Abstract
Trade restrictions in form of eco-tariffs have so far not become part of environmental or trade policy. However, they have been deliberated by policy makers in the context of domestic pollution1: Policy proposals have been formulated to introduce tariffs to offset international differences in environmental policy stringency. Yet, current GATT/WTO rules do not sanction such eco-tariffs; neither does the work of the CTE indicate changes which would make eco-tariffs in the context of domestic environmental problems consistent with multilateral trade rules. However, if environmental policy is pursued by means of taxes, border tax adjustments might become possible for both product and PPM taxes.
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References
Compare Bhagwati [1996, 5].
As an alternative to trade measures to adjust internationally differing environmental standards, some environmentalists and agencies propose and pursue harmonisation. This is not the focus of our study, yet we provide a brief summary and discussion at the end of this chapter.
See Sorsa [1994].
See Levin [1992, 231pp], Repetto [1993,4], OECD [1994], and OECD [1995a].
“Producers within high-standard countries have long complained that they operate in a relatively unfair trade environment, since their costs are significantly higher than those of comparable producers in neighbouring countries” (Whalley [1991, 188]; see also Anderson [1995, 2] and Shrybman [1992, 100/101]).
An example is the heated debate in the U. S. on ‘pollution heavens’ in Mexico prior to signing the North American Free Trade Agreement (NAFTA), and the fear that American health and environmental standards may be undermined, (see Esty [1994, 35] and Feketekuty [1993, 187pp]).
Compare Whalley [1991, 186] who states: “An element of the emerging interface between environmental and trade policies & is the pressures on trade policies created by differing environmental standards.” See also Bhagwati [1993, 44] or French [1993b, 18].
“Environmental groups perceive trade policy as a means &. of raising national environmental standards at home and abroad” (Anderson [1995, 4]; see also Esty [1994, 162]).
See Levinson [1996, 431].
See Levin [1992, 232] and Stevens [1995, 178].
Cost for environmental protection in the U. S. was 1,4% of GDP in 1980 and 1,6% in 1990 according to Sorsa [1994, 14].
See Levin [1992, 232].
In the U. S. Omnibus Trade and Competitiveness Act of 1988, the U. S. Congress made clear that the failure to provide certain worker rights could be considered an ‘unreasonable’ trade practice against which the U. S. Trade Representative might retaliate under Section 301 of the 1974 Trade Act (compare Charnovitz [1992, 341]). Section 301 and Super 301 provisions of U. S. trage legislation as updated in the 1988 Act demand negotiations from specific countries on ‘priority’ practices that the U. S. find unacceptable, regardless of whether they are procribed by the GATT or another treaty. Furthermore, under Section 301, the U. S. might seek abolition of such practices on a time schedule set by the U. S. using tariff retaliation if deemed necessary (see Bhagwati [1992b, 449/50]). Similar to the arguments of labour regulations, concern for internationally differing environmental protection efforts is mainly rooted in the fear that they negatively affect competitiveness of U. S. industries. In addition, concern for environmental quality or workers’ rights outside the U. S. play a role which is likely to increase with the severity of the environmental problem (compare Levin [1992, 250] and Whalley [1991, 187]).
If applied to environmental policy, the relevant provisions of the Omnibus Trade and Competitiveness Act of 1988 would characterise lax environmental policy as an unfair trade practice under Section 301 of the Trade Act of 1974. If applicable, Section 301 grants the President of the U. S. discretion to retaliate against products originating from countries violating U.S. environmental standards (see Levin [1992, 252]).
See Levin [1992, 250].
Article VI of the GATT specifies that countervailing duties can be levied by contracting parties on imports that are causing harm to domestic industries because they are subsidised by a foreign government (see Appendix and Trebilcock & Howse [1995, 125]).
Amendment 1321 to the 1967 Clean Air Act (also called Gorden amendment) was defeated in 1990 (see Levin [1992, 254] and Esty [1994, 163/164]).
See Levin [1992, 254].
See Levin [1992, 254].
Levin [1992, 254/255]; hence, this duty would not be just tantamount to a countervailing eco-duty but defined as such since the Boren bill identifies “the failures of a government to impose effective environmental controls on production and manufacturing within its borders as a significant and unfair subsidy”. (Levin [1992, 254]).
The Gorden Amendment was defeated 52:47 (see Esty [1994, 163/164]).
Compare footnote 13.
See Esty [1994, 155] who mentions House of Representatives’ Majority Leader Gephardt’s intent to do so.
