Big Steel, Carbon Import Taxes and Trade Wars

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Ferrous Metals, Global Trade, Green

All things being equal, if Washington enacts climate change legislation, specifically a cap and trade system or carbon taxes, the US should impose an import tax on Chinese producers (assuming China does not address greenhouse gas emissions) to level the playing field right? It’s sort of like saying, okay, I’ll run against you in a race but if I have to carry lead weights, so should you.

The concern is legitimate and fair. But the problem is, Big Steel’s proposed solution violates WTO rules and will likely spark trade wars. Which specific WTO rules would an import tax violate? Specifically:

The “national treatment” principle, requires any WTO country to ensure that any taxes or regulations imposed on imports are no less favorable than how the goods are treated in the domestic market.  Second, the “most-favored-nation” clause prohibits WTO members from discriminating between imports from different countries of origin. Another point at odds with various policy initiatives around curbing greenhouse gas emissions relates to the notion of comparable action. Comparable action essentially requires a multilateral approach where all parties agree on what action will be taken. Otherwise, it’s possible that one country could allow a steel producer to continue emitting carbon because it decides to plant trees as an alternative and the other country actually requires lower carbon emissions from the steel mill.  This is the fundamental issue behind comparable action.

The issue remains complex and in particular, more complex when countries make unilateral decisions without consideration of the global economy. A unilateral policy by the US would result in new tariffs on US produced goods (look at Mexico’s recent action) and a violation of WTO rules. And let’s face it, once the US starts slapping import tariffs on one or two countries, for their steel, importers will just shift their purchases to another country (because prior to this year, the US did not produce enough steel to meet domestic demand).
Instead, the solution lies in the comment made by US Steel, the industry hopes the U.S. Congress does not rush greenhouse gas legislation without considering how the rest of the world will cut emissions, according to this Reuters article.

The irony of the industry pushing for import tariffs goes back to the reason the US didn’t join Kyoto in the first place¦they didn’t want to put US manufacturing at a disadvantage compared to developing nations who had not also implemented Kyoto. And yet without US participation, less pressure is applied to the countries we most need to participate. Something needs to give¦

–Lisa Reisman

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