLP where he focuses on international trade law, including trade remedies, customs, export controls, WTO dispute settlement, and various other trade policy issues. He has represented interested parties in multiple antidumping, countervailing duty, safeguard, and market access matters before U.S. agencies and U.S. courts, and has handled several customs matters for his trade remedy clients. He also advises governments on WTO agreements compliance and dispute settlement, with a focus on trade remedy matters. He is a graduate of Oberlin College and the American University Washington College of Law.
Valerie Ellis,is an associate at Vinson & Elkins LLP and a member of the firm's climate change practice group. Her practice focuses on a range of U.S. laws that affect cross-border trade and investment, including antidumping, countervailing duty, escape clause relief (Section 201), customs, and laws involving export controls,anti-boycott compliance, and national security implications of foreign direct investment in the United States. She holds a bachelor's degree from Florida International University, a Master of Public Administration from American University's School of Public Affairs, and a law degree from Tulane University School of Law.
As various initiatives are proposed for dealing with the global warming crisis, international trade considerations inevitably come to mind. Efforts to protect the environment are often combined with measures to protect the competitive posture of domestic industries. While this is an understandable goal of policy makers, and could play an important role in convincing other countries to establish their own environmentally friendly policies, policy makers should give care to ensure the United States does not run afoul of international obligations and place its industries at risk of retaliation by trading partners.
Two initiatives-one already in place, one being considered- trigger potential international trade disputes. Policies aimed at promoting production and use of alternative fuels already raise concerns that we may discriminate against imports-concerns which will come under closer scrutiny as renewable fuel consumption skyrockets. Meanwhile, the U.S. Congress is currently considering climate change legislation that would regulate U.S. carbon emissions while also subjecting imports of energy-intensive products to additional costs if they come from countries without comparable emissions standards. We briefly address each of these initiatives in this article.
U.S. energy independence has become an issue of primary importance for U.S. policy makers. In the most recent State of the Union Address, President Bush announced plans to increase renewable fuel usage by twenty percent over the next ten years.1
Some Congressional leaders have pushed for an even greater increase in renewable fuel usage. Ironically, U.S. trade policy for imported ethanol arguably discourages renewable fuel consumption.
The United States maintains a high tariff barrier for imported ethanol, combined with a subsidy program to encourage domestic consumption. In this way, U.S. tax and trade policies for ethanol primarily serve to protect the U.S. ethanol industry from foreign competition. While the United States has not been subject to a direct WTO challenge on any one aspect of its ethanol policy, the combination of a U.S. subsidy program and tariff barrier is arguably inconsistent with WTO obligations in addition to being at odds with the U.S. commitment to encourage use of renewable fuels.
The United States maintains a high, $0.54 per gallon tariff on ethanol imported from certain trading partners.2 Although the tariff rate is technically considered a most-favored-nation (MFN) rate, Brazil, the world's largest and most efficient ethanol producer, tends to suffer disproportionately from the effects of this tariff because it is one of the few suppliers of ethanol to the United States for which there are not special trade preferences carved out exempting it from the tariff. Several regional and bilateral trade agreements afford duty-free treatment to ethanol imports, including imports from countries subject to the Andean Trade Preference Act (ATPA), the U.S.-Peru Free Trade Agreement, the U.S.-Israel Free Trade Agreement, and the North American Free Trade Agreement (NAFTA). In addition to these bilateral and regional trade agreements, the United States has a special duty-free ethanol program for countries eligible for benefits under the Caribbean Basin Initiative (CBI)- a series of trade programs intended to facilitate the economic development and export diversification of the Caribbean Basin economies.3 Similar ethanol provisions are contained in the Central America Free Trade Agreement (CAFTA).4Ethanol from CBI and CAFTA countries may be imported into the United States on a duty free basis if it is produced with localPage 5 feed- stock; however, even if the ethanol is not entirely produced in the beneficiary country, it may nevertheless be granted duty-free treatment provided certain conditions are met. These provisions are particularly important for CBI countries, many of which do not have an indigenous source of traditional ethanol feedstocks. Pursuant to these special CBI and CAFTA rules, foreign-sourced ethanol (e.g., from Brazil or more recently, China) that is imported into a beneficiary country and dehydrated to make it fuel grade, will be considered product of that country and will receive duty-free treatment up to a certain volume limit.
The United States is a principal architect of the current international trade regime that is based, in large part, on the General Agreement on Trade and Tariff (GATT), and overseen by the World Trade Organization (WTO). Central to WTO/ GATT mandates is the concept of "national treatment."5 In simple terms, this means that foreign imports must always be treated as well or better than their domestic counterparts.
Complementary to the WTO/GATT mandates of "national treatment" is the concept of "most favored nation" (MFN) treatment6 meaning that all foreign imports from member countries shall be treated equally with no preferences for specific countries. When dealing with the imposition of tariffs, MFN treatment is satisfied when like foreign products are "similarly taxed."7
Article XXIV Article XXIV of GATT permits countries to engage in regional trade agreements that extend preferences, notwithstanding the general requirement that WTO members extend MFN treatment to all members. Free trade agreements (FTAs) are exempt from the MFN clause, provided that the arrangement does not increase existing levels of trade restrictions affecting nonmember countries.8 If existing trade barriers are raised to outsiders, compensation may be required. The arrangement must lead to significant liberalization, and in particular, it must cover "substantially all" trade between participating countries.9
The preferential treatment afforded to ethanol in various U.S. FTAs highlights key concerns currently in debate under Article XXIV. In particular, there is a question whether the special and agreement-specific origin rules typical of ethanol provisions in FTAs (e.g., treating Brazilian ethanol as CAFTA ethanol provided it has been dehydrated in a CAFTA country) allow the United States to create a hierarchy, thereby controlling the degrees of preference afforded to imports from competing regions. Critics argue that this kind of country-specific system of preferences violates the requirement regional trade agreements may not increase the restrictions on trade with non-members. FTAs continue to proliferate, Pascal Lamy, the current WTO Director-General, has expressed skepticism about the growth of regional FTAs stating "[P]roliferation [of regional FTAs] is breeding concern-concern about incoherence, confusion, exponential increase of costs for businesses, unpredictability and even unfairness in trade relations."10
Although the United States continues to maintain a high tariff rate on...
To continue reading
Request your trial