Duelo prolongado y otros trastornos mentales

Resolving international environmental problems usually requires coordinated global action.

With sources located around the world, necessary action could be taken where required without the obstacle of political and boundary limitations. At the time of writing, this concept is politically unfeasible; Wiener explains it would require “…universal or nearly universal coverage of present and potential source locations.”¹ Even with issues of global environmental and political importance, all countries may not agree – such as with the USA’s refusal to ratify the Kyoto Protocol.

In the absence of any international consensus not only upon the most appropriate means of achieving environmental goals, but significantly upon whether certain environmental harms exist in the first place, it can be argued that unilateral actions are necessary. ²

1 Wiener, see chapter 2, n.106 at 696-7.

Advocates justify this by reasoning that action to protect the environment cannot be postponed pending

2 With climate change there has been general international consensus amongst Governments about the existence of the problem. However the possibility of non-agreement on the Copenhagen Protocol would have meant countries pursuing differing policies to tackle climate change, as identified in Sheldon I, ‘Climate Policy and Border Tax Adjustments: Some New Wine Mixed with Old Wine in New Green Bottles?’ (2009)

<http://aede.osu.edu/programs/Anderson/trade/Climate%20Policy%20and%20Border%20Tax%20Adjustments.

pdf> Accessed 9/12/2009, at 6.

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international consensus. ³ Others believe that where such consensus has been reached in the form of an international agreement, then non-signatories can be incentivised to ratify the agreement if signatories take trade measures against them. ⁴

These justifications are particularly relevant to environmental taxes, since countries may be wary of introducing them within their own jurisdictions if similar measures are not to be introduced abroad. The rationale for this is that countries do not wish to put their own national industries at a disadvantage to foreign goods produced without such taxes with consequently lower costs.⁵ For instance, President Sarkosy has called for BTAs to represent carbon on imports into the EU to create a fair playing field.⁶ Furthermore, should mobile taxpaying industries relocate to ‘pollution haven’ countries offering little environmental regulation or taxation, ⁷ then an environmentally conscientious country can lose valuable industries and their receipts, whilst there is no overall environmental benefit since the industry may continue or even increase levels of pollution overseas. This is known as

‘leakage’ and often involves a polluting company relocating to a DC (developing country) in need of revenue even at the expense of the environment.

3 Voon T, ‘Sizing up the WTO: Trade-Environment Conflict and the Kyoto Protocol’ (2000) 10 J.Transnat’l L.& Pol’y 1, 71-108, at 78

4 This issue is examined in Weber CL and Peters GP, ‘Climate change policy and international trade: Policy considerations in the US’ (2009) 37 Energy Policy 2, 432-440, at 437-439

5 This is known in Game Theory as the ‘Prisoners’ Dilemma’, a paradoxical scenario where two parties can benefit by co-operating but may instead try to preserve their own interests perhaps due to mistrust that the other will cooperate. See Poundstone W, Prisoner's Dilemma (New York: Anchor; 1993).

6 Parashar S, ‘France wants a 'carbon tax' on EU imports’ The Times of India 30/11/2009

<http://timesofindia.indiatimes.com/india/France-wants-a-carbon-tax-on-EU-imports/articleshow/5282146.cms> Accessed 9/12/2009.

7 Foreign direct investment in developing countries was found to be “relative to the stringency of their environmental regulations” in Elliott RJR and Shimamoto K, ‘Are ASEAN Countries Havens for Japanese Pollution-Intensive Industry?’ (2008) 31 The World Economy 2, 236-254, at 250.

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The legality of BTAs for environmental purposes under WTO law has been debated in considerable depth and it is not intended to repeat this herein.⁸ The author accepts the considerable consensus that such measures are legitimate under certain circumstances,⁹ and the law is expressed herein as it is commonly understood. However the caveat is that there remains some uncertainty in the extent to which various applications of BTAs are permissible under WTO law.

40. WHAT IS A BT A?

Any environmental tax which increases costs to domestic businesses may put them at a disadvantage against foreign produced goods not subjected to similar taxes. Environmental taxes designed to disincentivise environmental harm or internalise negative externalities may come in the form of non-refundable taxes on businesses, such as excise taxes. Such taxation can increase costs of production and consequently increase the sale price of a good relative to overseas goods (given that final incidence of the additional cost falls upon the consumer). A country can operate an internal environmental policy and prevent over-exposure of its market to foreign-produced, less expensive but environmentally unfriendly goods through the use of BTAs.

8 See eg. Sindico F, ‘The EU and Carbon Leakage: How to Reconcile Border Adjustments with the WTO?’

(2008) 17 E.E.E.L.R. 6, 328; Goh G, ‘The World Trade Organisation, Kyoto and Energy Tax Adjustments at the Border’ (2004) 38 J.W.T. 3, 295-423; Demaret P and Stewardson R, ‘BTAs under GATT and EC law and General Implications for Environmental Taxes’ (1994) 28 J.W.T. 4, 5-65; Bernstein S and Hannah E, ‘Non-State Global Setting and the WTO: Legitimacy and the Need for Regulatory Space’ (2008) 11 Journal of International Law 3, 575-608, at 590.

