China joins carbon tax protest - Beijing warns of global trade war

China joins carbon tax protest - Beijing warns of global trade war
By Alan Beattie in London and Kathrin Hille in Beijing
Copyright The Financial Times Limited 2009
Published: July 3 2009 19:20 | Last updated: July 3 2009 19:20
http://www.ft.com/cms/s/0/76f0e4b0-67fc-11de-848a-00144feabdc0.html


Beijing on Friday joined a growing clamour of complaint about US plans for a carbon tax on imports from countries without their own emission caps, warning it could set off a global trade war.

The warning follows the passage of a cap-and-trade bill in the US House of Representatives last weekend, which contained tough provisions to impose carbon tariffs to ensure that American companies would not lose competitive advantage. A recent report by the World Trade Organisation and the UN said such taxes could in theory be crafted to be compatible with WTO law, but it would be hard to prove they were not an illegal disguised restriction on international trade.

“It has always been China’s position that the international society should fight climate change together, but the proposal of some developed countries to slap a carbon tariff on some imported products violates the WTO’s basic principles and is trade protectionism in the disguise of environmental protection,” said Yao Jian, spokesman for China’s ministry of commerce.

Earlier this week, Jairam Ramesh, the Indian environment minister, described carbon tariffs as “pernicious” and flatly rejected the idea of negotiating climate change at the WTO.

After the passage of the House bill by a narrow vote last week, President Barack Obama warned imposing carbon border taxes might send a protectionist signal. “I think there may be other ways of doing it than with a tariff approach,” he said. The bill now moves to the Senate, where it is likely to receive an even rougher ride from moderate Democrats concerned about imposing more costs on US businesses.

The Chinese government also said it believed the carbon tax proposal violated the principle set out in the Kyoto protocol that developed and developing countries should respond to climate change together but with different responsibilities. “[It] severely harms developing countries’ interests,” Mr Yao said.

The WTO report, which gave a cautious nod to carbon tariffs, was prepared by the organisation’s secretariat, which can advise and facilitate discussion among the WTO’s members but does not set the rules itself. If a government such as China’s challenged such taxes, the case would be decided by the WTO’s dispute settlement system – panels of independent trade experts and lawyers.

Some trade lawyers point out that past WTO decisions have permitted governments to restrict trade in order to protect natural resources. But others say the case law is patchy, and it is hard to prove that such measures are being applied in a fair and consistent manner – a necessary condition for meeting WTO rules.

Brendan McGivern, partner at the law firm White & Case in Geneva, said: “I don’t think previous rulings provide a particularly solid basis for moving ahead with carbon border taxes. If a case comes, which is likely at some point, the outcome is very uncertain.”

Beijing’s comments reflect the tough initial negotiating stance China has taken for the Copenhagen talks in December aimed at working out a follow-up deal to Kyoto. China has rejected any emission caps for developing countries. It also wants developed nations to cut emissions to 40 per cent below 1990 levels by 2020 and pay for clean technology in developing countries.