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Carbon border taxes and Groser’s “peace clause”

18 December 2009

Turning to the Copenhagen negotiations, New Zealand Trade and Climate Change Negotiations Minister Tim Groser has made waves by expanding, in a speech to Chatham House in London on 8 December 2009, upon his previous suggestion in May 2009 that a new climate change deal (if there is one) or the Doha Round (if it is completed) should insert a “peace clause”, similar to that which existed in Article 13 of the WTO Agriculture Agreement.  New Zealand has now informally proposed a “5-7 year moratorium” on challenging climate change policy tools under WTO rules.  This moratorium would not apply to “unilateral border tax adjustments”, which Groser suggests would be like anti-dumping or countervailing duties “on steroids”.

The proposal, coming from a Government Minister with a unique perspective over both portfolios, is worthy of further thought. 

Attractive as it sounds, however, a peace clause is simply a way of shelving, rather than resolving, an issue.  The issue here, as the New York Times recently recognised is how to ensure that climate change tools are not operated as a form of disguised protectionism.  This will be difficult without the ability to challenge their legitimacy in the WTO.  One might wonder whether a peace clause is really necessary.  What is the real risk of successful WTO legal action against a good faith climate change policy?  As canvassed in a previous edition of Connected Asia Pacific, the WTO Secretariat has itself concluded that climate policies such as the issuing of carbon credits, or even border tax adjustments, will not necessarily breach WTO disciplines – either because they would not breach primary rules (that is, not constitute actionable subsidies or not be discriminatory); or because, if they do, they can be saved by the Article XX general exception mechanism.

Groser’s argument is that it will be simply too difficult to distinguish WTO compliant from non-WTO-compliant measures until country emissions are netted out at the end of the “second commitment period” in around 2020.  There is some force to this point, but it is not decisive.  Of equal, or even more utility than a peace clause, is a climate deal with implicit or explicit guidance on how climate and trade regimes are intended to intersect.  This may, however, be too much to ask.