The U.S. Proposed Carbon Tariffs, WTO Scrutiny and China’s Responses

Abstract

To date, border carbon adjustment measures in the form of emissions allowance requirements (EAR) under the U.S. proposed cap-and-trade regime are the most concrete unilateral trade measure put forward to level the carbon playing field, and the U.S. EAR clearly targets major emerging economies, such as China. If improperly implemented, such measures could disturb the world trade order and trigger a trade war. Because of these potentially far-reaching impacts, this paper analyzes trade policy implications of the proposed EAR, and China’s responses. Scrutinizing the U.S. EAR against WTO provisions and case laws, the paper recommends what is to be done on the side of the U.S. to minimize the potential conflicts with WTO provisions in designing its BCA measures, and provides suggestions for China on how to effectively deal them to its advantage while being targeted by such proposed measures. The paper has argued that there is a clear need within a climate regime to define comparable efforts towards climate mitigation and adaptation to discipline the use of unilateral trade measures at the international level, and shows that defining the comparability of climate efforts can be to China’s advantage, and questions China’s same stance on this issue as India’s.