EU wants a green border tax to protect industry, but clashes with US and WTO

Soon not only will the emissions, but also the jobs. That is often the great fear of many politicians and economists about a higher tax on CO2emissions, both in Europe and the United States. Their own industry can then be outcompeted by companies from across the border that are free to release CO in their home country.2 may emit. An equally attractive and controversial answer to this problem: a CO2-limit levy, a tax on imports from countries that do not have a price tag attached to emissions.

The European Union is now preparing such a levy. The US is also in favor of it under President Joe Biden, but does not want the EU to introduce one on its own. International tensions about this new ‘green’ import tax are increasing, also within the World Trade Organization (WTO).

John Kerry, the American climate envoy, recently expressed his concern about plans in Brussels to unilaterally introduce a border tax. Kerry said in an interview with the Financial Times that such a tax should only be an option ‘of last resort’ because it has ‘serious implications’ for ‘economies, for relationships, for trade’.

In June, the European Commission will make proposals for climate tax at the border, the European Parliament expressed support for the idea in March. In the first instance, this will probably involve a tax on steel and cement from polluting producers from outside the EU, for example from China, India, Russia and Turkey. The levy may be linked to the level of the CO2price paid by European industry, through the Emissions Trading System (ETS). That price reached a record high of more than 44 euros per tonne of CO this week2, the price is expected to rise further. Via a border tax, companies that export to the EU would do the same pay price.

Kerry’s statements are striking, because the Biden government also says a CO in its trade strategy.2border tax. The ambivalent American attitude makes little impression in Brussels. In response to Kerry’s statements, Commissioner Frans Timmermans said the EU will have “no hesitation” in deploying the tool against countries that fail to take steps to meet the goals of the Paris Climate Agreement.

Also read: According to some, the success of the Green Deal depends on the introduction of the CO2 tax

It is no coincidence that the Commission will present its proposal for the tax in June together with a whole package of new climate legislation. Central to this is an expansion of the ETS, which is politically sensitive. In order to make the emissions trading system more effective for reducing emissions, the free emission allowances that the European industry still receives will also have to be phased out. These were once introduced in order not to harm the global competitive position of European companies, but with a functioning border tax this competitive disadvantage disappears and the free rights can disappear.

Industry lobby

But the phasing-out thereof is not without a struggle. During a vote in the European Parliament, after a vigorous lobby from the industry, an amendment to keep the free emission rights for European companies also at a border charge recently received a narrow majority. The vote was not binding, but it does show what the battle in the EU will be about in the near future. Although more and more countries are enthusiastic about the border tax, many emphasize that it must be in accordance with the rules of the WTO. If the free rights for European industry are maintained, there is a risk that the levy could be successfully challenged at the Geneva organization. Because then European industry will be unfairly favored. A top Commission official recently said that the free allowances will have to disappear anyway for sectors protected by the new border tax, such as possibly the steel industry. To keep both would amount to ‘double support and thus be against WTO rules’.

Within the EU, France in particular presents itself as a fanatic advocate of the border tax. Paris sees it as his levy for good reason: it was once a proposal by then President Jacques Chirac, and has been ardently advocated by successive presidents in recent years. Now that the rest of Europe also seems ready, France has increased its stakes. In the run-up to the presidential elections in May next year, President Emmanuel Macron hopes to polish his green coat of arms while implementing a traditional French, protectionist-tinted trade position. Macron hopes to reach an agreement on the charge during France’s EU presidency in early 2022.

Support in the EU is now broad: the Dutch cabinet recently also signed a call for a border tax. This is necessary, argued a group of nine EU countries, to prevent ‘transferring emissions to other countries’. But also to maintain public support for climate policy in Europe. The charge must, according to the group, be ‘legitimate and fair’. Read: in line with the rules of the WTO, which in principle prohibit disadvantaging foreign exporters. That is also the opinion of the employers’ club VNO-NCW.

Also read this interview with Timmermans: ‘No delay for polluting industry’

Printing means

For example, the discussion in the EU is not so much about the what, but mainly about the how. Will the ‘multilateral’ approach, through consultation within the WTO, remain the standard method in trade policy? This is especially what the free trade-loving countries like the Netherlands want. Or should the EU be more assertive, use more means of pressure and, if necessary, push measures through unilaterally?

At the WTO, the EU plans are controversial. Although the Commission’s precise proposal is not yet there, the EU has been receiving critical questions from other WTO members for months. At the end of March, diplomats in Geneva say, fourteen countries, including Russia, China and India, expressed concerns about the border tax. This could possibly be in violation of WTO rules, which severely restrict the introduction of new import duties. In November, other WTO members accused Brussels of disguised protectionism. It would be a ‘pretext’ for ‘introducing new import duties’ with the aim of filling the EU coffers.

Ngozi Okonjo-Iweala, the Director-General of the WTO, warned in a press conference with French Finance Minister Bruno Le Maire last week that an EU border tax would be ‘discriminatory’ and ‘protect domestic producers from other producers’. According to Le Maire, questions about WTO rules are “legitimate”. The two announced a working group to map out how a border tax can become WTO-friendly.

How can the EU get more support for the project? Various sides are proposing to create a ‘club’ of the EU and other economies that are also moving towards the Paris goals. This club, within which a CO2minimum price would be exempt from the border tax. The US should simply “jump” on board such carbon club, believes Financial Timescolumnist Martin Sandbu. German economist Gabriel Felbermayr, who advises the German government, argues for one Climbing club, which also includes the US. For the time being, the US does not yet have a national CO2tax, or an emissions trading system that reduces CO2price increases. At the beginning of 2019, no fewer than 3,589 American economists, including 27 Nobel laureates, argued for a CO2-tax with border tax. Janet Yellen, then an academic and former chairman of the American central bank, also signed the call. Yellen is now Minister of Finance in a government that, for the time being, is criticizing Europeans for their planned border tax.

Developing countries

For the time being exempt from plans for such a ‘club’ are developing countries and emerging economies, for which the pricing of CO2emissions are more economically painful than for rich countries. There is a risk of a clash between rich and poorer countries. WTO chief Okonjo-Iweala, himself from Nigeria, said after the interview with Le Maire: “We must ensure that the least developed countries and other developing countries do not perceive this as a mechanism designed to disadvantage them.” If the European or Western CO2border tax is poorly designed, developing countries can retaliate with their border tax, but based on the per capita emissions, which are much higher in the rich West, warn two analysts from think tank Atlantic Council.

A ‘climate trade war’ – that is exactly the scenario that the cautious camp in Brussels wants to avoid.

Also read: Climate gains due to CO2 tax are partly leaking away to other countries

EU wants a green border tax to protect industry, but clashes with US and WTO
Source link EU wants a green border tax to protect industry, but clashes with US and WTO

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