See Esty [1994, 164].
Non-uniform environmental regulation is a “&.disincentive to the adoption of progressive environmental laws — as in the recent case of the European Community’s reluctance to adopt a proposed tax on C02 emissions in the absence of a similar commitment by its industrial competitors Japan and the U. 5.” (French [1993 a, 29]; see also Esty [1994, 164]).
Anderson [1995, 2]. Shrybman [1992, 100/101] gives a concrete example: “The Canadian Chemical Producers Association, for instance, warned several years ago that ‘if unnecessary or excessive costs are introduced unilaterally by any country, innovation and development will simply cease or be transferred to jurisdictions with a more favourable business climate’.” See also Cairncross [1993, 317].
See Levin [1992, 250].
See Levin [1992, 234].
The “environmental camp has articulated [the] concern & that trade liberalisation may degrade the environment by putting competitive pressure on environmental standards&” (Charnovitz[1995,6]).
“& producer interest groups and some environmental groups are nevertheless finding it advantageous to use environmental arguments in support of their claims for unilateral import restrictions, particularly following the costly imposition of stricter environmental standards on domestic producers.” (Anderson [1995, 10]; see also Beghin et al. [1994a] and Levin [1992, 234] on coalitions between environmental and producer interest groups).
Arden-Clarke [1993]. Arden-Clarke writes for the World Wide Fund for Nature (WWF) and promotes tariffs to reduce short-term economic cost of introducing environmental regulation (see also Arden-Clarke [1991&1992]). Furthermore, GATT [1992, 28] states: “When it comes to the impact of environmental policies on production costs, demands by domestic producers for a ‘level playing field ’ often find support among environmental groups. One reason is that they fear that if ‘low ’ standards abroad regarding industrial pollution are perceived at home to be detrimental to competitiveness, they could give rise to political pressures to lower the standards at home. ”
Whalley [1991, 188] mentions unfairness of lower environmental standards as the central argument advanced in this context.
Compare chapter 4.
Compare chapter 5.
Compare chapter 6.
Proponents of eco-tariffs “&. have justified using countervailing duties on imports produced under low environmental standards on the grounds that not requiring producers to internalise their pollution subsidises these products” (Mikesell [1993, 16]). A good example is the following quote from the former German secretary of agriculture Kiechle (cited in Meinheit [1996, 1/2]): “Denn auf die Dauer wäre es doch paradox, wenn wir in der EG mit großem finanziellen Aufwand die landwirtschaftlichen Produkte immer umweltverträglicher gestalten, gleichzeitig aber immer mehr Agrarprodukte in die EG hineinlassen müssen, die anderswo auf der Welt ohne Rücksicht auf die Umwelt billig produziert worden sind.”
Compare chapter 2; also Esty [1994, 164].
The Rio Declaration Principle 11 states: “Standards applied by some countries may be inappropriate and of unwarranted economic and social cost to other countries&.” Furthermore, Agenda 12, Section I, Chapter 2 elaborates in §20: “&account should be taken of the fact that environmental standards valid for developed countries may have unwarranted social and economic cost in developing countries.” (Sands et al. [1994]).
They have been coined ‘supergreens’ (compare Hillman & Ursprung [1992&1993] and Rauscher [1995b]).
VanGrasstek [1992] empirically addresses the question whether the U. S. Senate’s voting record on selected issues involving trade and environmental issues between 1980 and 1990 supports the claim that protection is more attractive to legislators when it is presented in environmental guise.
See VanGrasstek [1992, 239].
See Pearce [1993, 8].
See Mikesell [1993, 16].
Protection of the global environment by trade policy instruments addressing PPM externalities is also not consistent with GATT/WTO rules or their interpretation. This is addressed in the next chapter.
Or rather to protect human, animal or plant health, or to conserve natural resources (see chapter 12).
GATT [1992, 23] states explicitly: “In principle, it is not possible under GATT’s rules to make access to one’s own market dependent on the domestic environmental policies or practices of the exporting country. ” The reason given is that “[This requirement] exists & to protect each member of GATT from the unilateral imposition of domestic standards or policies by importing countries through the threat of market access restrictions” (GATT [1992,23/24]).
Cited after Mattoo & Mavroidis [1996, 64]. It should be noted that the Tuna Panel has never been adapted, and is hence not an official GATT/WTO document.
Lallasetal. [1992, 277].
