EU’s technical entanglement in bringing carbon border measures into compliance with WTO law

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Hello, from Brussels, the last major policy event in summer (heavy rain made “summer” a major theoretical concept) was launched yesterday Climate package Suitable for 55.

My colleague in Brussels has details about last-minute quarrels and objections Here And an overview of major issues Here. The main part of today focuses on the main trade level, the carbon boundary adjustment mechanism (aka CBAM, the kind of noise we think) Batman might At the same time send a big bad guy with swift rights to the jaw) and whether the EU can prove that it opposes the WTO lawsuit. Today in Geneva—actually through video conferences from all over the world—the Minister of Trade will strive to achieve a substantial breakthrough in the WTO negotiations on reducing fisheries subsidies. Will it happen? will not. The WTO Director-General said, “Important differences still exist” Ngozi Okonjo-Ivira. We predicted this and explained why recent.

Concession waters Focus on the impact of Fit for 55 on the automotive industry.

Finally, some housework. Starting from Monday, trade secrets will arrive in your inbox half an hour earlier.

We hope to hear from you.Send any ideas to [email protected] Or email me [email protected]

The challenge of making discrimination fair

As far as the CBAM proposal we released yesterday, there seems to be no big surprise: the details of the plan have been tracked and leaked for several months. It is obviously difficult to say that Brussels is compatible with the WTO, and so is the European Union. Industry Association Is calling for it. If the EU tries to use it to push other governments to adopt carbon pricing measures, it is clearly not in the EU’s interest to publish an idea that will be rejected in a series of lawsuits.

Obviously, the European Union has decided to use the environmental exceptions written into the WTO agreement to defend CBAM-most likely Article 20 (g) Regarding the protection of “depleted natural resources”, if you are concerned domestically-this can justify border measures on certain imports but not others.

On the surface, this is logical: breathable air certainly fits this description. But here, interesting things begin, and lawyers, climate scientists, economists, and other healthy people begin to make money.As Jim Bacchus, the former chairman of the WTO’s Appellate Body, pointed out in this article Nice summaryIn order to use this exception, the EU must prove that CBAM is not a means of “arbitrary or unreasonable discrimination” or “disguised restriction of international trade”.

This is a tricky thing. It is entirely possible to win the dispute in principle and lose the case in methodology.As we all know, the United States did this in some major WTO disputes in this field, such as Shrimp and turtle case Started in 1997. The Appellate Body stated that in theory, the United States is allowed to prohibit the sale of wild shrimp that has not been harvested using special nets designed to allow sea turtles (in this case, “depleted natural resources”) to escape, but in fact the implementation of US laws is beneficial to some foreign countries and production. Manufacturers rather than other countries and manufacturers.

In a similar way, as this Very interesting thread A lawyer in Brussels argued that in order to justify CBAM as an environmental measure, the EU must prove that carbon leakage (the transfer of emissions from heavy industries abroad) is real. This will be difficult because there is no agreed method to prove leakage: the EU is talking about risk rather than certainty. For a country that has some form of regulatory carbon control instead of an EU-style emissions trading scheme with a clear price, it is also very difficult to calculate the hidden costs of emissions.

As we have always said, the troublesome situation for the EU lies in the details. As Bacchus pointed out, WTO obligations apply to products that are traded separately, not just to the policy orientation of the entire trading partner. Cleaner producers from economies with weaker official environmental standards should not be punished. Evaluating carbon content by product and manufacturer will involve a lot of monitoring and evaluation. The EU’s plan provides for this, but this is an unfamiliar way of doing things, which is inconsistent with the typical Brussels-style way of thinking between countries, that is, if other governments act in accordance with the EU’s approach, all global problems will be resolved.

Lorand Bartels, a scholar at the University of Cambridge School of Law and legal adviser to Freshfields Law Firm, said: “The establishment of a WTO-compatible carbon border measure involves the EU abandoning one of its instincts, namely dealing with the entire country as a legal order, rather than individual products and Producer.”

Two other things may undermine the EU’s reasons for compatibility with the WTO. One is to provide carbon credits to some EU industries for free indefinitely or even for a long period of time. This will make it easier for other countries to argue that this is indeed a “disguised restriction on international trade.”

The other is money. CBAM will increase revenue in the form of tariffs. But according to the EU’s own logic, the optimal income is zero, because this should be an environmental measure that encourages everyone to adopt the EU’s equivalent carbon pricing mechanism.

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If the European Commission moves around, it will give the impression that the EU relies on CBAM revenue as a significant continuous contribution to the so-called “own resources”—funds are raised centrally rather than by member states—it will hand over the ammunition to opposition lawyers Any future WTO actions.Assuming he’s talking about carbon border measures—not 100% clear—internal market commissioner Thierry Breton might be advised against Repeat his boast Regarding import tariffs were introduced to repay the EU’s new centrally issued bonds.

We insist on what we have been saying about carbon boundary measures. It is economically stable in theory, but legally and technically tricky in practice. We continue to wish the EU good luck. Someone must advance the debate on trade and climate. But this is still a project with many unresolved issues that are inconsistent with other EU policy goals and directions.

Concession waters

Another aspect of the Fit for 55 that has attracted much attention is the ban on the production of internal combustion engine vehicles including hybrid vehicles by 2035.

As car manufacturers are one of the most important exporters in the region, this will spread to regions outside the EU. The figures in the figure below also emphasize the need for a ban. In the past few years, the carbon emissions of new passenger cars have actually increased in several member states. Claire Jones

The line chart of the annual data of carbon dioxide emissions per kilometer of new passenger cars shows that the emissions of new cars in the EU have climbed

Trade ties

It appears Western brands condemn Xinjiang for alleged human rights violations The province is affecting the consumption habits of Chinese people. Nikkei report ($, subscription required) young people are Neglect foreign brands In favor of guochao, Or “Chinese Fashion”.At the same time, from solar panel manufacturers to clothing retail giant Uniqlo, Japanese companies Getting scared U.S. sanctions against them supplier Suspected of forced labor in Xinjiang.

Different views on China feature Important items on the agenda in order to Angela Merkel As German Chancellor, bid farewell to Washington, DC.Excellent European Express Newsletter give One Insiders’ views on green trading proposal.

Economist look The relationship between container shipping And the American business cycle. Chad Bown of the Peterson Institute chart how is it Medical shortages at the beginning of the pandemic Triggered an extraordinary shift in trade policy.

At last, Some good news about semiconductor chips positive.TSMC has Say It believes that the global shortage may soon ease. Happy weekend everyone! Claire Jones

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