9 Switzer S, ‘International Trade Law and the Environment: Designing a Legal Framework to curtail the Import of Unsustainably Produced Biofuels’ (2007) 6 Journal of International Trade Law and Policy 1, 30-44; Ismer R and Neuhoff K, ‘Border Tax Adjustment: a Feasible way to support Stringent Emission Trading’ (2007) 24 European J. Law Econ. 2, 137-164; Veel P, ‘Carbon Tarriffs and the WTO: An Evaluation of Feasible Policies’

(2009) 12 J. Int. Econ. Law 3, 749; UNEP and WTO, see chapter 5, at n.25 at 103-109; Kemp J, ‘Trade Law no block to Carbon Tariffs’ The Guardian 26/6/2009

<http://www.carbonoffsetsdaily.com/uk-carbonmarketnews/trade-law-no-block-to-carbon-tariffs-john-kemp-9280.htm> Accessed 24/11/2009.

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A BTA is a fiscal measure which adopts the ‘destination principle’ which allows:

i. exported products to be relieved of some or all of the tax charged in the exporting country in respect of similar domestic products sold to consumers on the home market; and/or

ii. imported products sold to consumers to be charged with some or all of the tax charged in the importing country in respect of similar domestic products. ¹⁰

Therefore both exports and imports may be adjusted. An example can be displayed as follows:

Fiji intends to reduce consumption of sugar nationwide for environmental purposes. It introduces an excise tax on producers of sugar cane. This is passed onto the consumer in the form of an increased selling price, making Fijian-grown sugar sell at $10 per bag more than before the tax. This increases the price per bag at sale in Fiji from $100 to $110.

However sugar cane produced in Samoa is not subject to any excise tax on production. When Samoa exports sugar to Fiji, Samoan sugar would sell at $100 per bag which would undercut the Fijian-produced sugar. This would increase demand for Samoan sugar and decrease demand for Fijian sugar. The consequence would be that Samoan sugar producers, whilst ignoring the environmental damage caused in the production of sugar, would benefit at the

10 As per the OECD’s definition adopted by GATT: Working Party Report, Border Tax Adjustments, BISD 18 Supp. 97, adopted on 2 December 1970, para. 4 <www.worldtradelaw.net> Accessed 19/11/2009.

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expense of Fijian producers. Fiji’s policy would be a failure since demand would not fall for sugar consumption in Fiji, whilst its sugar industry would have lost out competitively.

Fiji realises this and puts a BTA of $10 on imports of Samoan sugar, so that both imported and domestically-produced sugar sell at $110 per bag. Therefore the playing field is level and Samoan sugar is charged as if it had been produced with the Fijian excise tax.

Samoan-produced sugar also sells in Samoa at $100 per bag. Fijian sugar exported to Samoa would sell at $110 as it is still subjected to the excise tax on production within Fiji, putting it a disadvantage against Samoan-produced sugar. In order to protect the competitiveness of Fijian sugar producers, Fiji offers producers who export sugar a $10 rebate on the Fijian excise tax when the sugar is exported. Therefore Fijian sugar can also sell at $100 in Samoa.

This serves as an example of how no advantage is gained by either country by introducing the BTAs, though Fiji is able to protect the environment. In reality the situation is much more complex than this since there is a range of taxes to consider and transaction costs complicate matters further.

The rationale of the destination principle is that goods ought to be taxed in the country where they are consumed, so that the burden of indirect taxes is borne by the user. This differs from the ‘origin principle,’ not accepted in WTO law, which requires that products be taxed in the country where they are produced. Taxation of a good in both jurisdictions would result in

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‘double taxation’ and could cause “serious economic distortions.”¹¹ BTAs are only necessary in the absence of the origin principle and tax harmonisation,¹² and can consequently be justified somewhat on the basis that the omission to tax at source constitutes an indirect subsidy. A common environmental tax policy would render BTAs obsolete, since if all products were taxed in the same way at source, any border adjustment would be nil.

It is only possible under international trade rules to use BTAs on imports where the

equivalent taxes apply to internally produced goods.¹³ Similarly if a regulatory system (or cap-and-trade system) imposes costs upon a domestic producer to improve environmental standards, but the same regulations do not apply in an imported good’s country of origin, it is possible to use BTAs to reflect these non-tax costs upon a producer. Thus there should be no protectionist effect contradicting WTO rules.

