Coons Border Adjustment, Part II

Lot of folks on here talking about how Coons’ carbon border measure (or similar proposals) violates GATT Article III, and because of that, it won’t be allowed by the WTO.

A few issues here: (…)

  1. The WTO does not have the power to block the US from doing anything. That’s not how that works.

2. Even under WTO law, there are other parts of the GATT, such as Article XX, that allow deviations from Article III.

3. The ratio of energy spent thinking about Art. III v. XX should be about 1 to 10.

4. All of the options with a chance at implementation in the US and EU will almost certainly treat domestic and imported products differently.

There are sound administrability reasons for that, not to mention political economy ones.

5. So an Article III violation is almost guaranteed. It’s baked in. Meaning your policy better look very good on Article XX grounds.

This might mean, for example, making your policy more trade restrictive but also doing more for decarbonization.

It almost certainly means not arbitrarily privileging certain domestic means of decarbonization if the ends are similar. That’s why the Coons proposal and this one with @Tim_L_Meyer may do better than the EU’s on XX grounds, even if they don’t seem as plausible on III grounds (though as noted, no reason to think EU proposal hits the mark on III either). (…)

All that said, a key consideration for evaluating any of the approaches is the bottom line: what is it doing for decarbonization. If agency deliberation on either side of the Atlantic produces “arbitrary” outcomes (translation: this could be necessary political accommodations for industrial policy reasons), the XX analysis could look worse. And if the EU combination of regulation (with implicit carbon price) plus explicit carbon pricing produces decarbonization outcomes that are superior to what is able to get through the US Senate or the US regulatory process, that will also be a relevant consideration. But the direction of travel is important! And after decades of relative US inaction, priority should be placed on movement in the right direction.

Trade law should adopt an accommodating posture. Or better yet, countries should exercise restraint in bringing cases. In closing, we are finally at a moment when climate policy is beginning to develop a theory of politics. (See previous lack thereof from @mmildenberger here.) (…) Trade law, at present, is further behind on this point. We believe there is a way forward, but it will require trade lawyers to exercise some new muscles. (See @Tim_L_Meyer on how here.) (…)

(Adapted from this thread.)

I write about democracy, political economy, and trade. Fellow at the Roosevelt Institute and Roosevelt Forward.