Most countries contemplating the introduction or maintenance of domestic carbon reduction policies in response to the climate change challenge are facing considerable political pressure to offset the economic burden of such action on their domestic constituencies. This paper examines the World Trade Organization (WTO) consistency of a potential unilateral introduction of a carbon tax on imports to address perceived trade competitiveness concerns. The nature of the tax examined would aim to charge imported goods the equivalent of what their producers would have had to pay if the goods had been produced in the importing country. This paper argues that attempting to ‘level the playing field’ by imposing a carbon tax on imports from countries with less stringent multilateral carbon reduction obligations would be contrary to the international recognition of ‘common but differentiated responsibility’ for climate change. By taking into account this principle in particular, reflected in the UN Climate Change Convention, a WTO panel may find in favour of a complainant against such a carbon tax under Article III of the General Agreement on Tariffs and Trade (GATT) 1994 and also find that the measure is not justified under Article XX.
Journal of World Trade