WTO Law Constraints on Border Tax Adjustment and Tax Credit Mechanisms to Reduce the Competitive Effects of Carbon Taxes

Resources for the Future Discussion Paper 16-03

45 Pages Posted: 28 Feb 2016

See all articles by Joel P. Trachtman

Joel P. Trachtman

Tufts University - The Fletcher School of Law and Diplomacy

Date Written: January 25, 2016

Abstract

It is possible to design an import border tax adjustment that would pose a reduced risk of violating World Trade Organization (WTO) law, and, in the event a violation is found, an increased likelihood of satisfying the requirements for an exception. The lowest risk of successful WTO legal challenge would be presented by a border tax adjustment (BTA) in relation to a national product-based tax that does not vary by reference to carbon intensity of production, but is set at a fixed rate for specified categories of products. A national carbon consumption tax that varies by reference to the carbon intensity of production could achieve many of the same goals as the combination of a national carbon tax on production combined with an import BTA. If the consumption tax structure is not used, then an export border tax adjustment could address the foreign market competitiveness issue, but might significantly reduce the likelihood of the related import BTA satisfying the requirements for a WTO law exception. Alternatively, it is possible to provide domestic subsidies to high-carbon industries.

Keywords: World Trade Organization, carbon tax, border tax adjustment

Suggested Citation

Trachtman, Joel P., WTO Law Constraints on Border Tax Adjustment and Tax Credit Mechanisms to Reduce the Competitive Effects of Carbon Taxes (January 25, 2016). Resources for the Future Discussion Paper 16-03, Available at SSRN: https://ssrn.com/abstract=2738752 or http://dx.doi.org/10.2139/ssrn.2738752

Joel P. Trachtman (Contact Author)

Tufts University - The Fletcher School of Law and Diplomacy ( email )

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