This is stated in Article III.4: “The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use&.” (GATT [1994]).
GATT [1970, § 16] cited after Helm [1995, 101].
Cited after Chakarian [1994, 119].
See Trebilcock & Howse [1995, 131].
The same accounts for suboptimally low environmental policy measures.
GATT [1970, § 14] cited after Chakarian [1994, 116]. Examples of direct taxes are specific excise duties, sales taxes and value-added taxes; example for an indirect tax is a social security charge.
See Chakarian [1994, 116/117].
Such has been the interpretation by the GATT Panel on restrictions which were applied by the U. S. against tuna imports from Mexico because of harvesting methods used by Mexican fishermen (GATT [1991]; we address the Tuna Case in more detail in the next chapter).
WTO [1996a].
WTO [1996a, § 101].
WTO [1995].
WTO [1996a, § 168].
See WTO [1996a, §51].
WTO [1996a, § 181].
Difficulties were expected to arise in administering border tax adjustment for PPM taxes; the danger of protectionist abuse was discerned, and a possible reduction of the effectiveness of eco-taxes in achieving their environmental goals was noted (WTO [1997, 4]).
WTO [1997, 4].
GATT [1992, 22] on this issue: “If the door were opened to use trade policies unilaterally to offset the competitiveness of differing environmental standards, or to attempt to force other countries to adopt domestically-favoured practices and policies, the trading system would start down a very slippery slope”
The European Commission states in its Communication to the Council: “& it seems possible that present GATT rules on border tax adjustment might create an inefficient choice of environmental tax instruments. Current rules on border tax adjustments seem to be biased against environmentally and economically efficient production taxes, as supposed to product taxes. & One general effect of the present unbalance is that countries might tend to adopt product taxes for environmental purposes rather than production taxes, thus creating distortions in environmental policy making” (Commission of the European Communities [1995, 15]; see also Sorsa [1995, 7]).
Opening up the border tax adjustment mechanism to cover production process charges “& would minimize the unfairness of border tax adjustment and create an incentive for governments to shift environmental regulation toward the use of pollution charges to internalize costs. This would at the same time move environmental regulation toward more efficient and less trade-restrictive market mechanisms.” (Esty [1994, 169]; see also Feketekuty [1993, 184] and Pearce [1993, 24].). Sorsa [1995, 7] adds that change of GATT/WTO’s provisions regarding border tax adjustment could induce a shift away from command and control measures which cannot be rebated at the border. One should, however, keep in mind that border tax adjustment might also undermine the very objective which environmental taxes were designed to address (compare Sorsa [1995, 6/7]).
Compare Chakarian [1994, 119].
The European Commission considers international harmonisation of environmental policies an effective way to address competitiveness concerns (EU [1995, 6]); so does Esty [1994, 172]. The OECD (OECD [1994, 10/11]) considers harmonisation of environmental standards beneficial for trade and the environment. However, harmonisation is judged more desirable if the environmental problem is global.
Some go as far as demanding that trade liberalisation should not proceed unless and until appropriate environmental policies are in place to avoid that environmental problems are aggravated by trade liberalisation (see Eglin [1995, 771] for examples).
This definition follows Hansson [1990, 1] and Robertson [1992, 310].
As far as consumption externalities, i.e. product-related externalities are concerned, the question whether relevant standards should be internationally harmonised is already answered in the affirmative: The conclusion of the Tokyo Trade Round in 1979 marks the adoption of the TBT Code as an attempt to harmonise technical laws and standards to reduce the likelihood that technical rules and standards are used as disguised barriers to international trade (the SPSS Code which was adopted at the conclusion of the Uruguay Round does the same with reference to technical barriers to trade in agriculture). In addition, harmonisation of product standards is expected to alleviate trade by reducing the need to meet multiple standards (see Lallas et al. [1992, 316]).
See Hansson [1990, 8].
See French [1993a, 35].
Compare Robertson [1992, 312].
See Robertson [1992, 312 & 1994, 25].
See Robertson [1994, 20].
See Robertson [1992, 312].
Compare Robertson [1992, 321].
This negative assessment is confined to harmonisation in the context of environmental policies addressing domestic externalities. In the context of global environmental externalities, we consider international policies harmonisation a more promising approach; see next chapter.
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Kraus, C. (2000). Eco-tariffs and Domestic Environmental Policy. In: Import Tariffs as Environmental Policy Instruments. Economy & Environment, vol 19. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-9614-5_12
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