Can and should the developed countries impose extra charges on imports of developing countries based on the level of carbon dioxide and other greenhouse gases linked to manufacturing of a product?

This has become a burning issue, especially since the US House of Representatives passed a bill on climate change in June.

The Amercian Clean Energy and Security Act of 2009 (also known as the Waxman-Markey bill) obliges the US President to place a charge on import of certain products coming from the developing countries by 2020.

The importers will have to buy “allowances” for the emissions of the products they bring into the country. In effect, this is like putting an extra tax or duty on the developing countries' goods, and the rate may depend on how much carbon dioxide is emitted during the making of these products.

The bill's advocates say this is needed so that the US domestic firms, which will also have to pay for emissions allowances, can maintain their competitiveness vis-a-vis imports.

The law will limit the total level of emissions for the country. Importers of goods from countries that have not undertaken emission reduction commitments as stringent as the US in an international agreement (or that do not meet two other criteria) will have to purchase “international reserve allowances”.

Since other developed countries are obliged to cap their emissions at a level still to be negotiated, the US-proposed import measure will apply only or mainly to developing countries. Least developed countries are exempted, as are also those developing countries accounting for a small share of the total emissions.

The middle-income developing countries and those with large populations will be affected. Importers of their heavily-traded energy-intensive products will have to buy emissions allowances, a measure that will raise the prices of the imports, which could affect their sales in the US.

The products to be subjected to this new import charge are expected to include chemicals, iron and steel, cement, glass, lime, some pulp and paper products, and non-ferrous metals such as aluminium and copper.

The two biggest developing countries - India and China - have already attacked this part of the Waxman-Markey Bill as constituting disguised protectionism and flouting the rules of the World Trade Organisation (WTO).

The Indian Environment Minister, Mr Jairam Ramesh described carbon tariffs as “pernicious.” He said that climate change should not be negotiated at the WTO.

Mr Yao Jian, a spokesperson of China's ministry of commerce, on July 3 criticised the developed countries for proposing to impose carbon tariffs. “China has consistently advocated that the international community faces climate change together, but some developed countries have advocated using carbon tariffs against imports,” he said. “This violates basic WTO rules. It only pretends to protect the environment, but really it protects trade .... To put out carbon tariff policies during the economic crisis and ahead of the annual climate change conference this year is not timely. It doesn't strengthen faith in the international community's cooperation against the crisis.”

The Waxman-Markey bill was passed by a small majority of the US House of Representatives in the last week of June. The US Senate will produce its own version of a climate bill, and this is expected to be even more protectionist. A joint Congress bill will then be sent to President Obama for his approval.

Under the Waxman-Markey bill, the import measures will be automatically applied, unless the president declares that the measures are against the national economic interests, and Congress approves this declaration.

The use of trade measures with the effect of blocking out developing countries' goods on climate grounds is beginning to generate great controversy and may result in a severe blow to the WTO and the multilateral trading system, as well as sour the atmosphere in the negotiations taking place in the UN's climate convention. Many developing countries will read the bill as an attempt by the US to evade its commitment to assist developing countries, and instead shift the burden of adjustment onto these developing countries.

Under the climate convention, only developed countries have to undertake legally binding commitments to cut emissions, in recognition that they are responsible for much of the emissions in the past. Under the convention, the developed countries are also committed to pay for the costs incurred by developing countries when they take actions on climate change. The convention also says that the extent to which the developing countries act against climate change depends on the extent to which developed countries provide them with finance and technology transfer.

The import measures proposed in the US Bill will be seen as an attempt to escape these provisions of the convention, and instead to push the costs of adjusting to a climate-friendly world onto the developing countries. The developing countries have already attacked such a trade measure during the UNFCCC talks in Bonn in August.

Is this allowed under WTO? Controversy is also brewing as to whether the proposed US measures are allowed in the WTO. For a measure to be legal under the WTO, it must meet two tests.

First, there must be “national treatment”, in that the local product is subjected to the same charges as the imported product.

Second, products that are like one another should be treated the same way. But the term “like product” is taken to mean an imported good that has the same physical characteristics as the local good. Both should be charged the same rate.

In considering import taxes or charges, the physical characteristics of the imported product should be considered, and not the processes and production methods (PPMs) used in making the product.

Courtesy South Centre, Geneva