Pursuant to WTO rules, BTAs may be applicable to internal indirect taxes on products (whether applied directly or indirectly) such as an excise duty, consumption tax, sales tax, or VAT. However, they are not applicable to internal direct taxes on the factors of production, such as corporate income taxes on producers.¹⁴ BTAs are thought to be not normally made for ‘tax occultes’,¹⁵ which are defined¹⁶

11 Vehorn C, ‘Border Tax Adjustments’ in Cordes JC, Ebel RD and Gravelle J, Encyclopaedia of Taxation and Tax Policy (The Urban Institute: USA, 2005) at 25.

to include “...consumption taxes on capital

12 Droge S, Harald T, Biermann F, Bohm F and Brohm R, ‘National Climate Change policies and WTO law: a case study of Germany’s New Policies’ (2004) 2 WTR 2, 161-187, at 176.

13 GATT Panel: United States – Taxes on Petroleum and Certain Imported Substances, 1987. Report of the Panel, 17/6/1987, GATT Doc. L/6175. BISD 34S/136, para.5.2.7

14 The distinctions are analysed in Phillips JC, ‘Border Tax Adjustments in International Trade’ (1976) 9 UQLJ 2, 151-166, at 153-159

15 Literally meaning ‘hidden taxes’, it refers to taxes on goods or services which partially input into a product but could only be included by averaging the extent to which a range of such taxes proportionately contribute to the total taxes on a final product. This was the situation which had occurred in countries such as India with cascade tax systems, see McNamara JA, ‘Tax Adjustments in International Trade: The Border Tax Dispute’

(1972) 3 J.Mar.L.& Com. 2 339-362, at 345.

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equipment, auxiliary materials and services used in the transportation and production of other taxable goods.”¹⁷ The hidden nature of these taxes meant that for those countries using them, applying them precisely was so difficult that a system of averaging developed instead - which caused numerous disputes concerning under-compensating and over-compensating

adjustments.¹⁸ Nor are they thought to be made for payroll or social security taxes¹⁹ or ad valorem taxes such as stamp duty, property taxes or registration taxes.²⁰

The legitimate purpose of using BTAs is not to limit imports per se, but to provide a level playing field for national producers. The net result of using BTAs on trade should be

neutral.²¹ One advantage of using BTAs is that countries would not need to offer exemptions to environmental taxes which could be detrimental to their purpose.²²

Refunding internal taxes on export of a good would normally be an infringement of WTO rules²³ since it would be considered a subsidy, but it is permitted under certain circumstances via a BTA.²⁴ Milne argues that environmental objectives may not be most effectively served by reducing the cost of exports to importing countries who themselves do not charge

environmental taxes.²⁵

16 The adopted meaning was originally defined in OECD, Border Tax Adjustments and Tax Structures in OECD Member Countries (Paris: OECD Publications, 1968)

However, regarding adjustments for exports as illegal subsidies would provide a disincentive for countries to introduce domestic taxes due to the belief that it

17 GATT, see n.10.

18 Vehorn C, see n.11 at 25.

19 GATT, see n.10.

20 Ibid.

21 However it may not be depending upon market conditions, see: McCorriston S and Sheldon IM, ‘Market Access and WTO Border Tax Adjustments for Environmental Excise Taxes under Imperfect Condition’ (2005) 7 J. Public Econ. Theory 4, 579-592, at 591.

22 Highlighted by Goh, see n.8 at 400; Fischlowitz-Roberts B, ‘Restructuring Taxes to Protect the Environment’

(2002) Earth Policy Institute, Eco-Economy Update.

23 GATT Article XVI:4

24 See explanation in Pitschas C, ‘GATT/WTO Rules for Border Tax Adjustment and the Proposed European Directive Introducing a Tax on Carbon Dioxide Emissions and Energy’ (1995) 24 Ga.J.Int’l.& Comp.L. 3, 479-500, pp. 489-492, 497-498

25 Milne JE, ‘Carbon Taxes in the United States: The Context for the Future’ (2008) 10 VJEL. 1, at 12.

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would create a competitive disadvantage for exporters – since their goods could be unfavourably priced in the international market. As such, the ASCM (Agreement on

Subsidies and Countervailing Measures)²⁶ declares that exemptions or remissions of internal duties or taxes for exports are not classed as subsidies for the purposes of GATT (General Agreement on Trade and Tariffs 1947), Article XVI. The rationale is that they are not subsidies and do not distort trade; they simply level the playing field whilst allowing internal permitted policies to succeed.

Exemptions or remissions designed specifically to provide an advantage to internal producers would include any form of subsidy aimed at promoting domestically-produced goods over imported ones. They could also take the form of deductions from internal taxes based upon export performance, so that the more goods domestic producers export, the more taxes they are refunded – providing an incentive to export such goods. Since both these objectives would distort trade by providing an advantage to national producers, the ASCM prohibits such practices.²⁷

41. RAT IONALE FOR USING BORDE R T AX ADJUST ME NT S TO