In testimony before the Senate Finance Committee, Gary Horlick raises a number of important issues related to climate change measures and trade:
Before we adopt any measures in our legislation, would we like it if other countries adopted the same measures?
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do we want similar import taxes or permit requirements imposed on our exports. Do we want each country finding a separate basis for imposing border restrictions? Do we want countries with stricter emissions standards than our factory emissions standards blocking our exports? As President Obama pointed out, India and China have lower per capita emissions than we do. Do we want developing countries, including not only China and India, but indeed most countries in the world, blocking our exports on the grounds that our per capita greenhouse gas emissions are greater than theirs?
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So far the United States has resisted efforts in Europe and elsewhere to limit our market access for our products because of how they are produced – from biotech means. But if we re-interpret WTO rules to allow trade barriers based on how things are made, we open up a can of worms – and might permit other countries to block our biotech exports, including major items such as corn, soybeans, and other crops.
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A VAT-style tax, imposed identically on domestic and imported goods, should past muster, but after that, it gets very difficult to design a border tax which would pass muster, as we have seen with prior GATT and WTO litigation.
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In practice, it seems that import restrictions are much more likely to be challenged in the WTO than is financial assistance to producers, such as offsetting costs or giving away permits. Thousands of pages of non-export subsidies are reported to the WTO, but only a handful have been challenged in the WTO, while literally hundreds of border measures have been challenged in the WTO and its predecessor GATT.
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Perhaps the biggest international trade challenge -- and one on which a lot more work needs to be done -- is how the mechanics of international trade will work if each of the hundred and ninety countries (or even 10-15 regional groupings) has its own individual climate change implementation. What if some of them have border taxes, some require permits for imports, and others instead offset the costs for their domestic industry. Or each country has a cap-and-trade system with different limitations on the permits?
