Numerous political statements by the world leaders on the urgency of reaching an ambitious climate deal in Copenhagen notwithstanding, the actual discussions at the UNFCCC (United Nations Framework Convention on Climate Change) continue to be shrouded by daunting North-South divide, dimming the hope of sealing a deal in December 2009. The negotiating climate has been further queered by the European Union (EU) and the United States (US), which have, in the recent past, made attempts to include certain unilateral trade measures in their domestic climate change regimes. The issue of carbon leakage has its origin in the purported apprehension in these developed countries that in the energy intensive, trade-exposed sectors, the carbon costs imposed by their domestic climate policies (e.g. carbon tax or cap-and-trade scheme) will put domestic producers at a competitive disadvantage vis-à-vis producers in countries not imposing similarly strict carbon constraints.

It is widely argued by developing countries that carbon tariffs on imports would be akin to protectionism in the guise of preventing global warming. Concerns have emerged among the so-called ‘major-emitting developing countries’ (such as, China and India), who are the main target of such measures, that these measures could act as a discriminatory market access barrier affecting their exports to the developed countries concerned in energy intensive sectors that may come under the purview of these measures. Another controversial issue pertaining to such carbon tariffs is whether they could be compatible with the WTO (World Trade Organization) commitments of the countries introducing such measures. This concern has found reflection not only in the post-2012 climate-energy package of the EU itself, but also in the debates on the domestic climate legislations in the EU and US. Against this backdrop, this paper makes an attempt to analyse the WTO compatibility or otherwise of the border measure proposed by the EU in its post-2012 climate energy package. The analysis focuses on two sets of issues:

whether the proposed border measure could conform to the ‘border tax adjustment’ provisions and the Most Favoured Nation (MFN) clause of the GATT (General Agreement on Tariffs and Trade), and if not then
whether the EU could justify it under the ‘General Exceptions’ provisions included in Article XX of the GATT that allow WTO Members, subject to certain conditions included in its chapeau, to deviate from their GATT obligations to serve certain legitimate policy objectives, including environmental objectives

The analysis presented in this paper indicates that the EU could face significant difficulties in establishing that the proposed border measure would be WTO-compliant.

[Adapted from author]